As the nation steels itself for the ongoing impact of the Covid-19 crisis, millions are taking a moment to express their gratitude and assert the message that we are “in this together”. When I join my neighbors in the UK in standing at our doorsteps and balconies to applaud the doctors and nurses of the National Health Service, the collective goodwill is tangible.
The gesture is not unique to the UK. Indeed, there have been similar events in the Netherlands and my home country of Belgium. But it is perhaps significant that the health service should be the primary focus here, where the NHS has a unifying force that I’d venture exceeds even other iconic British symbols, such as its much-loved monarchy. The goodwill shown towards the NHS as an institution is stronger than any commercial brand, any political party; at times, any objective reasoning.
In the present moment, to comment on the unfolding crisis risks the possibility of gross imprecision, of events unfolding in ways that we cannot foresee. Over a matter of days the policies of governments across the globe have turned on a dime; at times, a sort of ‘hysteria in small increments’, only to arrive at where we should first have started. Thankfully, there is now consensus in Europe, if not the US, that containment of the virus is best achieved by a temporary lockdown of personal movement – and that this is the only acceptable way forward.
But as we face into the lengthy privations this involves, it will take more than legislation to see us through. Liberal democracies do not draw their strength from the strict imposition or literal interpretation of emergency laws, however necessary or democratically legitimate they may be. Rather, they thrive on the communal values and unity of purpose that was so effectively demonstrated last Thursday night.
The power of collective sentiment is well known – you need only to look only at the stock market to see the impact it can have. Politicians nurture it, brands thrive on it; the ‘goodwill’ on company balance sheets is effectively much the same thing. Over recent years, the use of ‘nudge theory’ has sought to identify small prompts that stimulate positive behavior in areas where legislation would be complex or difficult to police. The charging of a nominal sum for single use shopping bags has become a case study in how to influence good choices – as, on a lighter note, is the painting of a fly on public urinals to improve the aim!
For now, it seems we are at least agreed – and have found a collective goodwill – on the need for containment. The question, therefore, which most interests me most, is whether we can also stand together in support of the ‘exit strategy’ that, in time, we will surely need? At present, this may appear of secondary importance, but its relevance to our future should not be underestimated.
In a recent piece in the Financial Times, the historian and philosopher Yuval Noah Harari noted the decisions we take will shape the world for years to come. At a policy level we will need changes to healthcare, to travel, to emergency procedures; we may all of us – though I hope with real caution – need to be more accepting of restrictions to our liberty.
But what of the public sentiment which will underlie and legitimize these choices? Will we retreat to the false security of a more closed world, or have faith in a future that’s based on greater cooperation and knowledge sharing? Can we muster the altruism and trust to coordinate an economic recovery – or will we emerge from the wreckage in a way that resembles the panic-buying and squabbles we’ve seen in our supermarkets?
These decisions will be determined not so much by our governments and institutions, as by each and every one of us. For, as the recent policy pirouettes have shown, it is our collective actions and attitudes that will most influence those who act in our name. Across the world, economic rescue packages are being put in place, that would have been unthinkable were it not for the public mood that we must stand in unison and shoulder the short-term costs.
As we emerge from the crisis, I wonder if we, as individuals will exhibit the same generosity? Among those thousands who’ve had flights cancelled, how many of us will accept a credit voucher rather than demanding a refund? When commerce returns and our customers need more time to pay, how swiftly will we, as business leaders, move to foreclose? And as shareholders, can we refrain from punishing those companies that are far-sighted enough to support their partners over the restoration of dividends?
The economic and social exit we achieve will be the accumulation of the answers we give to these – and countless more – specific questions. I hope we can sustain our goodwill – for as with most aspects of life, we will reap what we sow. Our governments can nudge us, our banks can support us (no doubt with gritted teeth) but ultimately, to come through this crisis stronger, we must sustain the collective sentiment that required no words, but was so clearly heard, in our standing and clapping together.
This article was originally published in CEOWorld.biz – The Power of Clapping (2020)
A few weeks ago, I gave an interview in which I reflected on the importance of building talent across our company, the need for structures that facilitate career progression, and most of all, a supportive culture which allows talent to thrive by learning from our mistakes as well as our successes. There are compelling reasons, I said, for investing in talent, and on that point, I guess few business leaders would disagree. But as with many organisational challenges, while the way ahead might be obvious, sticking to the path isn’t always so straight forward.
Let’s start with some guiding principles.
Talent is vital to making good decisions. With talented people, and talented teams, we not only perform better today, but we enhance our strategic vision and tactical planning. The short-term advantage and the sustainability of that success go hand in hand. Look at any successful sports team and you’ll see their stars on the field — with the occasional genius among them — but always on the bench are the next generation, pushing for places, eager to learn, encouraged by their mentors.
Talent thrives best in open and supportive cultures. For colleagues to flourish they need to know that in taking the next step they’ll receive support, some space for learning, and the confidence to know they can be themselves. That last point is important — because true talent management isn’t about the rote learning of skills and procedures, it’s about nurturing a diversity of unique and valuable contributions to the overall goal.
