Tom Gale, Author at Modern Distribution Management - Page 24 of 28

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Posts By Tom Gale
While the lead article's title - Manage the Panic of 2009 - might seem extreme, it's important to clarify its real meaning. Reports we're hearing from distributors in January indicate they are not in panic mode. On the contrary, every distribution company has become very focused by necessity on cost control, created by the panic and instability in financial markets.
 
I think that's an important distinction. This isn't a typical downturn, where a company just needs to reduce costs across departments by a certain percentage until the tide turns. This time a distributor needs to upgrade financial skills.
 
The traditional financing and cash flow models distributors have used for decades have changed significantly, with much tighter ...
General Motors and Toyota both announced 2008 vehicle sales this week. General Motors said vehicle sales dropped 11% in 2008, with a 21% drop in North America and a 6.5% drop in Europe. Toyota saw its global sales drop about 5%. Distributors are feeling the ripple effect from automotive supplier customers far, wide and deep.
 
Automotive supplier musical chairs is in full effect from a distribution perspective. If your customer plant is still running, it might even be increasing production as work is shifted from other operations, now shut down.
 
As some automotive suppliers struggle and go under, some distributors are seeing tooling and production work shifted to other suppliers, again with some increase in business on that end. But the good news in January is ...
Brent Grover was our speaker on an MDM Webcast this week, and as always with his background as a CEO and CPA, addressed a range of focus points for distributors to review as they manage the panic of 2009, the title of his talk. Brent is far from an alarmist, but he argues that this downturn is structurally different than others most business executives have experienced.
 
He covered the details, levers and pain points across several financial areas - financing, credit, cash flow, cost control - and how distributors can sharpen their focus in each. As moderator, I felt it offered some benchmarks and tools for distributors of all sizes to form the core of an executive team meeting on how to tighten the seams of the ship, even in the middle of a ...
The above is shaping up to be the theme for 2009. It's also the message so far from a strong response to a profitability survey MDM is conducting (see end of article for link if you haven't filled it out). We will have a full survey report (with participants' getting the first executive summary) in February, but I'd like to share a few early indicators, coupled with feedback on what we're hearing from distributors.


This first full week of 2009 brought more bad news for manufacturing globally. In the U.S., wage and hiring freezes are starting to go into effect for 2009. Many distributors are targeting cost reduction of 5-10 percent this year, including headcount, to match anticipated revenue drops. With shaky indicators starting off the year, ...
When it rains, it pours. Sometimes it sleets and snows, as well. With weather before Christmas hurting retail traffic in an already slow year, bad news is flowing freely.
 
Many manufacturers and distributors are making tough decisions as the New Year approaches. But it's important to keep a healthy perspective, manage what you can control, and focus on the future. With that in mind, it seems appropriate to end this year with a few thoughts of what we have to look forward to in the many niche distribution markets that make this industry strong, flexible and resilient. Let us hope and work to grow in the next few quarters!
 
Demand will build. Even as we hear continued dismal monthly reports on housing starts and car sales, demand is in fact starting to ...
Some distributors have been reluctant to deploy and train their employees on email because it carries technical and management issues with how to use it appropriately and effectively.
 
It's time to rethink email as a tool. Email does not Spam people; people Spam people. Your competitors are using email to not only reach your customers, but they are using it as the most efficient and cost-effective way to reach your customers. Can you say the same? If you argue that your customers don't spend time online, it may be true that they don't visit your Web site to shop for their supplies. But do they use email? Do they have mobile devices?
 
Email marketing expertise and tools are evolving at a fast rate. Some distributors are able to segment their email database into key ...

For many distributors, the first thought about what the Internet can do for the business is negative. After all, if someone comes to your Web site to check inventory in real time only to find you are out of stock, that customer will likely go to the next source, right? Or if you put pricing out there, then you may be more vulnerable to point-and-click comparisons.

