BRANCH Operations & Management

{making youryour strategy work}

University of Industrial Distribution

Indianapolis, Indiana

March 12, 2013

Michael E. Workman, Ph.D.mike@mworkman.com

…..if you don’t have a strategy, you can’t make manage…

Things I’ve come to Embrace“It’s tough to make predictions, especially

about the future.” Yogi Berra

“92.3176% of all statistics are made up on the spot.” John Ionnadis

“Things should be made as simple as possible, but no simpler.” Albert Einstein

“We don't see things as they are; we see things as we are.” Anais Nin

“Timing has a lot to do with the outcome of a rain dance.” Old ‘West Texas’ Proverb

Introducing Change

Stress

Risk

Loss

Change normally occurs when the pain to change is less than the

pain to stay the same.

Purpose of a BusinessThe purpose of a business is to create a

customer.Profit is only a test of management

decision making.Profit is required to maintain the

customer.A business has two primary functions;

everything else is just cost.

Innovation & Marketing

The world according to Peter Drucker

Predictors of Business Failure

Declining MarginsIncreasing People CostsIncreasing Sales Volume

All in Concert

Distribution Basics: in any Economy

Buy BetterSell at Higher MarginsCollect SoonerPay LaterTurn Inventory More Often Increase Operating Efficiencies

Branch Management; Primary Objectives

Increase RevenuesDefine Customer ServiceOptimize PricingDecrease our cost to serveDevelop new customers / marketsIncrease gross marginsRepresent chosen suppliersProvide product & process expertise…..and then some

Economics of Branch Optimization

PresencePerformance

Products

Processes

Key Notes:• Opportunity is the result of complex interactions between several dynamics • Accordingly, Profit improvement is an integrated process• A Systems approach seeks to balance these interactions and drive improvement

Key Notes:• Opportunity is the result of complex interactions between several dynamics • Accordingly, Profit improvement is an integrated process• A Systems approach seeks to balance these interactions and drive improvement

How Distributors CompeteThree key performance factors by

which customers judge distributors. {other than price}

Reliability - Does the distributor perform consistently?

Timeliness – Is the solution there when the customer needs them?

Accuracy - Is it the right product in the right quantity at the right price, correctly billed?

Customer Communication Models

Single Point

Multi-Point

Customer

Distributor

Branch Management Paradox Paradox Challenges

Growth / ProfitabilityOperational Systems / ReactionAssets / InformationSpeed / DirectionManagement / LeadershipPerformance / EffortsSuccession / Consistency

Asset Leverage for Managers

Financial inventory – receivablesPhysical fulfillment aidsCustomer ownership – dependencyKnowledge response enhancementEmployees experience –

performanceOrganizational functional integration

Personal T

ime

Systems

13 Predictions for 20131. Company branding will increase in

importance as communicating product & service offerings becomes more central to growth.  Energy must be directed to strategy, technology, and performance players.

2. Progressive distributors will engage marketing techniques unique to their strategies.  They'll drive higher, more profitable, sales.

3. Distributor acquisitions will continue, albeit not at the same multiples as last year, as owners seek to cash out for retirement, lack of succession, or recognition that the market will continue to be slow.

4. With distributors offering comparable customer services; demand creation and idea generation become more important.

5. Strategic management of special collaborative efforts and contracts, as well as price optimization, will enable progressive players to grow profits.  6. Top Players will purchase or engage players in peripheral channels to expand their markets.

7. Significant in-roads will be made in formal collaboration efforts with select distributors and manufacturers.

8. Many will react to new laws by hiring more part-timers & part-time industry veterans; avoiding additional costs of medical insurance.

9. Non-traditional selling will become the initiative. New business technologies will improved customer information, enabling service commoditization.

10. Manufacturers will escalate their efforts to segment and stratify distribution, based on performance.

11. Manufacturers will seriously overhaul rebate and "preferred" distributor programs and move to a differentiated model that supports those who perform.

12. Customers are seeking fewer relationships, therefore opportunity will be enhanced by those who offer a broader scope of customized solutions.

13. Local data, converted to usable information will become the most valuable asset distributors bring to the channel.

If people don’t have the mindset that sharing

information is good, then it doesn’t matter what

technology does.

Branch Metrics

Inventory Revenue Creation

Lines Speed / AccuracyForecast PlanPersonal BusinessEfficiency EffectivenessVolume - Margin Net Contribution

OLD NEW

Metrics cont’d.

