A rediscovered note on distributor best practices from almost 20 years ago reveals some missed opportunities and unfinished evolution.
Remember the iconic bow-tied canine Mr. Peabody and his bespectacled boy Sherman? Like a whole generation, I grew up watching Peabody and Sherman's weekly adventures on the Rocky and Bullwinkle shows. For those too young to remember or too old to recall, let me give you a Peabody and Sherman primer. Mr. Peabody was the dog genius — think Einstein with paws and a bowtie — and Sherman was his nerdy “pet boy.” Each week, they climbed aboard Mr. Peabody's WABAC (pronounced wayback) machine and traveled through time to witness various historic events. Each time-travel transaction produced an eccentric episode, equal parts history, satire and slapstick comedy.
Today I would like for you to join me in my own personal WABAC machine. Sit down, buckle your seatbelt and relax — we are going to set the dials for Electrical Distribution 1991.
Last week I finally got around to cleaning out the storage closet of my office. During this adventure, I rediscovered some notes and a memo from long ago. Here's the story: In fall 1991, I left my role as sales manager with a major industrial control vendor and joined the management team of an electrical distributor. As I sought to build a network of peers in the distributor world, I signed up for a Branch Managers Training course. On the plane back from the course, I jotted off a memo to my co-workers outlining the major points from the course.
I invite you to grade yourself against this nearly two-decade old advice. Think about how things might have been different if only we had followed good advice 20 years back.
My memo was broken into seven sections — each addressing a separate piece of the business.
1991 advice - Track inventory items by number of picks. This allows the most popular items to be placed close to the end of the aisle for faster and easier picking.
Today's reality - Most mid-sized distributors still arrange their inventory by part number. There is very little science used in selecting the location.
1991 advice - By adding location numbers to pick tickets, distributors can program their computer to re-arrange items into picking orders that allow for a scientific route through the warehouse. Multiple tickets can be handled scientifically.
Today's reality - With the exception of a few organizations that have built large central distribution centers, most distributors still pick orders the old-fashioned way, one order at a time.
1991 advice - Set up a separate “will call” fax machine to encourage will-call business.
Today's reality - Fax machines are going the way of the bowler hat. I wonder how many people have established a procedure for email or text will-call orders.
1991 advice - Calculate your delivery costs and compare them to using a delivery service or consider adding a delivery fee.
Today's reality - Most companies still can't tell you how much it actually costs to run a delivery. Many companies continue to do free delivery for every customer and every order.
1991 advice - Take delivery scheduling out of the hands of your inside sales team and establish a pre-set route and time for delivery based on geography and other factors. A pre-set route eliminates back tracking and minimizes the costs associated with the activity.
Today's reality - Many organizations still allow their inside sales team to set up deliveries which often hold up the truck or create overtime situations.
1991 advice - Establish extended hours that match the needs of various segments of your customer base. This may include night time hours or Saturday open times.
Today's reality - Electrical distributors have lost entire segments of their business to the big box stores open from 6:00 a.m. to 9:00 p.m.
1991 advice - Tools and other point of sale items should be available and pre-priced. This encourages impulse buying behavior.
Today's reality - Pre-pricing has been embraced by more than half of the distributors we know.
1991 advice - Distributors should implement a plan for accepting Master Card, Visa and other payment methods.
Today's reality - Thankfully, most wholesalers are taking credit cards. But the behavior has been driven more by the customers than by the wholesalers.
Purchasing Best Practices
1991 advice - The purchasing department should conduct seminars for their sales teams on the importance of terms and conditions. Most salespeople have little understanding and pay very little attention when accepting or offering terms and conditions.
Today's reality - At least once a month I talk to an electrical distributor wrangling their way out of some kind of special terms and conditions. The worst of these cases involve consequential damages where the sale of a single $99 sensor can put the wholesaler on the hook for lost production time, revenue losses and a plethora of other not-so-wonderful expenses.
1991 advice - Purchasing and sales should work together to implement annual vendor evaluations. Vendors should be graded not only on their gross margin but the hassle factors associated with doing business.
Today's reality — Our industry would probably get a good solid B- on this topic. Marketing groups such as Affiliated Distributors and IMARK have institutionalized the practice of vendor review. But at least 30 percent of the industry does this on an as-needed basis only — and strangely, they never quite get around to doing it.
1991 advice - Matrix pricing strategies drive significant profit improvement. It takes six months to two years to reach final form and should be thought of as an ongoing process. Once implemented, management needs to support work to “push up” the selling price of slow-moving items. The sales team will resist, but growing margin in service oriented product is critical for maximizing profit.
Today's reality - Pricing strategies are still a hot topic. In new research, companies that have well-designed and well-reinforced pricing strategies can add 50 percent to their bottom lines. Clearly computer tools and statistical processes have made this work easier. I don't think our industry should receive a passing grade on this topic. I may be missing something, but the prospect of an additional 50 percent to the bottom line should be incentive enough to add a Chief Pricing Officer to nearly every electrical wholesaler in America.
The Moral of the Story
Peabody and Sherman episodes carry a moral that packs a preposterous punch line. The moral of our story really doesn't carry much humor — rather it's indicative of the nature of our industry.
As electrical distributors, we live in a world of short gains. A little bit here, a dash of process improvement there and over the years it adds up. Clearly none of these bits of advice have proven to be the “company killers” consultants love to talk about. But, I wonder about the comparative successes of those who instituted these changes over the past 19 years or so. Did they fare better in the three recessions we have survived since 1991? Are they the “Upper-Quartile” companies we see each year when we get the NAED's PAR (performance analysis41) report?
So here's the moral of the story: Ignoring business improvements probably won't put you into bankruptcy tomorrow. Experience suggests you'll be in business 20 years from now. You just won't be a leader. And, somebody has to come in last.
By the Way
Yes this memo still exists. I just stashed it so I can read it over and over again. If you ask nicely, I will send you a scanned copy along with a few more comments on setting up a process in each area.
Frank Hurtte is founder of River Heights Consulting, Davenport, Iowa, a firm specializing in “knowledge based distribution.” He has 28 years of distribution industry experience and a lifetime in sales. During his career, Frank has gone through nearly every aspect of the wholesale business. You may have met Frank in one of his previous lives — he worked in sales management for Allen-Bradley and at several senior executive posts with Van Meter Industrial. He is the author of The Distributor Specialist: Customer Champion, Profit Generator! You can contact him at firstname.lastname@example.org.