In both regards, the desired result is a phone call to your salesperson to gain deeper information to provide the best solution. Two-day delivery may in fact be adequate. A lower price out in cyberspace can include a lot of unknowns (service, delivery, quality, reliability).

But instead of thinking how the Internet might damage the relationships that your company has built over the years, consider how ...

Last week produced more economic bad news: chain store and vehicle sales down, a labor market in self-reinforcing decline. The data is dismal. Our lead article in this issue on construction markets indicates that many expect a tough year ahead before improvement. The severity holds parallels to what industrial distributors went through eight years ago.
 
So this is where I have to say the sky is not falling. The feedback we are hearing, including at the recent Power Transmission Distributors Association meeting, doesn't match the TV chatter regarding the economy.
 
The general consensus across industrial sectors is this: Most distributors and manufacturers expect a flat to 5 percent decline in sales for 2009. The only sector falling off a cliff so far is ...
Alan Greenspan has gone from irrational exuberance in his description of the stock market boom of the 1990s to a once-in-a-century"credit tsunami in 2008. The subject lines of my Wall Street Journal news alerts daily look increasingly like tabloid magazine headlines -"Dow Plunges!"But as we are seeing, wait a day and the news is reversed.
 
Sometimes a wake-up call is healthy; panic never is. Anyone who experienced the media's lack of understanding and coverage of the last recession at the beginning of this decade have a large and healthy degree of skepticism about what we see on TV and read in newspapers about the current crisis. But the reality gap is at its greatest right now. Fear and speculation are driving sound bites about how bad it might get.
 
As the lead ...
Results from the 2008 3PL Provider CEO Perspective"surveys were presented recently at the Council of Supply Chain Management Professionals Annual Global Conference in Denver. The findings offer some interesting parallels to what distributors are experiencing.
 
Incorporating insights from 20 CEOs in North America, 10 in Europe and nine in the Asia-Pacific region, this year's research showed some of the lowest industry revenue projections in the history of the surveys. Sponsored by Penske Logistics, the surveys found the "greening"of supply chains and the 3PL industry, as well as continued pricing pressures among the top industry trends, and cited rising fuel prices and a slow-growth economy as key challenges facing the industry. A trend toward reverse globalization was also ...
Some of us attended Gordon Graham seminars in the 1990s. He is widely regarded as the father of distribution inventory management principles and the driver for getting those principles built into most of the first- and second-generation distribution software packages. He helped define state-of-the-art in information technology for distributors for more than a generation. What a new world today by contrast.
 
Consider that in the mid-1990s, only a few providers had revenues more than $10 million. The three biggest were Prophet 21, NxTrend and Eclipse. Prophet 21, estimated to be the largest, reported 1996 revenues of $36 million. By 2005 when it was sold to Activant, its revenues were pushing $90 million. Today it is part of a company several times larger (and includes ...
As a pivot point in the flow of products from the point of manufacturing to end use, distributors have several key roles -scout, gatekeeper, product and solution provider, marketer, arbiter. Every successful distributor combines these roles into a unique set of skills that creates value for customers as well as suppliers. Distributors create the most efficient market system into highly fragmented industries and local economies by effectively managing these market relationships both upstream and down. It's a fairly simple equation that is complex to execute well.
 
Not that most distributors have time to sit around and ponder their place in the universe. But that's just it. The interview that leads this issue touches on a key differentiator that separates a relatively few ...
Every business tends to put on a full-court press to get customers in the door. Many have processes to build existing customer relationships into larger ones. Fewer businesses have a process for saying goodbye or retrieving ex-customers. But in tightening markets, distributors often see customers jump to a lower-price competitor. How often do you experience a customer returning after a year, or after they realize the better value your company delivers? What percentage of lost"customers return?


