Instead of hiring additional salespeople or installing the latest software programs, distributors can grow revenue by tackling "virtuous waste" – expenses that appear worthwhile but are really a drag on profit, according to Bill Heitman of The Lab Consulting in this month's Executive Briefing.
Heitman and his colleagues at The Lab help companies uncover non-technology improvements they can make to their "upstairs factory" – not the warehouse, or downstairs factory, where product gets made and moved, but the finance, marketing and sales departments, the realm of a company's knowledge workers.
One example can be found in the sales department, where distributors often adhere to the old mantra of "let's keep adding sales people as long as they generate additional revenue." This can be misleading, because adding salespeople can actually become more costly through poorly optimized sales comp programs that cause delays in the order process.
"What we think is helpful is going the other way," Heitman says of adding salespeople. "If you look at the cost of this virtuous waste thinking, that can be enormous. On average we find between 10 and 20 percent of an earnings penalty. The tail end of a sales force will be cash negative once you consider all the cost.
"Once we cut out that virtuous waste, that money drops straight to the bottom line."
Learn more about implementing non-technology improvements and removing virtuous waste in the most recent Executive Briefing.
To see The Lab's presentation on non-technology improvements, download the PDF.
