Growth | Productivity | Business Consulting

Suprise: Purchasing, Not Sales is the fastest way to HIGH Profitability in Distribution

 

• This is like the Miller Lite beer ad...Less filling...no Taste Great
• Want to Develop High Turns with Great Fill Rates...you can get done for FREE
• Vendor managed. er, third party may be the way for you to get HIGH profitability
• Vendors don't manage inventory. A third party does.

 

______________________________________________________________

Want to get caught up on the Business Exercises from Growth Wizards(TM)?

To get caught up on the Business workouts click on the link below to Growth Wizards. You'll find a copy of the slides and videos of the presentations listed under "The Fitness Club" midway down on the left hand side.  www.growthwizards.com

Excerise #1   "Purchasing to A/P Processes"

Exercise #2  "Order to Collections Processes" 

Exercise #3  "Pricing and Rebate Processes"

Excerise #4  "The Matrix (secret weapon of pricing)"

Excerise #5 To be announced in mid-April

You will need to register with a verifiable email address and contact information to download the worksheets and slide presentations. The slides and spreadsheets are FREE once you have registered.

 

The question is still: Have you ever seen people that go out and buy expensive club memberships or exercise equipment, and hardly ever use them?

Some people never even set the equipment up. Or they set it up incorrectly. They might stare at certain attachments and wonder what the heck they do. So most of the money spent goes largely unused. Does this make any sense? You can understand how it happens, but it makes no sense to buy something and watch it sit.

Take your business system, which has built in capabilities (modules) to keep your assets lean. Business system developers lament the fact that the average distributor uses less than 30% of the horsepower under the hood. People even hurt themselves by exercising the wrong way and end up in therapy.

Then there are people that attack the symptoms and not the problem. How many times have you discovered that people lose weight and then put it right back on? How does that happen? They eat the wrong things in the wrong quantities at the wrong time without proper exercise or sleeping habits. In short, they don't do the right things to stay lean. They can't keep up the flurry of effort to lose the weight so they put it right back on with bad eating habits. Just like distributors that end up returning a lot of stuff or selling it off at deep discounts.

The same thing applies to bloated accounts receivable and inventory. If you consume too many of the wrong things (credit risk or products that don't move) at the wrong time, your ‘weight" goes up. The key is to identify the right things to do and do them, replacing the wrong things.

So what are the "right" things to do, and how do you execute them? It starts with knowing how your business system can help you. It's your workout equipment.

So learn what all those "attachments" on your equipment can do for you.

 

________________________________________

 

 

What Now? The bubble has burst, but life goes on.

 

Now for the Reality

 

The reality of the current business climate is that many are reduced to bragging about sales as compared to last year's sales. The truth of the matter is this is an evolutionary market change. No one is left unaffected since late 2007.

Most had sales that dropped 20,30 and even 50%. Some banks went bust, others had to freeze credit. Now you brag to yourself that your sales are anywhere from -5% or +5% compared to last year. Realistically you don't compare sales to just before the bubble burst. Maybe it's your way of preserving hope. Realistic hope is good.

Let me offer some business thoughts that may help you through this time:

1. You need to look at your present business situation and take responsibility. Denying the situation will not help you.

2. Worrying is not going to accomplish a lot. Start being Proactive.

3. Concentrate on what you can change.

4. Look around at what may be working for others. Talk to people that have been through similiar situations...that could also mean talking to me....your humble consultant.

5. The pace of business may have increased or decreased. Patience is a virtue.

6. At some point, you will realize or see or feel an opportunity....go for it.

 

 

Status Quo  vs. Productivity

Think about this: At some point, the the business that is more productive, flashes in the side mirrors of the less productive.

Read on below

 

____________________________________________________

 

Productivity....where the money is.

This may sound crazy! But would you believe it if someone told you that your assumed business beliefs or even your business attitudes were keeping you from increasing your Productivity and thus greater GP?

Virtually ever business executive talks at one time or another about achieving ‘greater productivity’ to achieve some sort of profit and business goal. They use terms like EBITDA and greater Gross Profit per Order. In addition they talk about a productivity journey that may never even get off the ground. Why is that?

All understand that change is needed. Variable cost keep nipping at your bottom line. So how do you flatten out that variable cost and reap the profit rewards that elude your company?

First you have to get past your assumed beliefs about the way you price and run your business. You really have to look inward and not accept the same old excuses like:

• I’ve got other problems to worry about.
• We are in great shape. I learned from the very best.
• My mind goes numb and my eyes glaze over just thinking about it.
• We’ll get productive someday and then I’ll delegate it (Productivity & Profits)
  
• We’ve got all the productivity we can stand ("The High Cost of Low Profits-#1")
  
• Our processes were set up years ago and there still good today.(High Cost of Low profits-#2)
• Come on, our software makes us as productive as we can be.
• Sure we have profit leakage, but we are good as the average distributor
  
• My sales handles profit and their customers

Looking beyond those tired old excuses, you need to step back and look at your business differently. In the past most have looked at bank documents and inventory to gain some sort of leverage. But guess what, for the most part banks aren't lending unless you are solid gold. Many banks don't want to finance inventory (because they don't know the real value and what inventory will actually be sold in a timely manner). In addition, you have probably endured collection issues with some of your customers. And you are the only one who knows how much ready cash reserve you truely have.