These issues came to mind following an unpleasant experience closing the account with our credit card processor. I switched to a more cost-competitive service after four-plus years (three-year agreement with automatic annual renewal) with an Omaha-based affiliate of my local banking ...
The first two articles in this issue are indicators of how this industry is maturing. At the risk of oversimplifying, it wasn't that long ago that success was often defined by getting orders translated accurately into invoices, then into envelopes in a timely fashion. A broken dot-matrix printer impacted cash flow! Pricing policy took shape in sales meetings, phone calls and split-second decisions on a case-by-case basis by each salesperson. When sales go up, get more order takers and processors to handle the increased volume. That model worked pretty well for many distributors until the downturn in the early part of this decade.


Today, more distributors are moving to electronic invoicing and ACH payments. Some dedicated niche applications, such as GPS-based delivery ...
An engaged board of advisors can be a significant differentiator in how well a company performs. With that in mind, we invited MDM's Board of Advisors to spend two days helping us in our planning process as we continue to expand our coverage of wholesale distribution. MDM is a relatively small company with six employees. Our meeting reinforced for me the need for outside perspective and strategic planning for any size company to grow to its potential.
 
In addition to our board, Brent Grover was a guest at this meeting, offering his unique perspective and insight. In combination with regular surveys and input from all our readers, our board is critical to help us develop editorial focus for the year ahead, as well as offer their deep experience and industry knowledge as we ...
This issue includes an interview and articles on global market changes, private label strategy, a major international acquisition in the office products distribution sector, an analysis of ESOPs, and how one distributor is leveraging environmentally-friendly product offerings.
 
My first thought regarding this mix is how different distribution markets look today. Green"products were not part of the line card ten years ago. But like the happy lobster feeling the temperature of the water rising nicely, maybe my memory isn't perfect when it comes to incremental changes. So I drew some help from the MDM Archives.
 
In 1998, suppliers and distributors were dealing with major structural changes in channels with the growth of integrated ...
Is it a buyer's or a seller's market in wholesale distribution mergers &acquisitions? I think the answer is both, as there are a lot more variables on how value is being measured than even a year ago. If you run a tight ship and considering a sale, your value is still historically high. If you are a buyer with a clear strategy and view of current markets, there are great opportunities.


As this issue's lead article details, the feeding frenzy of the past few years in wholesale distribution merger &acquisition activity is over. But note carefully that deal-making is not. Mega-deals with double-digit EBITDA valuations have cooled in risk-averse credit and economic climates. Well-managed smaller distribution companies are in some ways more marketable than ever, particularly as ...
Distributors have ample opportunity to take the lead (and build stronger customer relationships) in creating leaner and more productive supply channels. Author Joel Roth says he wrote The 20% Solution, some of it excerpted in this issue, to address the frustration of purchasing professionals who have difficulty dealing with MRO procurement. He gives the following recent example of how corporate buyers can go amiss:

A well-known international manufacturer of building materials tried for 15 years to install an effective integrated supply program for MRO. Three costly attempts failed. Their fourth attempt led to the following Request For Quotation: Time allowed for bidders to respond -13 working days. Total corporate spend on miscellaneous mill supplies -$1.2 million ...
Distribution associations, like most of their members, have been challenged to redefine and focus the value they deliver. Many associations have initiated a strategic planning process to address shrinking membership and participation due to industry consolidation, as well as new competition in the form of marketing groups and other alternate education resources, including trade publications.
 
I recently attended the Fluid Power Distributors Association (FPDA) annual meeting, where they unveiled the results of a three-year strategic planning process. The fluid power industry has been particularly challenged as new electro-mechanical technologies have rapidly developed. In a nutshell, they are aiming to elevate the networking and education value the association can offer, while ...
The economic outlook in our lead article notes that the link between industrial distribution revenues and manufacturing activity has weakened as traditional industrial distributors have diversified into more general commercial facility supply.


I have certainly seen distributors push hard into new product sectors and customer segments in the past five years with great success. You could argue that this trend is the natural outcome of how industrial channels have matured since the 1980s. Systems contracts emerged as the first step to manage MRO industrial supply procurement from a process versus product focus. Yes, there were clearly some similar models in the first part of the 20th century, but manufacturers held a different position in controlling distribution channels. ...

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