20 questions minus 6 to help you thrive
until everyone else thrives

BY RICH SCHMITT
Management specialist

By the time many of you read this, you will be entering or have entered into the slow season where the weather causes outdoor work to stop and the upcoming holidays have most people thinking about turkeys (not the deadbeat customer kind) and shopping (unfortunately, not for pipe and fittings.)

In the “good old days” when business was booming, it was a time to rest, relax and recover so you could be prepared for the next year’s onslaught. Long, expensive vacations were taken. With the glut of business, very few wholesalers felt the need to review or adjust their strategy or tactics. To paraphrase the guy on Prairie Home Companion, “All wholesalers were above average” — or at least they thought they were. So there was no need to change.

The downturn has had a sobering effect on every segment of our industry. Many companies have discovered that they are, in fact, below average. Most companies cut spending, heads and frills attempting to right-size their business. Some did too little and were able to “triumphantly” lose less money than they were going to. The executives from these companies often lament that they waited too long, cut too little and then were forced to make more cuts. The end-result was right but the pain was doubled. I equate this red-ink “triumph” to the concept of “sucking less” that I have discussed in previous columns. “We lost less money than we budgeted” may be the best possible performance — but it is not the rallying phrase for a company’s motivational poster.

Some wholesalers did enough cutting and were able to come through the worst, in the black. My hat is off to those companies. As I have talked to executives, it has been a tough, painful couple of years that no one wants to repeat. I find it interesting that, in all my discussions with companies in the industry, not one company has claimed that they cut too much.

It will get worse and stay crappy longer

I am certainly not an economist and have no crystal ball but, as I write this, I think the odds are that it will get worse and stay crappy longer. (I think “crappy” was a forecasting term coined by one of the famous economists who continue to prove that they too are without a clue due to the government wildcard.)

I know discussing politics will offend some but I can assure you that my concerns are with both parties. From where I sit, we have a president who will sacrifice the business community to get reelected and a congress that will sacrifice the country to get reelected. All the while, both sides scream polarizing sound-bites so they can appear to have principles that justify their uncompromising self-interest. Sorry for the rant. I am very concerned that, going forward, our dysfunctional government is going to have a more profound negative impact on the future of our economy and industry than the sub-primes did. I hope I am wrong.

In this economy, all of us surely need to relax and recover. However, instead of relaxing, I suggest that this season should instead be a time for reflecting, rethinking and redirecting your operation so you are prepared for the upcoming difficult years. So the prescription this month is to ask yourself some questions, answer them thoughtfully and act upon your conclusions.

Is there a plan for using this slow time wisely? The holidays and cold weather make it easy to squander this time without a plan and some objectives. If management doesn’t plan and lead this effort enthusiastically, you will miss this opportunity. You won’t lose much ground if your competition is also lazy since nobody will gain any competitive advantage. If you take a nap and your competition is hungry, you may lose ground coming into next year.

Are you configured to make money? I suggest that if you are not making money, there is no better time than immediately to change that. I am not sure, but I have always assumed that the red ink associated with losing money represented that the company was bleeding — or even worse, hemorrhaging. If you are losing now, you can only assume that you will lose even more if the economy gets worse.

Are you right-sized now? Planning for flat or down in 2012 might be prudent.

How will your market be different next year and the following year? Instead of waiting for the stuff to hit the fan, why not prepare now for the outlook that seems most probable?

Do you have the right team going forward? A great team is a mix of experience, energy, positive attitude and intellect with everyone pulling their weight. This is always a tough question to answer honestly but you must. If you don’t have the best and brightest, you have work to do.

Do you have the right person managing your pricing? Maybe more to the point, do you have anyone managing your pricing? I am not talking about inputting cost changes from your vendors. I am talking about thoughtfully-managed, market-based, customer-specific pricing that gives your sales team profitable, credible pricing for every product you sell. If not, you have work to do.

Do you have the right person managing your A/R? For years an A/R clerk could make the monthly dunning calls and reminders to keep the cash flowing. Going forward, your A/R person will be part lawyer, part consultant, part nagging mother and part Atilla the Hun. If your current person doesn’t have the ability to fill that role, you have work to do.

Do you have the right person managing your inventory? If your inventory guy says he doesn’t use the computer system’s replenishment tools because they’re flawed, the odds are that he doesn’t understand it or hasn’t configured it correctly. You need a good inventory person who understands the theory, knows how to use the tools in your computer and has good judgment. Remember, this is your biggest asset and if it isn’t being managed by one of your smartest people, you have work to do.

Are your facility and equipment in top shape? Now is a great time to get ready for the next season. If there is no plan, you have work to do.

