Process Improvements Influence Bottom Line
Moving product from manufacturer to contractor simplifies the definition of wholesale distribution. What it doesn’t account for are the multiple processes that distributors employ to effectively accomplish product movement and customer satisfaction; all while endeavoring to make a profit. In the recent economic uncertainty, increasing profits has been a challenge that some distributors have met with decreasing its workforce. The 2012 Distribution Monitor Report released in September of last year, however, showed that as hiring begins to increase in some areas again; distributors are going to have to look in other areas, such as process improvements, for increased profit.
“Distributors will increase investments in process improvements this year compared to last,” said the study from the National Association of Wholesaler-Distributors (NAW) Institute for Distribution Excellence and McGladrey LLP. “Thriving organizations are more likely to increase these investments than firms that are holding steady or declining. Thriving firms also are more likely to have increased productivity in the past year. The primary objectives cited for improvement initiatives are to reduce costs as well as to improve quality, customer satisfaction, and speed.”
Depending on the size and type of operation, there are multiple approaches that can be employed to improve processes. The following are just a few approaches a distributor could take.
STRATEGIZEW. Edwards Deming, an American statistician and consultant credited with improving U.S. production during World War II, stressed the importance of having a process and a system and understanding what each mean to the company.
“If you can’t describe what you are doing as a process, you don’t know what you’re doing,” he observed. “A system is a network of independent components that work together to try to accomplish the aim of the system. A system must have an aim. Without the aim, there is no system.”
Having a process and system does not guarantee success, but engaging, understanding, and improving processes and systems often requires distributors to take the time to strategize.
For Jonathan L.S. Byrnes there are three pillars of strategy - customer value, saying no, and being the best at something. He describes these three pillars in detail in his latest book “Islands of Profit in a Sea of Red Ink.” Byrnes, a senior lecturer at MIT, points out that customer needs are moving targets that cannot be met strictly with a process that provides for these needs. His first pillar of strategy challenges a business to make creating relationships with customers a part of the process. The second pillar Byrnes describes is the value found in saying no to a potential business opportunity. He emphasizes that a business cannot be all things to all people and that it shouldn’t endeavor to do so. The third pillar calls companies to differentiate themselves by becoming the best in one area. Byrnes also cautions against chasing business stolen by the competition. He recommends that a company strategy is unique as well as focused and that it plays to the business’ strengths.
ANALYZEWith a process in place and a strategy to give that process focus, distributors are faced with determining what is adding to the bottom line and what is detracting from it. Analytics can help accomplish this task of success measuring. Experts agree, however, that it is not enough to strictly gather or measure a large sum of data, but it is imperative that the data be examined, interpreted, and acted upon.
“Always important, analytics are now a required core competency that must be embedded within the distributor organization and elevated to a strategic level, and analytics play a crucial role in leveraging complexity and improving decision making,” wrote Guy Blissett in “Facing the Forces of Change®: Decisive Actions For an Uncertain Economy,” another comprehensive study done with the NAW Institute For Distribution Excellence. “Although analytic technologies and tools, such as price optimization and activity based costing, can be of great value, it is equally important that a distributor’s people and processes adapt to and embrace analytics.”
Blissett is the wholesale distribution lead at IBM, the company that partnered with NAW to conduct this study and subsequently release its findings in the book.
“For distributors already on the road to becoming analytically driven businesses, complacency is not an option,” Blisset warned. “For those beginning the journey it is not too late, but they will have some catching up to do.”<
INCLUDE THE TEAMCombining strategy and analytics into a focused, process and relationship driven distributorship can help improve a company’s success and its position in the competitive field. The key to continued success in these areas of management is to get started, be committed to the process, and continue to improve and evaluate each one. One final suggestion from many management experts is to include key staff members in each step of creating, analyzing, and improving processes and strategies.
“It is important that an aim never be defined in terms of activity or methods,” said Deming. “It must always relate directly to how life is better for everyone...The aim of the system must be clear to everyone in the system. It must include plans for the future.”
For more information on process go to www.nawpubs.org, www.mcgladrey.com, or www.jlbyrnes.com.