The Million Dollar Opportunity
There is a million dollar opportunity in your business right now that doesn’t depend on the economy and has nothing to do with your competition. It’s hiding in underperforming gross margin, cost inefficiencies and slow cash cycles. It’s draining out of the bottom of your service offering through customer loss and constant internal service rework. It’s pickpocketing your growth potential. Yet, its elusiveness has become so ingrained in your day-to-day business that you resign yourself to accept this million dollar loss as the cost of your culture. “It’s just the way it is.”
The issue is not with your people or your technology. What you are missing is a model that you can deploy quickly and effectively in your distributorship to claim these hidden dollars and transform your distributorship into the high performance business you know it was meant to be.
Processes and Deliverables
A distribution business is its processes. There are three key processes in distribution that drive your performance:
- Sourcing—the process of deciding from whom you buy and why
- Fulfillment—the combined cross-functional process of your insides sales, purchasing and warehouse teams
- Sales—the process of prospecting, engaging, acquiring and keeping customers.
(There are other processes in your business; Financial Management, IT, and Human Resources, for example. But these processes are support functions and do not directly impact your business’ performance deliverables.)
Processes have deliverables, and the three key processes above deliver performance. The three high performance deliverables are:
- Fundamental Financial Performance—profitability, cash flow and asset efficiency
- Value Differentiation—logistics and account management
- Sales Growth—revenue growth, customer retention, broadened product line, pricing, and customer creation.
In other words, a high performance distributor performs well financially, differentiates value, and grows.
The Million Dollar Challenge
The high performance model for wholesale distributors is stated this way:
“The combined capability of sourcing, fulfillment and sales processes determines a distributor’s financial, value differentiation and growth performance.”
For the math-minded:
(c)X1, 2, 3= (p) Y1, 2, 3
where (c) is capability, “X” is key process, (p) is performance and “Y” is performance deliverable.
This model is a tool for you to use to make decisions and focus your improvement efforts to drive sustainable, meaningful results into your business. If you have not tackled these three key processes and optimized their capability to deliver performance, then there is at least a million dollars’ worth of annual improvement waiting for you to claim in your business right now.
Here are three high impact improvement projects you can execute this year to find the million dollars hidden in your business:
- A coordinated attack on gross margin through sourcing and pricing actions should generate 1-2% of gross margin improvement. That’s $500K-$1M to the bottom line for a $50M distributor.
- Improving your fulfillment process capability and reducing the cash conversion cycle while simultaneously becoming the service leader in your market. That means less inventory, higher fill rates, and significantly reducing rework.
- Improving your sales management process and creating growth from the “inside out” in your company, by retaining current customers and broadening your product offering to them. That’s more dollars to customers you simply refuse to lose.
Are you willing to invest focused and sustained effort working “on” your business instead of just “in” your business? Use the high performance model to guide you to the million dollars hiding in underperforming processes, and make 2012 the year you find your million.
Posted by Andy Ray, Senior Business Consultant at Epicor Software