Do you have a marketing plan for next year? While there are some pessimists out there, I am pretty sure that April will be arriving just after March has ended. Why not get a marketing plan in place and begin work on the marketing materials that will support that plan. Some might say that they can’t plan until they know what the manufacturers will do. Most wholesalers stocking list will be 90% the same next year as is was this year.

Do your ERP and webstore have robust lists of associated items or accessories that customers should buy when they buy the product that they requested? Get your product experts to thoughtfully build the lists in your system. Then train your counter and inside sales people to actually use the lists to remind customers to buy the whole job from you. (These may be higher margin products.) Make sure your webstore uses these thoughtfully created lists not those stupid programmed associations like, “Others who bought this toothbrush also bought hemorrhoid cream.” Statistically, some of these lazy associations will score but the ones created using your expert team’s product knowledge will be far more helpful to your sales team and your customers.

Are your website and webstore up to snuff? You are or will be getting disqualified from business when your site and webstore don’t compare well to your competition. I don’t claim to know your customers or your market but I think your time window is now one to two years at most and probably measured in months for many wholesalers. A good business-to-business store won’t bring you hundreds of new-name accounts but it will provide some defense against losing the 10%-12% of your customers who will soon want to order material on line. And if not from you, they will find someone who has a store. After they have left, you may not be able to lure them back when your store is finally available…even if yours is better.

Do you have a top-shelf sales team? I don’t mean do their expense reports indicate that they are buying customers expensive booze. I mean, look at each salesperson and ask yourself where they slot in:

1. Order taker: Probably knows the most popular products that you sell. May not remember all the products you sell, so tends to sell the familiar narrow band of your total offering. Often they get the low margin sales but probably aren’t getting the high margin add-ons. Main strength is reminding/nagging customer to buy from you. Product availability and price are main basis for comparison against competition. This function can be replaced by most internet stores so this type of sales person will probably not promote your online store and online services. He might prefer to lose the business to a competitor than to your webstore.

2. Product seller: Good knowledge of what products you have and about those products.

3. Value seller: Can promote the overall value package that your company offers. Internet stores do not replace this type of salesperson now or for the short term.

I still feel that a good outside sales force can be a good investment in our industry. The problem is that some wholesalers are investing in a mediocre sales team and the value of that investment is questionable. If, in your heart, you wonder whether your sales force is still a good place to invest, you have work to do.

Are you a high performance wholesaler? Most wholesalers answer this question, “It depends upon what you call high performance.” I suggest that every wholesaler should have some hip-pocket metrics that show the company’s performance and the owner’s threshold for high-performance. You don’t need many to be effective. Of course, managers need measures for their profit centers. Ideally, each team member has measures for the small part of the business that they control. Most companies establish too many which overwhelms their team and can hurt performance.

Are all of your locations positioned properly? Several years ago, I visited a client’s founding location to discuss pricing management. When the company started, it was an outstanding location but the neighborhood had changed over the last 10 years. I was somewhat concerned about my safety as I drove down the street to their location. I remember thinking that the location would appeal to contractors who needed copper fittings and crack cocaine. They could get both in a single trip. (To be clear, my client would have supplied the copper fittings but not the crack.)

I must also admit that I am by nature overly cautious so I was very uncomfortable. I convinced myself that I was being paranoid and continued to my appointment. My concerns were confirmed as I drove back to the airport. I had stopped at a red light and a car pulled up beside the car that was two cars behind me and pumped over 10 rounds from a handgun into that car.

For the record, I quickly assessed the situation and determined that it did not require the services of a pricing consultant and left the scene, possibly, at times, exceeding the posted speed limit. I later found that I was incorrect. The news report indicated that the incident did involve a pricing objection. One party had suggested that the price was too high and had, in the course of negotiation, used the phrase, “over my dead body.” The second party had simply accepted that proposal.
The point is that many trade contractors would probably avoid this store unless they had no alternative. Even though there was a lot of history and plenty of nostalgia, it was an old store in a bad place. I think it took a couple more years for the wholesaler to move. The economy was good and the other locations were doing well enough that it reduced the urgency to move out. In this economy, few companies can tolerate a bad location. And even if a company can tolerate a bad location they certainly shouldn’t tolerate a bad location.

I’m certainly not suggesting that you miss any of the opportunities to give thanks or enjoy the holidays, but I do hope you will use this time to reevaluate your situation and to prepare your company for the coming year. If I am right and the market sucks, you will have improved your odds of being profitable and surviving. If I am wrong, you have improved the odds of making even more money. Best wishes, and have a happy Thanksgiving.

Rich Schmitt is president of Schmitt Consulting Group Inc., a management consulting firm focused on improving the profitability of distribution and manufacturing clients. Rich is also the co-owner of Schmitt ProfitTools Inc. (SPI), a business producing print, CD-ROM, web and palm-based catalogs as well as pricing management and analysis software for wholesalers. Go to www.go-spi.com for more information.