Price Cost/Price………Structured ResponsiveMonthly GoalsFuturity of DecisionsControl Facilitate, Teach,

Mentor, Accompany

Knowledge KnowingSize Speed

OLD NEW

Inventory Management Balancing Two Goals

Service Levels (High Customer Service) Determined by When You Buy

Cost (Best Turn & Earn Ratios) Determined by How Much You Buy

Inventory Management

Inventory Control

vs

•CUSTOMER NEEDS•FILL RATES•LOST SALES

Logistics Drivers

FUNCTIONS LOOP

INVENTORY

PURCHASING

CUSTOMER SERVICE

FORECASTING

INFORMATION LOOP

•MEASUREMENTS•CONSTRAINTS Warehouse Transportation Financial•OBSOLESCENCE

•SUPPLIER LEAD TIMES•LEAD TIME VARIABILITY•FORECAST ERROR

•DEMAND PATTERNS•VARIABILITY

Buy-Hold-Sell Sell-Source-Ship

Effectiveness

Minimize touching or moving product.Determine delivery and other service

output demands for segmented customers and measure performance. {Quality & Throughput}

Implement real time information flow for areas that creates mistakes

Logistics is a science, not an art

Doing the right things

Relationship Selling - Service, Price, Response

Bid & Buy - Price Focused, Costly Way to Buy,Predominantly Bureaucracies, Control Driven

Annual Contracts - Fixed Price, Fixed Term, Service Level Specific, High Cost to Manage

Expired Contracts – Deferred Bids, High Leverage for Customer, Tenuous

System Contracts - Evergreen,Cost Plus Pricing, Measurement Driven

Integrated Supply - VendorReduction, Integrator (Tier 1) Manages the Process,

Cost Reduction Driven

Alliances - Partnerships -Functional Pricing, Cost/Profit Driven

Subj

ecti

ve

Rel

atio

nshi

psO

bjec

tive

R

elat

ions

hips

Tra

nspa

rent

R

elat

ions

hips Demand Chain Management -

Preferred Pricing – Future Business

The B

uyers

Pers

pect

ive

Competitive Positioning

The cosmic law of business says you can excel at any two of the three

What is your Strategy?

Good

Fast

Cheap

The Secret Of Any Successful Business Is The Intelligent Loss Of Sales

Gary Hoover,Founder of Books Inc.& Hoovers On Line

ServiceCustomer DefinedIntangible <> TangiblePerishableComplexTime SensitiveQuantifiableValue Based

Value DeterminantsReliabilityResponsivenessCompetenceAccessibilityCourtesyCommunicationCredibilitySecurityEmpathyTangibles

What Can You Charge For?

ConvenienceCrisis or Unforeseen Increases

(Economy)

TimeChoicesKnowing DoingChangesFees

Strategy Integration

SupplierStratification

Key

InventoryStratification

A-B-C

CustomerStratification

Core

Segmentation Goals

Customer Relationship ManagementThorough Business AnalysisTime and Profitability - Inseparable

Profile Characteristics•Who are they?•What do they look like?•What do they need?•How do they act?•What do they buy?•When do they need it?•Why do they want it?•What do they cost us?•What do they contribute•How do we grow them?

Time•Customer lifecycle view•Frequency of Purchases•Customer life position•Channel Selection

Profitability•Share of Spend•Buying Phases•Profit per Purchase•Cost to Serve•Investment Potential

Opportunistic Core

Unprofitable Service Drain

Customer Life

Volume

Pro

fit

Cost

to S

erv

e

High ProfitabilityNo RelationshipLow Cost to ServeLow Volume

High ProfitabilitySustained RelationshipLow Cost to ServeHigh Volume

Low ProfitabilityNo RelationshipHigh Cost to ServeLow Volume

Low ProfitabilitySustainedRelationshipHigh Cost to ServeHigh Volume

Segmentation Results Model

Segmentation StrategySegmentation Strategy

Segments Strategies

•Long Term Defense•Customized Service•Reduce Costs

•Retention•Selective Optimization•Increase Presence

•Increase Profit / Transaction•Reduce Free Services•Control Cash Flow

50%

30%

20%

5%

15%

80%

# Customers GP $ Share

Leading Change

Training EducationLearning RelationshipsEconomic DriversMeritocraciesHyperarchiesMarket Based Management

