Content by Jason Bader of The Distribution Team:
As a distributor, you meet competitive pressures on a daily basis. Some of this margin decline comes from the market you serve. As I travel, I have heard many distributors complain that I don't understand that they are in 'a really competitive market'. Let's face it, everywhere you work, there will be a really tough market. Unfortunately, it is self-defeating statements like this that contribute to that majority of margin stagnation or decline. Yes, I said it, you are doing it to yourself.
One of the more novel approaches I have ever heard of took a little help from Mother Nature. This clever individual had a facility right next to a river that flooded seasonally. He had built this large deck overlooking the river in order to entertain customers and employees during the summer months. On a particularly wet year, they received word that the river was going to flood much higher than usual. When life gives you lemons, make lemonade. The distributor hauled all the dead inventory out to the deck. He sandbagged the walls of the facility, in order to protect his turn and earn inventory, and let the rising river manage his dead stock for him. Something tells me that Allstate would take issue with this approach.
A renewed focus on gross margin enhancement is the very best thing you can do for the bottom line. Many of you know me as the inventory guy. There are some great things you can do to optimize the inventory asset and these will definitely drive bottom line performance. There are operational efficiencies that will improve net profit dollars. But if I really want to kick that net into high gear, I need to create a wider gap between what I bought it for and what I sell it for. Here is the two by four to the back of the head: A 1% improvement in gross margin will often translate to a 40% improvement in net profit. This is the kind of ratio I can get excited about.
This data analyst can help you discover holes in sales penetration, inventory trends and most importantly gross margin opportunities. This requires a desire to get dirty with the data. Your ideal candidate must be one with the spreadsheet. They have to love the hunt and be able to communicate their findings in a way that provokes action. This may be the most difficult aspect of the job. I have met some brilliant analysts over the years that have struggled with sharing their findings. They expect others to see what they see in the reporting. While it may make perfect sense to the data driven, sometimes others have a difficult time arriving at the same conclusions. You may have to coach this person on how to share their conclusions in a way that others can take action.
I have been doing a lot of this work with clients lately. As I stated before, I was primarily involved with inventory and operational management coaching. Over the last couple of years, more and more clients have been asking for assistance with margin enhancement. The approaches differed a bit, but there were some common themes. I thought it would be a good point of discussion to run through a few of them such as:
- Sensitivity Based Pricing
- Value Price Increase
- Loading the Cost
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