Today’s Heavy Duty Market: New Rules, New Tactics
Finding the Gazelles Has Never Been More Important
By Bruce Merrifield and Bill Wade
There is no question that we are now looking at a tough truck parts and service business in 2009. While politicians try to randomly borrow and spend our way out of our borrow-and-spend hangover, let’s resolve to never waste a good crisis.
Let’s do the right, smart stuff that we know we should within the context of the new, restrictive economic rules... Besides, what choices do we really have?
What are the new rules and related tactics?
- Debt is no longer fashionable. Banks are continuing to trend towards cutting back on credit limits and tightening terms (Both authors are currently involved in work outs with banks that now own the companies... they just don’t know it yet.)
- To save at essentially zero percent, be frugal on spending and then buy what you need later at a fire-sale price... there is no shortage of panicked suppliers! This is actually quite a good return on your savings.
- Buy assets when there is “blood in the streets, even if the blood is your own” (Baron Rothschild during the Panic of 1873 in Paris). Pounce on competitors that are imploding because of their debt.
We must generate positive, sustainable cash flow, but how?
It will be tougher to make money on the “buy side” without any “growth rebates”, so don’t try to buy your way to profits if it builds inventory and working capital debt.
- Don’t cut price to buy more volume. Distributor economics are such that 100% of a price cut comes out of the bottom line, but all new volume has lots of variable costs and working capital needs. Price cutting creates no new demand!
- The volume increase needed to keep the profit line the same is about 30%, but receivables, inventory and the bank line will all increase. Besides, where are we going to get 30% increase in sales in a tough market?
- Identify the number one, most profitable niche of customers, then redefine the service value equation for that niche. Improve service, sell it and get paid for it.
- Sell more old items to the same old customers on a larger average order size so that 50% of the incremental margin dollars in an already money-making-sized order will flow through to the profit line.
- Partner with (new) “master distribution center” partners to reduce inventory investment, free up cash and improve “turns” up more than “earn” goes down.
- Pursue selling strategies that increase the estimated profitability of all types of customers and make sure that the sales force is trained and paid to do that. Paying reps a percent of sales or margin dollars in their territory will not do this.
We must de-average our thinking
We can’t assume, for example, that “the sales force” is, on average, going to go out and do something differently. Most will keep doing what they do while a few game-breaker branch managers do the change work.
We can’t assume that all fleets or all customers in a “still growing segment” are going to do the same. Less than 5% of existing businesses are perpetual innovators, but they grow 2 to 5 times faster than their industry average! Find them today!
We need our total team to hyper-focus on creating new levels of value with those “gazelles”. Ignore the 50%+ of all small businesses that are moribund and giving us necessarily small, money-losing orders, because they are small with small needs.
Let’s hope that we aren’t giving them “average service” that includes delivery and trade credit at full wholesale prices, because we are still losing money on them... invariably the transaction costs per order exceed the margin dollars in the order.
For these “wholetail” accounts, stuck between true wholesale and high-cost-per-square-foot retail, find a way to:
- Drive them elsewhere while we lay off more fulfillment-personnel-cost dollars for taking care of their empty-margin-dollar order activity than we lose in margin dollar volume.
- Spin out a cash-n-carry business model to take care of them at a profit?
- Encourage them to buy from a "wholetail partner" ... ideally one with whom we are a master distributor on an automated, third-shift replenishment basis?
We will make more profits on a little less volume while we focus our best, remaining people on the true wholesale accounts that do have a growth future.
If we are too busy to focus on doing the right stuff, it is because we are currently spending too many “activity or cost-to-serve” dollars on the wrong customers or even the wrong customer niches in which we are not the #1 or #2 best-value competitor.
We must first weed or downsize money-losing elements of our business before we can have the tied up resources to reinvest in what we do best on a next-level basis. Decathlete distributors that are guilty of trying to sell 10 (or more) different niches don’t get profit gold unless they are #1 in the niche.
How many niches do we sell? Multiply these variables: industry segments (x) A-B-C sizes (x) why they buy: pals-value-price (x) their growth future: gazelles-average-dying = lots of potential niches!
Most companies need much better “strategic business intelligence” analytical, reporting and tracking capability than they currently have to do all of this.
The Wade/Merrifield/WayPoint Partnership Solution
Our new service is delivered on a monthly subscription basis over the Internet –leveraging software as a service technology – that didn’t exist two years ago. We will:
- Install the service within two weeks;
- Guarantee an excellent, immediate payback (or stop monthly subscription payments!)
- Provide upgrades for a most progressive group of subscribers from our distribution channels instantly with case stories to go with the upgrades.
- Provide on-demand minutes of coaching as needed sitting in our offices, looking at the same screens as the subscriber.
- And, we don’t have to disturb the existing IT system, just supplement it.
For all of these reasons, we have - for the first time in over 40 years of consulting (between us) - partnered with a software solution provider: WayPoint Analytics.
Typical financial outcomes for this new approach in actual distributor case studies showed astounding results: double profits in 3 months; increase them 4 to 6 fold in 6-12 months; grow faster than the industry.
Getting Started
Call Bill Wade today (847-760-0067) for details on an all- or partial- day seminar that Merrifield, Wade and WayPoint will conduct on site for both interested companies and distributor groups. Go to www.wade-partners.com
Wade & Partners, located in Elgin, Illinois, specializes in business planning and marketing services for the heavy-duty aftermarket worldwide.
Bruce Merrifield started his consulting practice for the world of independent distribution channels in 1980. Bruce has given countless speeches to well over 100 trade associations, as well as many of the world’s largest corporations. He authored “Electronic Commerce for Distribution Channels” and is currently working on two start ups that leverage software-as-a-service technology to create new business models for distributors.
WayPoint Analytics is an online service that the best distribution and manufacturing companies use to analyze their business and maximize profits. With WayPoint, distributors and suppliers quickly identify profit-draining products, customers and activities and can rapidly develop new profit strategies, then validate and implement them to immediately improve results.