Data > Information > Knowledge > Wisdom

’12 Study on Company Involvement

28% 55% 17%

Committed to the Vision

Only DoingTheir Job

Actively Working Against TheEnterprise

Rules for CollaborationHyperarchies

Individual Pieces Loosely JoinedStructurally InvStructurally Invisible

Community of Trust (where trust is a currency – reputation is a source of power)

Selective Collaboration {value based}

Rethink: distribution, customers, suppliers, providers, goals, metrics, rewards

Strategic Collaboration; Less About the Strategy, More About the Team

No Plan of War ever survives its first encounter with the enemy

Napoleon

No Plan of Analysis ever survives itsfirst encounter with the data

ORMS Magazine

Performance Enhancement

Motivation & MeasurementAccountabilityOwnershipEmployabilityEmpowermentKnowing Doing GapsShared Intent

Personal Observations:Mutual Trust

Trust is not between firms, but individuals.

It’s earned over time by taking several small hits for a long term relationship

It’s lost very quickly, usually by making an expedient short term decision

Its’ about Performance not Intent

Integrity

Interactions with friends, family, co-workers, customers,

suppliers, co-volunteers, groups, organizations, community,

country, and the spirits of the dead.

Definitions

Webster’s New World Dictionary.

1. the quality or state of being complete; unbroken condition; wholeness; entirety

2. the quality or state of being unimpaired; perfect condition; soundness

3. the quality or state of being of sound moral principle; uprightness, honesty, and sincerity

An object or process has integrity when its Whole and Complete.

Any diminution in whole and complete results in diminution in workability.

Think of a wheel with missing spokes, it’s not whole. It will become out-of-round, work less well and eventually stop working entirely.

Likewise, a system or a channel has integrity when it is whole and complete.Focus on the present, plan for the future.

Becoming A Rock StarBecoming A Rock Star

Where we are now (today)

A boring, straight laced, middle class, rep.

End Game Goal:

“Screaming Fans and Groupies in Times Square.”

1: Develop Talent• Guitar Lessons• Dance & Drama

Classes• Coffee House

Practice

Critical Initiatives

Chain backwardto create strategy

Strategies

2: Get the Look• Extreme Diet• Hair Extensions

Plastic Surgery• Start Drug Habit

3: Work the System• Develop Business

Contacts• Blackmail Record

Executive• Publicity Campaign

4: Roll Out the Band• Form Band• Learn to Lip Sync• Record Single &

Video• Promo Tour

Strategic Initiative Example

Convert Three Existing Contractors in my territory to us by 6/10/13 for a total sales increase of $275K in incremental revenue by 10/12/13

Active VerbBy When?

To What Clear Business Result?

{Tom Jacobs}

Who is Accountable?

WICS MODEL

Intelligence Creativity

Wisdom

LEADERSHIP

INTELLIGENCE

How Much?Successful Intelligence

Academic Memory - AnalyticalPractical Experience –

Adaptability

Tacit Knowledge – distinct from personality exists across cultures, gender and races.

There is a mute who wants to buy a toothbrush.  By imitating the action of brushing one's teeth, he successfully expresses himself to the shopkeeper and the purchase is made.

Now, if there is a blind man who wishes to buy a pair of sunglasses in

the same shop, how should he express himself?

He opens his mouth and says, "I would like to buy a pair of sunglasses."

CREATIVITYSkill in Generating ideas that are;

relatively novel, high in quality,

appropriateDoing Something NEW orDoing Something OLD in a NEW WAYPeople DECIDE to be CreativeNot related to age, gender,

education, or socioeconomic status

Creativity is correlated with the ability to withstand the lack of structure, the lack of future, the lack of predictability, of control; the tolerance for ambiguity, for planlessness. Abraham Maslow

WISDOMNot AGE but CAPACITY

Choices Life, business, currentBased on experience, pragmatism,

understanding, knowing……

CHARACTERISTICS Reasoning Ability, Sagacity, Learning, Judgment, Use of Information, Perspicacity

Balance – interests – mine - ours

WICS MODEL

Intelligence Creativity

Wisdom

LEADERSHIP

SYNTHESIS

The first task of a business leader is to take the past out of the future and put it back in the past.

The second task of a leader is to enable people to articulate a future that calls them to be alive and productive in the present.

The past has nothing to do with the present. Who and where we are in the present is a given.

