Issue link: https://www.e-digitaleditions.com/i/480616
March/April 2015 11 H ere is a great exercise to do with your team. Gather everyone together and ask them to list the company's top 10 customers on a sheet of paper. More often than not, volume will be the criteria used to determine status on the list. Some will go the extra mile and rank the customers by gross profit dollars. It's good to know where the mindset is currently. A couple of weeks later, gather everyone again and ask them to list the top 10 most profitable customers. There may be a few raised eyebrows and whispered suggestions that your memory isn't too sharp. Many people will think that you just asked them the same question and their list will be identical. If this is the case, it may be time for a quick discussion about the relationship between sales and net profit. If you want to drive net profit improve- ment through the organization, then everyone needs to become part of the mission. By understanding who the most profitable customers are, the sales team can make better decisions on how to allocate company resourc- es. They don't have the authority to allocate company resources? I beg to differ. When a customer requests an What every salesperson on your team should know to protect the bottom line By Jason Bader, Managing Partner The Distribution Team jason@distributionteam.com item that needs to be transferred in from another location, the order taker is about to make a decision. The outcome of that decision can directly affect your bottom line. Is this customer worthy of the transfer? Are they a positive contributor to the bottom line, or do they string us out on payment? Chances are we have not armed our order taker with the customer infor- mation necessary to make a good net-profit decision. Ranking Your Customers As I have discussed in previous articles, distributors tend to use only a fraction of their distribution software packages. Understanding the reporting capabilities and manipulating data can increase your return on this substantial investment. The customer profitability analysis report is simply a spreadsheet using data that your system captures on a daily basis. The magic occurs when you share the data with, and develop policies for, your front-line decision makers. This report will rank your custom- ers by contribution to net profit. It is important that we are only looking continued on page 12 your cost to serve, then you're out of business, clarifies Juliano, "but you have to get your arms around who you want to be when you grow up before you tackle the metrics. You can't do an effective cost to serve, whether it's a, b, c, or d, until you have a clear mission statement. Who are you really serving and what's your value proposition? Understanding your paradigm is just as important, and that's what's going to dictate your cost to serve. "There's a big difference between the distributor with the big warehouse, lots of overhead, and 500 orders to pick, pack and ship efficiently all in one day. That requires a different discipline." Advice from a Biggie Which is what led The Wasserstrom Co. to become even more aggressive in its quest to understand its costs per account. Early efforts began with the basics: a spread sheet, capturing the cost of the product, number of orders, the impact of processing a return, estimates on pivotals, e.g., cost per order, inbound freight and outbound freight. Tracking customer service calls. Factoring in rebates. "We wanted to capture the efficiencies of larger ordering, the inefficiencies of returns," says President Brad Wasserstrom, "And what I came to understand pretty quickly, especially for us, was that not all orders are the same. Not only does the order size differ but what you have to do to an order to process it varies. I had some accounts that were basically subsidizing others because they were all being treated the same. Once I understood that, I realized that because of our size, we had to start getting down to a very granular level." With the help of a new ERP system, the distributor has become very good at splitting hairs—like tracking the cost of outbound freight to the order level and the cost per line for each of its five warehousing locations. And here's why the experts are so high on cost to serve: "If I don't understand it, I can't improve where there's opportunities to improve," says Wasserstrom. "We are much more astute now with our pricing. This is really about understanding our business and I am trying to understand on an account by account level how much it costs me to serve a particular client. "You have to start somewhere and if it's not at a particular client level, start with the whole business. Your whole busi- ness is just your P&L, so if your P&L is not what you want, start breaking that down into manageable chunks, whether it's delivery, the number of orders you take or returns. Once you've got a handle on one of them, move on to the next." ARE YOUR CUSTOMERS REALLY CONTRIBUTING TO YOUR NET PROFIT? CURBING COSTS, CHALLENGES IN THE FIELD & A CALL TO VENDORS See Page 34