Issue link: https://www.e-digitaleditions.com/i/799779
34 FEDA News & Views Results" column of the exhibit, the typi- cal fi rm generates $20 million in rev- enue. It operates on a gross margin of 24 percent of sales with expenses of 22 per- cent of sales. As a result, it generates a pre-tax profi t of $400,000, or 2 percent. The "Potential Results" column refl ects the impact of three very modest, seem- ingly inconsequential, improvements. The specifi c improvements are a 1 percent increase in sales; a 1 percent improvement in the gross margin per- centage from 24 percent to 24.2 per- cent [24.0% times 1.01]; and a 1 percent reduction in total expenses. It is block- ing and tackling better personifi ed. While each of the improvements in operations are all a modest 1 percent, the impact on profi tability is far from modest. The fi rm's pre-tax profi t increas- es from 2 percent of revenue to 2.7 per- cent. Of greater consequence, the dol- lar profi t increases by $140,480, a 35.1 percent improvement. This increase in DISPENSE SOLUTIONS FOR BEER, WINE & COCKTAILS Customers want choice today. We understand the importance of delivering reliable, high-quality, yet cost-effective dispensing solutions for beer, wine, and cocktails. Micro Matic thinks long- term when providing solutions and support services. From a single kegerator, to 12 beers on tap, to 100 kegs in a remote location. is what's on tap. FRESHNESS TAP INTO A BETTER EXPERIENCE! 866.327.4159 // micromatic.com Money Matters continued profi t provides a basis for fi nancing the foray into more strategic actions. For years, I've repeated the mantra of "little things mean a lot." Admittedly, many distributors have tired of hearing the refrain. As a result, the idea of system- atic improvements has lost favor. The profi t impact of such improvements sug- gests it might be time for an operational renaissance. Guidelines for Operational Improvements It's one thing to talk about operating the existing business more effectively. It is something else to actually do it. In essence, how does the fi rm block and tackle better? In making improve- ments, there are two important issues to consider, focusing on what matters and developing a consensus in the business as to what those items really are. Operational Focus There were three areas of change driv- ing the fi nancial improvements shown in Exhibit 1—net sales, gross margin and expenses. Each needs to be addressed. In doing so, fi rms need to avoid over- complicating the improvement actions required. Focusing on a few key issues should be emphasized. Net Sales—Research in distribution routinely indicates that many distribu- tors are missing anywhere from 3 per- cent to 5 percent of their sales potential for one very basic reason: They have cut back on their inventory investment. The move in distribution to cut back on inventory began almost a decade ago as fi rms began to take a more "fi nancial view" of their businesses. Today, very lit- tle has changed—even as research proj- ect after research project shows that the two main complaints that customers have regarding their distributors is an inadequate service level and an assort- ment that is too narrow. Gross Margin—For most fi rms, there is a signifi cant and largely untapped