Profit Management
I have been helping companies develop scorecards for years now . Everyone has their own little spin on how they want to present the information . I have no problem with that . Each entity has their own culture and they ultimately know what will fit best in their organization . Some companies keep it very simple by only measuring certain sales-related metrics . Others find ways to incorporate asset-related performance . My preference is the latter , but the creation of monthly revenue driven goals will go a long way to improving profitability .
Building the sheet of metrics is a trick unto itself . Make sure they are easy to measure . How easy can they be extracted from your distribution software ? If the creation process is too cumbersome , I suspect that many of you will eventually round file the program . Keep it relatively simple . It is important to get a philosophical understanding of why we are measuring something so that when it comes time to share the document , you are comfortable explaining the benefit . Unfortunately , this is where many companies stop .
Producing the document every month and sending it to the responsible manager will not produce the productivity improvements you seek . I would concede that exposure will drive some measure of change , but providing a couple of strategies for improvement will help get that manager off on the right foot . Sometimes people just need a little view of the path before they can apply creativity . Build your strategic starter kit before you begin coaching . Here are a few of mine .
Gross Margin Dollars per Day
If the team is not meeting this goal , start looking at how the goals are being communicated . Challenge the manager to communicate the daily performance . I like to see managers write the gross margin dollars on a wall calendar . Use black ink for days that exceed the goal . Use red ink for days that fall short of the goal . You can also talk about using a couple of other scorecard metrics , gross margin dollars per ticket and lines per order , to improve performance .
Gross Margin Dollars per Ticket
When this metric is in decline , I start looking at ways to round the customer up to larger package sizes . Simple comments like , “ Did you know that those workbooks come in a case of 12 ?” or “ Did you know that we have a quantity break at 50 ?” can drive behavior . Subtle changes in margin can also drive up this metric . Increasing the lines per order metric is my favorite strategy to drive improvement in the dollar per ticket goal .
Lines per Order
As mentioned above , improvements in this metric can really drive dollars in the door . This one might take a little coaching . Just telling the manager to get their team to add on sell is a little too simplistic . Help that person develop a plan . Review the highest hit items and have team members list complimentary items . Make complimentary item review a regular part of inside sales team meetings .
Gross Margin Percentage
The first tactic I generally employ is a discussion about the impact to net profit . It is generally accepted that a 1 % improvement to gross margin can spark a 40 % improvement to the bottom line . This ratio gets them to see the value . I believe that product knowledge training is one of the best solutions to diminished margins . Make product training , by manufacturer reps , a part of your weekly activity . Teach your manager how to look for subtle margin improvement in slow moving product . If all else fails , take away commission below a certain threshold . A zing to the wallet usually gets the message across .
Unproductive Inventory
This metric measures the percentage of dead , slow and surplus inventory in the branch . Setting expectations on this metric can help you drive better turns and help prevent the inevitable
cry for a bigger facility . Coach the manager to review a monthly hits ranking . Show them how to find , quarantine and liquidate this inventory . Cash conversion of unproductive inventory requires creativity and consistency .
These are just a few of the metrics that I recommend to clients seeking operational improvement , but I think you get the idea .
STEP 1 : Create the monthly scorecard .
STEP 2 : Review the metrics with the individual sales manager .
STEP 3 : Help that manager develop strategies to tackle unsatisfactory metrics .
If you are interested in a more complete list of metrics , request a copy of my previous article Building a Branch Management Scorecard . Whether it is branches or sales teams , as I continue to coach distribution companies toward profitability , and peace of mind , I have come to believe in the magic of monthly performance metrics . If you need help getting started , please don ’ t hesitate to reach out . Good luck . n
JASON BADER is the owner of The Distribution Team , a firm that specializes in helping distributors become more profitable through strategic planning and operating efficiencies . The first 20 years of his career were spent working as a distribution executive . For more information , call ( 503 ) 282-2333 or contact him by e-mail at Jason @ Distributionteam . com . Also visit The Distribution Team ’ s website at www . thedistributionteam . com .
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