It’s a good time to re-evaluate and prepare for the ‘busy season’ ahead

Make no mistake, this is not a benign situation. To perpetuate this situation is a demoralizing insult to the employees who must backfill or offset the non-performing coworker. Now is the time. As always, consult your labor attorney before you act to insure that your actions are proper.

A suggestion for the real softies, if you have someone who is not performing and you, for whatever reason, cannot let them go, consider sponsoring their efforts outside the company. Contribute their efforts to a charity, have them perform odd jobs from home or just pay them to stay home. 

Products

Most wholesalers have too many products. They have too many product lines and often too many units in stock.

Many wholesalers use industry comparisons that give them comfort as to the total dollars invested, but upon investigation have a bad balance – the dollars are invested in the wrong items.

One caveat, a full-line wholesaler will normally have some stock items that are stinkers and even have some product lines that stink. To operate as a one-stop wholesaler for specific types of customers, that may be required. There may be some slow-moving items or repair parts that fit this description, but are important to have in stock in order to support their contractors. With that caveat, most wholesalers still need a bunch of work on their product offering:

Look at lead times: Why keep a 60-day stock when you can replenish reliably in five days, with quick-ships in two days? Why keep a 60-day stock when replenishment takes 90 days?

Look at safety stock: Most wholesalers use the same percentage across the board for bread-and-butter items and dog items.
Focus on the important products: Most wholesalers who stock around 10,000 items will see that 80 percent of their sales will be in the top 1,500 to 2,000 SKUs so it is critical to make sure that you have plenty of those items. When a wholesaler is stocked out of one of these items, it has the potential to materially impact its performance. 

Look at customer service: Do you ever stock out of bread-and-butter items? When you do, your customers hold it against you for a long time.

Do you have too many faucet lines? Most wholesalers have more than they need and can support from a sales and inventory perspective.

Do you need to stock four brands of duct tape?

Do you have a stocking list that was developed and approved by the inventory management team and the sales team? Nothing comes into stock without the mutual consent of the people who manage it and the people who sell it.

Do you have an inventory budget?

Pricing

Given our history, we will end with pricing. Consider doing something in 2016. Not just lip service:

Get a pricing manager in place, managing your pricing. This is not a clerical person who updates costs. (You need cost updates, but pricing is a marketing activity.)

Spend time to understand the markets you serve so your pricing is not a series of shots in the dark followed by panic adjustments.

Establish market-based, fair pricing for every item you sell for every type of customer you sell to in your computer. Insist that your team lead with that price in all situations, unless they can provide market data proving that the price is not market-appropriate. Then adjust the computer price as needed.

Make pricing concessions on individual items to the specific customer with a grievance not all items in the product line to all customers.

Focus on the important products : As described above, 1,500 to 2,000 items typically drive a company’s sales. These must be priced actively and carefully. The remaining products need to be managed, but with less precision.

Reduce the number of people who can adjust prices: A great majority of them have little understanding of pricing and the market so they are mostly just taking shots in the dark. Plus they probably have no understanding of what gross margin is and how much is needed to keep the company running so most tend to aim lower than required to sell the product and much lower than the company needs.

One of the pricing solutions in our industry credits its profit improvement to its “secret sauce.” We suspect the real secret is removing price-changing ability from the masses.

Do you need 59 different prices for a water heater? 

Remove cost and gross margin from every order entry screen: Many of your team will use it as an excuse to drop the price. Few if any will use it to the company’s benefit. Pricing is determined by how much the customer will pay.

So while you are watching the snowfall or chilling during a slow day, you can pull out your list and get yourself and your part of the organization prepped to kick butt when the business takes off.    2Spring is just around the corner, and it’s time to dedicate some time preparing for what is the “busy season” for most wholesalers. For many wholesalers there is some time to reflect on the previous year and to adjust the business to avoid last year’s mistakes and to fully leverage the opportunities that 2016 will bring.

Here’s our list of things to consider in your process. As always, you will need to adjust the list to your business and add items that we may have missed.

Expansion

Are you properly positioned to grow? There are many reasons to grow ranging from financial stability to employee morale; so we always recommend that you seriously consider a plan for growing.

As you build your plans to grow, always remember to factor your plans using constant dollars – meaning, net of the inflation rate. As we write this, the numbers are not in for 2015, but they are projected to be less than 1 percent.

While the impact may not be as significant in 2015, the concept is critically important. If the 2015 inflation rate was 2 percent and you grew 2 percent in 2015, you didn’t really grow the business, your boat just went up with the tide.

Take a peek back at your numbers over the last five years to check your progress in constant dollars. If you grew 5 percent over the last five years, you lost ground and are actually not keeping pace.

We like the U.S. Consumer Price Index as a basis for our industry, but we are not economists and you may like another measure. (As you calculate the constant dollars, remember the inflation is compounded so you cannot simply add up the inflation rates to check your performance.) There seem to be a bunch of online tools that will compute the compounded rate for you.

Additionally, you need to plan how you intend to grow, if you want to exceed the rate of inflation. There are lots of ways to grow, but most involve effort and investment.

As an aside, we like to think of wholesalers as logistics companies with warehousing, transportation, sales and back-office functions. You can often run additional products through that logistics system with reasonable incremental expenses. These are interesting opportunities as long as you remember that you will always need to pay your dues when new geographies, new customers or new products are involved. To assume otherwise can result in consequences ranging from embarrassment to disaster.

Tom Peters wrote, years ago, that the most successful companies evolve their businesses as opposed to making leapfrog-type changes. A plumbing wholesaler might expand into irrigation or HVAC with good odds of success. Conversely, the successful introduction of women’s apparel would be a long shot.

One Colorado wholesaler recently suggested that he was considering an expansion into legalized marijuana in his multiple location operation. His signage would only require a minor adjustment to “Pipes, Valves and Fittings.” We will keep you posted.

People

This is the sad part of our column. Over the past year some of your team has retired. Typically, you will miss them. Some other retirements, however, will be good for the company since they were no longer helping the company and may have been actually hurting it.

Then there is the third group of people who retired, but you won’t miss – since they’re still on the payroll.

We like to call this group ROADs (Retired On Active Duty). They may have noticed that the role was left vacant by someone else’s departure or that the role had gone unfilled. Your job is identify these gems and to offer them the opportunity to generate a contribution that is proper for their compensation.

This opportunity can be a revitalized sense of urgency for the individual or an adjustment in compensation. Sometimes individuals are promoted into roles that they cannot master and the right thing to do is to move them back into a role they can master, of course, with a proper adjustment in compensation.

When, even after a concerted effort, the calculation of fair compensation would result in the employee paying the company for his employment, the fair approach will be to offer him the opportunity to work elsewhere. Under-performers come in many forms, but in our consulting we find them at all levels of the organization and at any age. 

Our industry has had an extremely loyal and benevolent view of its workforce, which is one of its great strengths. We would suggest that some wholesalers are benevolent to a fault and that changes are appropriate: When the employee does not, through his actions, demonstrate an intent to contribute commensurate with his position in the organization, he is not holding up his end of the deal.

When the employee does not merit his level of compensation, he is not holding up his end of the deal. The wholesaler is obligated to hold up his end of the deal, but not both ends.

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