Think strategically to improve your odds

BY RICH SCHMITT
Management specialist

Years ago, as people thought about our industry, it wasn’t considered flashy, but it was filled with good people and the odds of success were pretty good. There were opportunities for all styles and sizes of companies. If you, as they used to say, kept your nose clean and to the grindstone, you could make a darn good living. When the economy was “rocking and rolling,” some wholesalers thrived, some wholesalers got by and some limped along but very few folded. One could attribute this to the brilliant people we have in our industry or that the industry itself was a better than average bet — that the odds of success in our industry were better than average. (Personally, I think we have the same mix of brilliant and not-so-brilliant people as other industries.)

While the mix of people has not changed, I think the industry’s odds have changed and unfortunately the change has not been for the better. This is largely due to the economy and, in some part, that we have lost our focus. So our challenge is to get a laser-beam focus on the activities that improve your odds and continue to make wholesaling the great bet that it has been for many, many decades.

In this article, I will share my punch-list of things that will improve your odds:

Good people

This has been our mantra for more than 25 years and, as they say, “we’re stickin’ to it.” Good people are the reason that small independents can prevail when faced with bigger, better funded regional and national wholesalers. Often these small guys cannot match the bigger guys on any front except people. And, in my opinion, good people are the trump card in wholesaling. I don’t mean to imply that the larger wholesalers don’t have good people because they absolutely do, but often big companies don’t seem to value, encourage and appreciate people who excel — there is often a push toward conformity which can push out the superstars and stifle the good people. Further, smaller companies seem more willing to take the time to find really, really good people. While the formula is pretty simple — hire great people — this is only possible over the long term if you have a process for identifying, attracting, hiring, developing, retaining and rewarding great people. Some tips:

• The “Vacancy Light” is always “ON” for a great person — If you manage a baseball team with a full roster and Albert Pujols knocks on your door looking for a job, your response had better be, “Let me show you to your locker.” This can be a tough-minded process since cost control may demand that you move out one or two other employees to create the necessary budget.
• You need a strict process for evaluating every person before you hire them — This process should include testing (minimally intellect and drug, a physical if appropriate and possibly psychological too), extensive reference checks, in-depth interviews and, ideally, a probationary period at the start of their employment. Since most wholesalers promote from within, it is critical that you apply a rigorous process to every hire to ensure they are promotable. (As always, these activities are subject to a myriad of legal guidelines and thus must be reviewed by your labor attorney.) For a reprint on hiring, e-mail me at Rich@go-spi.com
• Leading and coaching good people is critical in order to ensure that they perform to their full potential — One of the stupid tricks that a surprising number of wholesalers commit is to take bright, sharp, energetic new-hires and put them under a terrible supervisor who will take very little time to beat all the enthusiasm out of them. In this tough business climate, good people are even more important than they were in the past. And there are good people available out there.

Solid procedures

Good standard procedures and processes that drive the everyday activities in the business can really improve your odds.

• Have it your way — First, you don’t want everyone on the team improvising and “making their job up” to suit their personal inclinations or opinion of how it should be done. For all important and many unimportant tasks there should be a “company way” for doing it.
• Delegate to the worthy — Delegation is important as you grow. It allows good managers and leaders to multiply their skills and extend their reach. The mistake that many leaders make is extrapolating good performance in one area into skills in another. In many cases, good performance in one area only proves that the individual can excel in that single area. Moving that person into another area must involve training and the development of skills in the new area. Plus you must be willing to pull the plug when it is not working.
• Written procedures — Good policies and procedures are not like the stories handed down from generation to generation by the tribal elders. That might have worked in the past when you were willing to take three years to train a warehouse person. With the advent of written language, we can operate better and more consistently. A surprising number of companies still have not discovered the magic of deter­mining/developing a “company best practice”, writing it down, training people to use it and then insisting that everyone use that best practice. If someone finds a “better way,” the procedure is revised and the whole team gets better.
• Procedures must make sense — Sadly, when poorly crafted, the systems and procedures that are intended to make wholesalers more efficient can instead suck the life and commitment out of many of these great people along the way. As an aside, in a past life, I remember dealing with a corporate resource accounting person (we affectionately called them the “corporate pukes”) who was single-handedly causing our division to have inaccurate project accounting. She had directed everyone to complete their timesheet with 40 hours regardless of the hours worked because any nonstandard timesheets created extra work for her. So all project accounting and planning was thereafter based upon flawed historical numbers. It took hours of arguing to get this corporate prima-donna to do it correctly and then years to gather the data needed to evaluate and improve our internal processes.
• Not optional — Always value ideas to improve procedures but be clear that until a new procedure is in place the existing procedure is to be followed.
  
