In any economy, variables like supplier pricing changes and competitor market moves make it a challenge to accurately predict growth. This is especially true in a volatile global economy, and according to Brent Grover in The Little Black Book of Strategic Planning for Distributors, macroeconomic factors aren't the only thing distributors should factor into their plans.
"The specific concern is the micro-economy, the customer segments in the region and particularly major customers," Grover says. If customers have announced hirings or layoffs or plant openings or closings, those factors must be taken into account when forecasting growth. Expected acquisitions or divestitures in the sector can also help or hurt volume, affecting the viability of the business plan.
The micro- and macro-economies affecting distribution are beyond distributors' control, but planning for the disruptions they can cause isn't. To prepare for variables in the external environment, Grover recommends having a plan for how to handle the worst-case scenario, in addition to distributors' annual base-case plan. The worst-case plan outlines, in terms of sales and gross margin, the worst possible scenario that management feels can reasonably be anticipated.
In the worst-case scenario, many of the assumptions behind the base-case plan turn out badly. But if management can detect, through close tracking, warning signals that the base-case plan is turning worst-case, a contingency plan can immediately be put into place. This allows distributors to respond instead of react to uncontrollable variables.
For the worst-case plan to be viable, distributors must implement it at just the right time. "The effectiveness of the backup plan is negated when there is too little time available to take meaningful steps," Grover says.