The Role of LEADERSHIP

TEAMS: Some Observations

The Best are Self-SelectingLife Expectancy is ShortPerformance Outweighs EffortsLeadership NOT ManagementPurpose Drives ResultsMetrics Fuel the ProcessEasy to Say ….. Hard to Do

Obstacles to Strategy Execution

Inability to Manage ChangePoor or Vague StrategyNot Having a Model for

GuidancePoor Information Sharing Strategy Conflicts with Existing

Power StructureLack of Leadership

Controlling the Highest Value Currency {TIME}

Linearity vs Value A B C‘Value in Time’‘Time Value’ within ‘Price – Cost’

Time Value within LifeYoursTheirsOurs

Men talk of killing time, while time quietly kills them. (Dion Boucicault)

TIME EFFECTIVENESS MODELS

Make prioritized to do listsStart with I’s, not with U’sLearn to say NO{Listen, Say No, Give Alternatives}

Manage Yourself FirstFocus on InputsMonkeys RuleTake it Personally

NUNI

INU

UNI

IU

Urgent

Imp

ort

ant

Separate Urgent from Important

Managing Management’s Time

Seven Emerging SalesCompetencies

Self Appraisal & Continuous LearningListening Beyond Product NeedsAligning Customer / Supplier ObjectivesOrchestrating Internal ResourcesEstablishing A Vision for RelationshipsUnderstanding Financial Impact of

DecisionsConsultative Problem Solving

Business Horizons

COMPENSATION BASICSTIME AND VALUE

INFLUENCE AND VALUE

MOTIVATION –WHAT IS IT? WHAT WORKS?

DURATION OF COMPENSATION PLAN EFFECTIVENESS

INCENTIVES MATTER

Recent Comp Study Findings

There is absolutely no relationship, in any dimension, with respect to sales incentive plan structure and gain in market share

There is a very strong relationship between share gainers and the alignment of their incentive structures with corporate and sales objectives

There were clear differences between share gainers and share losers with respect to how incentive structures were developed

Share gainers had real sales management processes in place

Excellent Salespeople:1. OFF THE CHARTS Hard Working2. OFF THE CHARTS Competitive3. Technically Competent4. Very Relational and Bond Forming5. 24/7 Available and Responsive6. Coin Operated7. Data Driven8. Technologically Current9. Methodical and Organized with Great Writing

Skills10. Highly Accountable11. Never Forgets Who Signs the Checks12. Complete Integrity

Performance Appraisal

The purpose is to maintain good performance or improve performance.

Good appraisal processes are valued by all employees.Avoids “Gotcha Management.”Answers “How am I doing, coach?”

Greatest Limitation is wimpy managers.It ain’t a human resources “touchy feely” thing!!

The race is not always to the swift, nor the battle to the strong, but that’s the way to bet.

(Damon Runyan)

Human Capital MeasuresHuman Capital ROI

Revenue – {Operating Expenses – (Compensation + Benefits)}

Compensation + Benefits

Revenue per EmployeeRevenue

Full-Time Equivalent (FTE)

Voluntary Separation RateTotal Voluntary Separations Total Head Count

Personnel Productivity RatioTotal Payroll Expense

Gross Profit

X 100

1.5

500,000

8 -10%

50 -60%

Essentials for Mature Business

Documented, Repeatable ProcessesWorld Class Cost Control ABC – Your way

Great Customer ServiceContinual Introduction Of ValueValueBench StrengthContinual StretchDiscontinuity

ResolutionsThree resolutions distributors can't afford to

ignore : 1. Stop treating inventory as your

competitive advantage. 2. Stop always saying “Yes” to all

customers. 3. Stop allowing field sales to direct

themselves.

Approximately Right Is Better ThanPrecisely Wrong

Measurement

Biggest Business Blunders Taking your eye off your business economicsOverextension {overpromising}Lack of Follow-ThroughSelling by the hour instead of the opportunityGiving real value away Reaction without informationIgnoring the way customers buyNot understanding ‘systems’Not understanding the power of the questionTolerating incompetence

Self Management ResultsGet it Down on PaperStay CurrentKeep Everyone InvolvedBe Ruthlessly ConsistentMeasure EverythingAsk QuestionsSet ExpectationsFollow Through Knowledge

CustomersPeople

$

Time

Key MessagesPlay your own game. (But have a game

plan)Don’t carry your dead, just your

wounded. (Understand Employability)Don’t confuse the needs of the owners

with the needs of the business.Focus on Performance and OpportunityUse technology only as an enhancer

{How}Don’t let the accountants set your

strategy.

“How you get there is where you’ll arrive.”

Mad Hatter in Alice in Wonderland

THANK YOU!!!THANK YOU!!!