  

Get really good at managing your biggest assets

For most wholesalers, these are people, inventory and receivables. Since I covered people above, I will focus on inventory and A/R. The goal is to have the right amount of the right products in your inventory.

1. Consider adding inventory — Some companies may need to add inventory if their inventory cuts have trashed service levels and are causing a “QOH=0” based erosion in sales even as their market is slowly recovering. This must be done carefully, but some companies have cut beyond the fat into muscle, tendons and bone. (I have heard stories where companies have entered what, in aviation, they call the death spiral. Sales are down so turns are down. To get turns in line, inventories are cut even more. These inventory cuts hurt product availability so sales go down more. (You can’t sell what you don’t have.) Since sales are down, turns are down. To get turns in line, inventories are cut further. I think you get the picture. When you become known as the “out house,” it can take a long time to earn back the customers’ trust.)
2. Spend time now to get your inventory and purchasing people at the top of their game — Most software vendors focus their training on using their software but don’t spend time on the broad basics of inventory management. This basic inventory training is fundamental to understanding the theory of inventory management. In some companies, people assume that the computer is programmed correctly, is configured properly for their company and that the numbers are absolute. This is not a formula for top-notch inventory management.
3. Most wholesalers only use a small percentage of the inventory management tools in their computer system — Admittedly, in some instances this is proper but, in most situations wholesalers can do a better job using some of the analysis, inventory management and purchasing tools that they already license.  As I consult with wholesalers, very few of the inventory and purchasing systems’ settings have been changed significantly since the system was first installed. While it is statistically possible that the system was configured perfectly upon installation, it is more likely that no one has reviewed the settings since installation. Possibly because they do not understand how the system works and how to get it tuned up to run well. Getting your inventory management system “dialed-in” can allow you to run with leaner inventory and less manpower.
4. Adopt an NBOO (Never be out of) philosophy for the critical 200-300 products and make it a corporate sin to ever be out of those products in any location — Never ever. This is one of the key components in proving to your customers that you really know how to run a supply house. Many of the computer systems in our industry have the ability to denote these special products and to add safety stock to prevent the horrible disaster of running out of the basics like PVC cement or 40-gallon water heaters.
5. Go after your money. That’s the money that you lent to your customers so they could complete their jobs but didn’t pay you after they collected for those jobs.
6. Many wholesalers treat the good honorable customers the same as the scoundrels — Be respectful of the honorable guys because they are your future — Be stern with the guys who need a wake-up call because some of them are your future. Play hardball with the bad guys to get your money and convince them to be part of another wholesaler’s future
7. Face-to-face meetings are an important part of good credit management — I am not the fan of the “call-the-customer-to-the-principals-office” style credit managers. They make the customer come in and grovel over their past-due account. These are expedient but often leave a bitter taste in the customer’s mouth. (Note: I think you even treat the scoundrels with respect when there is a choice.)
8. The best meetings involve visits to your customers’ shops — Both to get commitments and also take the opportunity to see, first-hand, how the shops look. These have the side benefit of treating the customer with respect. And while you may be upset with the customer, in the end you may want them to remain a customer for the long term. The idea is to, when possible, have the customer wanting to continue buying from you even though you may ultimately decide to end the relationship.
9. While this may sound old-fashioned, I do not think the e-mail-only credit managers that have become the norm in wholesaling are the best — I do think e-mail confirmations and communications are great, but they are not the substitute for customer phone calls, office meetings and shop visits.
10. The very best credit managers develop a relationship wherein they can coach the customers — The goal it to help them adopt better practices and to become better business risks.
    
    

Take the opportunity to get better credit agreements in place. I know your customers like the old one where you finance their business, have no say in how it is run, sell them product at low margins and end up holding the bag if there are problems. I used to say that no banker would offer those terms, but as we have all come to know, there were a whole bunch of stupid bankers who did much dumber things.

One last thought — As I write this, I am attending the P21 World Wide User Group meeting in Washington. (Thanks to Don Preston and the WWUG team for a great meeting.) Their guest speaker was Colonel Oliver North who provided the following disappointing information: While the unemployment rate for our country is just under 10%, the unemployment rate for returning military personnel is around 25%. These are volunteer men and women who have spent more time in combat situations than any other group in the history of our military. That our country seems to reject them as they return from service is appalling. So as your company recovers and begins to hire, please consider these men and women for your team. While you may not need the specific skill they used in the military, the organizational skills, the work ethic and the leadership experience do translate very directly into the needs of our industry.

As I said at the start, the odds have certainly changed in our industry and that means success is no longer as assured. There are things you can do to improve your odds so pick a couple from the list above or a couple from your own list and get going.