Commentary: Focusing on Profitability in a Time of Strained Sales Growth

When I started as editor of MDM in 2005, I was consistently writing news articles each quarter on double-digit sales increases. It's no surprise, given current economic conditions and financial market turmoil, that double-digit growth has been a rarity in recent quarters.
 
Most distributors focused on North American markets are recording single-digit growth. Those focused solely on construction-related markets have recorded steep declines and net losses -a fundamental change. Manufacturers with business abroad have seen double-digit growth, but when they break it down, North American sales are low single digits, flat or negative. As a result, many distributors and manufacturers are focusing on profitability.
 
As we wrote recently in MDM, distributors should make up for sales declines with the gross margin. Profit Planning Group's Al Bates, well-known in the distribution world for his expertise in distributor financials, told MDM that now is a good time to address pricing. He said, aptly: If I manage the gross margin area properly, I wouldn't smile through a recession, but at least I wouldn't be frowning as much."Bates also said that most distributors -even if they do a good job on gross margins -have inefficiencies.
 
Enter lean. On the front page and page 4 of this issue of MDM are two articles on lean -one a case study by a dental supplies distributor who has worked to improve internal processes for the past five years, and the other an interview with an expert who recently wrote a book on the subject for the National Association of Wholesaler-Distributors.
 
Once seen as a tool for manufacturers, distributors squeezed in the past year are looking for ways to cut costs without fundamentally altering the structure of their businesses. Cost-cutting can be hard on morale, especially where layoffs are concerned. But lean offers the opportunity to trim costs in places you may not have considered before. Still, thoroughly educating your work force is key so that everyone will jump on board.
 
Toyota was a founder of the modern lean concept, using a series of simple innovations to provide continuity in process flow and product offerings. The system focused on the flow of the product through the total process, according to the Lean Enterprise Institute. The idea was to obtain low cost, high variety, high quality and rapid throughput to respond to changing customer demands.
 
The process takes a big change in mindset throughout the company -something to keep in mind if you decide to embark on what many have called a "lean journey."