Distribution Expert Prefers Benchmarking
MAUI, Hawaii - Bill Shaw, currently the president of the HARDI Foundation Board of Trustees, and former Heating, Air-conditioning, and Refrigeration Distributors International (HARDI) president introduced Mike Workman, professor emeritus of Industrial Distribution at Texas A&M University during opening day of the 2011 HARDI Annual Conference. Workman’s topic, “Realizing 2006 Profitability with a 2012 Mindset,” started off with the keynote speaker asking the questions, “Really?” and “How?”
Workman told the group that he believes markets for distribution services have changed more in the last three years than in the past 30 years. “But, it is not change, but the rate of change, that really drives us crazy,” he said.
According to Workman, economists are predicting that it will take many years to return to the prosperity of 2006. In his session he offered a road map that could deliver 2006-like results.
“The first task of a leader is to take the past out of the future and put it back in the past. The past has nothing to do with the present. Who and where we are in the present is a given. The second task is to enable people to create a vision of their future and how they are going to create that future in the present,” said Workman, “You want them to be able to handle things on their own.” A critical requirement is to define what you want from everyone that you work with; raise their expectations in such a way that they contribute to the organizational goals.
HOW DISTRIBUTORS GROW REVENUE“It would be hard to charge for services that were once provided for free, so you must evaluate the alternatives,” said Workman. He then presented a list of about 10; here are a few from that list.
Lower your expectations. Also, known at Texas A&M as “go ugly early,” said Workman to laughter from the crowd. The meaning here being to set more attainable goals when the initial goals may be out of reach. Not always a suitable alternative, according to Workman.
Remove more costs. To which Workman said, “For most distributors, I don’t think so, that’s already been done.”
Get more for less. Squeeze your customers and suppliers. Not always a popular approach.
Redefine your business. On both the buy and sell side of your business, evaluate your core business.
Reduce the efforts. How many things are you doing that you don’t need to be doing? “Jack Welch, former CEO of General Electric, operated according to the principle that between 30 to 60 percent of activity was not needed, and not productive to the company. Invest in three initiatives, or maybe just two, but determine what is most important and focus only on those few things until you get them right,” said Workman.
After the keynote, Workman told Distribution Center magazine, “I’m going to pull input from the meeting today, and from six discussions I have scheduled with distributors this evening, and then talk to the group on Wednesday about the keys that HARDI members told me must be addressed to ensure profitability. When we address those key needs, what I want to do is send them home with some how-to information; not to do all the stuff, but to pick two or three for implementation back in the business.”
INTERACTIVE “WORK”MAN SESSIONWorkman presented a second keynote luncheon address two days later, which pulled from his prior session and meetings. During this interactive session Workman directed the manufacturers and distributors in the audience to go to the web-based HARDI conference app, to provide answers to several questions, which were shared immediately in real-time within Workman’s charts displayed on the stage screens.
One question for distributors was: In your business model for the next three to five years, what is your greatest need? The immediate results which flashed on-screen were: Talent – 48 percent; Marketing information – 30 percent; Technology – 16 percent; and Available capital – 5 percent. One point Workman emphasized during the presentation was a change in selling strategy that he expected to see in 2012. “Successful organizations will move from providing better sales relationships to providing sales competence. The key will be systems and tools to improve the sales experience,” he said. “This is an internal change rather than an external one. In other words, better infrastructure support and the results that will come from that are much more critical than having a better salesperson.”
On the subject of managing the workforce, and especially the sales force, Workman said, “Getting people to envision their own future and take ownership means that as a manager, ‘I’m not interested in how, why, or what you did to get there. I’m interested in your result - in your performance.’ ”
At the end of his session, Workman took questions from the distributors and manufacturers. One person asked, “What about the trend of owning inventory in your customer’s business?” Workman said, “We used to call that consignment.” He expects the use of consigned inventory to increase at a faster rate. “In order to be profitable, it needs to run a higher turn rate than normal inventory. And, manufacturers that use it properly typically don’t supply too many consignment locations. Faster turns will be very important,” he said.
OBSERVATIONSWhy the rapid change in the HVACR distribution channel?
“The changes in the HVACR market are primarily due to consolidation; it may not be the No. 1 reason for change, but it’s in the top three reasons. The recent round of consolidation didn’t change the number of locations, didn’t change the amount of inventory, it just changed the names on the street,” said Workman.
“More manufacturers have moved into HVAC distribution in the last three years than any other channel I’ve studied. There have been more efforts by manufacturers to control the channel by offering alternatives through technology or web-based programs. I don’t mean that manufacturers did so as an end run, they did it out of necessity in order to survive in the marketplace. Any time you have a glut of distribution and a glut of product, you’ve got to look for innovative ways to get that product out. Whether you like it or not, manufacturers live and die by market share.
“Third, a reason for so much change is that the talent pool of management leadership is not deep enough for this industry,” said Workman.
Other changes that Workman noted included a shift in buying groups. “The buying groups are beginning to change in this industry. There is a distinct separation of small and large buying groups. Manufacturers have been very vocal about buying groups; what they’ve said to me is, ‘One of the reasons for buying groups is so the little guys can act like and compete with the big guys. Well we gave them the pricing but they didn’t start acting like the big guys.’ They have the feeling that they held up their end but are not seeing reciprocation,” said Workman.
BENCHMARKING PATH LESS TRAVELEDWorkman commented on several industry issues related to the HVACR distribution channel during an interview with Distribution Center magazine.
With regard to proper benchmarking for the industry, Workman said, “I see this as a precursor to understanding the market as it exists today. Many people are still running businesses based upon the information they had 10 years ago. This is about being able to define the environment they are going to be working in.
“To those who repeatedly bring up the same old story about manufacturer relationships not working, unless you can show the value numerically, unless you can show how much you’re growing a market, unless you’re sure that you’re doing what those guys pay you to do, then it’s a moot point for distributors to complain.”
For any association such as HARDI to play a role in bridging the divide that exists between some distributors and manufacturers, Workman suggested, “The association’s role can no longer be 80 percent social and 20 percent business. The association role has to become that of data gatherer, data provider, and deliverer of metrics that the distributor and manufacturer can employ and measure each other against. I don’t see an environment where a distributor and manufacturer can measure each other … effectively toward a common goal.”
Workman also said that in some of the most progressive industries he works with, he has witnessed conferences where one-third of the people are manufacturers, one-third distributors, and one-third are contractors. “That is the type of environment that is really a collaborative effort; you can’t have a truly collaborative effort until all three groups are in the room together,” said Workman.
One of the four HARDI membership pillars is benchmarking. For HARDI members, this is an exclusive source for tools that distributors need to make data-driven decisions. Throughout the annual conference members were encouraged to increase their participation in organization reporting mechanisms in order to better facilitate channel communications and leverage distribution channel strengths. Workman emphasized the same in his keynote presentations. Some distributor members smiled and nodded their heads, while some simply smiled.
Better data gathering was touted repeatedly by Talbot Gee, executive vice president and COO, as a necessity for HARDI members. Perhaps a distribution industry expert such as Workman saying the same thing will add to Gee’s message.
Published: January 2012