So, if you have the emotional energy to carry on, you'll want to look at your business like this:

Front Room (Outside sales, Internet-Web, Counter, EDI orders),

Back Room (Purchasing, Warehouse {receiving, picking, delivery}, A/P, A/R. SPA Claims)

Asset Productivity (Inventory TO & Days, Receivables DSO, Payables, Net Cash Flow Days and Total Asset turnover).

There are two main areas that you'll want to address right now: (there will be more later)

1. The need to increase profit on current sales and
   
2. Cash that is hidden in your business.
   

Increasing profit from current sales can mean neogiating better prices from your manufacturer. but it also means that you need to develop and maintain your sell prices. But that is where many fail to understand that the learned and assumed business philosphies (myths) about pricing product actually limit your company's ability to generate more profit.

What if those truisms were really myths? And what if they were costing you money, cash flow, profit and etc. Would you be willing to question them and make changes. And some of you will say....NO! That's not possible. The way I learned it is the correct way. And if you were talking with me I would say: How's that working for you right now? Probably not well enough.

Over the years I have observed what were thought to be "truisms/myths and business pricing rules that have been passed down through generations. Those assumed and learned truisms are part of the reason you are not making the profit you want on your current sales. For those that are in denial about all these myths, here's a primer to help you understand that you should should examine and change the way you price product.

Click on the link to download: "7 Myths/Sins of Wholesale Distribution Pricing"

About that cash that is trapped in your business, you've probably looked in all the obvious places such as:

1. Amount of inventory you actually need to run your business has probably been reduced.
   
2. Sent back as much product as your manufacturers will let you.
3. Worked your DSO's (Daily Sales OUtstanding.
4. Worked on your SPA/Rebates...but they are still a problem.
5. You may have re-neogiated all you vehicle and machine leases

But, there are other hidden spots you probably haven't looked at. The hint is: It's in your processes. Take a look over on Growth Wizards.com

For more about Myths and Sins of Pricing, I'll be posting some short talk videos that will be available for you to down load from Allen Ray Associates and on GrowthWizards.com™. To sign up for email notification, fill in the form in the upper right side. We will not spam, sell or share your email address with anyone. For the in-depth executive video series about product,pricing and productivity, including examples of what works and doesn't, you'll need to go to Growthwizards.com™ and sign up for the series as they are released.

A note about GrowthWizards.com™:

 Growth Wizards.com™ is about Executive business learning. There are premium video, books, confidential white papers about productivity, quality data that Drive Process Productivity. In addition there is a free section of short videos about new product subjects.. There are a wide variety of delivery systems including e-mail, Linkden,SMS and  Twitter.

Can You See the Forest for the Trees?

Small businesses are dropping leaves everywhere.  Credit is so tight after the financial meldown that there's little capital for growth.  Banks, which have tightened up on loans, are requiring more collateral against smaller loans--if they have money at all to lend.  There's no real room for more debt to foster growth.  You are going to have to generate cash some other way.  That's why we started Growth Wizards™.

It's going to take time for credit to become available for businesses that want to grow.  It will be awhile before the economy begins to really grow.  Easy money created the bubble, which has now burst.  So, where do you get the cash to grow again?

The Growth Wizards™ know what you're experiencing--that lost-in-the-forest feeling. We can help you find the path out, and we know others who have led the way.  Here's a lesson about growth that everyone learned in school but may have forgotten.   Growth is all about nutrients.

Trees, the most prolific growers on the planet, absorb material nutrients (knowledge) and water (inspiration) through the roots.  Light (market realities) starts the process that allows the tree to grow, branch out, sheltering others.  A person or a business needs to do the same things. 

Let us help you absorb the knowledge about how to grow and where to focus your energy.  Get the inspiration to nourish your core.  Stretch with us toward those market realities that will promote solid growth planning and execution. 

We are Growth Wizards™.  We have proven experience helping businesses growth even in the shadows of a recession, and we have the connections to other wizards.  Together, we'll find the path out of the dark forrest.   Follow these wizards:

• Sam McCamy who led Roden Electric Supply to 500% growth and tripled profitability
• Jim Lucy, editor of Electrical Wholesaling Magazine, who's seen it all and still has a positive outlook
• Jack Justillian, known as the Turn-Around-Guy, grew one company's sales from $6 million to $40 million

Sign up for the Growth Wizards™.  It's free, but worth so much more.

Behavioral Assessments: Because employee cost is 50% or more of your total cost. you should be using an employee behavioral assessment program. This program will help you lower your cost with hiring, promoting. management and leadership development and has been used by some of the top companies in the country. Click on the text to download Behavioral Assessment paper.

Are unscheduled credit card payments by your customers sapping your profits? Read "The Credit Card Crunch" by Allen Ray and David Gordon.		Instead of looking at the economic "fire" as a tragedy, let's learn from it.  Read Part 1 of  "Out of the Fire"  a four-part series on repositioning independent distribution after the economic calamity by Allen Ray and Neal Gillespie.  Part 2 ,  Part 3  and Part 4 of this series discusses focusing on your company's strengths and building out niches from that foundation.

 

 

2011 ©Copyright Allen Ray and Allen Ray Associates