And lastly, talent is a responsibility we all share. Sure, the People Teams often take a lead in coordinating training and development programmes and the like — and rightly so. But for talent to truly thrive, we need leaders at all levels to see that bringing on the next generation is part of what make for a sustainably better business. Finding opportunities to give some trust, providing tools and resources, as well as spotting the talent gaps — and occasional blockages — are just as vital a skill for managers as hitting their sales or cost targets.
But if that much is straightforward — what is it that gets in the way?
Fear of failure is perhaps the biggest constraint, especially if it leads to us avoiding risks. For without some unpredictability — to ourselves as well as the organisation — progress isn’t possible. Effective leaders learn from mistakes and making them is a key part of a continuous improvement ethos. So we need a culture that empowers us to make decisions, and an environment that helps enhance the quality of the choices we make. Inclusive, interactive teams help to grow talent by sharing perspectives and considering possibilities — in so doing. While individuals can thrive, the outcomes can be shared by others too. Putting it another way, constructive risk taking isn’t about jumping blindly off cliffs — it’s about weighing up the options and then acting with focus and commitment.
Resistance to change is an obstacle too. Indeed, it is often the biggest blocker to talent, and one of the most cited reasons why ambitious people leave otherwise good organisations. If ideas and ingenuity are stymied, then stagnation and attrition surely follow — and guess what, talented people can smell it a mile off! The result is a drain on knowledge and a creativity void that ends in a vicious circle of yet more fear and failure. Like with risk, embracing change doesn’t mean an unquestioning drive to revolution; positive change blends evolution with bold decisions that move us forward at pace. By working this way, we nurture talent in tandem with the opportunities we pursue.
And lastly, we need clear measures of success. For without these it’s all too easy to misrepresent progress or excuse the lack of it. Of course, nurturing talent isn’t as objective as math, but neither is it some enigmatic quality that resists common sense assessment. That’s why we need talent driven KPIs throughout the organisation, working to agreed outcomes and focusing resolutely on their achievement.
So how best do we navigate our way to success?
In my own organisation today, we have core values that keep us on track. We’re creating a culture of diversity and inclusion, where colleagues can be themselves at work, and the opportunity to develop their careers is encouraged and celebrated. Our values of trust, fairness, creativity and openness are a sort of compass, guiding our decisions to ensure we make the most of our individual and collective potential.
And we’re backing this up with investment in training and communications, despite a pressure for savings in tough markets. For me, this is part of our duty as leaders; we have a responsibility to all our stakeholders — be they colleagues, customers, shareholders or lenders — to ensure the organisation is fit for the future, and that’s not something we can put on hold. Nurturing talent is fundamental to building a sustainably better business, and if at times it can feel like a complex jigsaw, we should remember that it’s when the parts come together that the bigger picture emerges.
As the first measures of our progress I expect to see succession routes for all key roles, with training plans for our high potential colleagues, and a map of the talent gaps we need to fill. Alongside this should be a more empowered culture with broad levels of authority, sharing success but also learning from its mistakes through post mortem analysis based on a zero-blame approach. In truth, there are many more indicators we should expect: cross functional working, creative thinking, reduced duplication… I could go on.
But isn’t it also true that genuine progress needs to be widespread and self-evident? Just as we can all recognise talent in sport or science or the arts, so too we instinctively know when it’s present in the workplace. The ultimate goal is therefore that nurturing talent becomes part of our DNA, a virtue we pass from one generation to another, with care for its continuity, and a sense of creating something bigger than ourselves.
Last week, the eyes of the world’s press turned to Doha and its hosting of the World Athletics Championships. Here in the UK interest was intense. Dinah Asher Smith’s victory in the 200 meters was a masterclass of controlled and specialised technique, but it was Katerina Johnson Thompson’s Gold in Heptathlon that caught my eye.
The Heptathlon is one of the ultimate trials of all-round athletic ability. From shotput to sprinting, the discipline tests speed, strength and stamina, as well as the mental ability to hold it all together over two days of competition. In contrast to Asher Smith’s 20 seconds of brilliance, Johnson Thompson’s victory required a balance of skills, none of them world-beating on their own, but which collectively others could not match.
Since returning to the UK as CEO of Connect Group, I’ve been impressed by a similar quality in our news and magazine distribution business. Handling an average of 5 million copies every day, it delivers to 27,000 outlets from superstores to corner shops, collecting unsold copies for recycling, processing data to forecast demand, taking customer calls, invoicing… and all of it achieved in the tightest of time windows. The physical logistics is only half the story; I recall being astounded to learn that by noon our publishers can typically view their sales figures from the day before, right down to that corner shop I mentioned.
And yet, if we examine the unique skills of news wholesaling, what we find is that success more resembles a heptathlon than a sprint. What underpins our competitiveness is in not so much that we are very best at physical or even time sensitive delivery, nor are we peerless leaders in information management, invoicing or customer services. Rather, we are good at all these things, and it is this optimum combination of our arguably sub-optimal parts, which make us world class at what we do.
That’s not to say, there isn’t room for improvement. As with athletics, standards move on, expectations increase; the competition is always at our shoulders. As leaders and strategists, the lesson from this week’s heptathlon in Doha, is that we must take a holistic view, considering the impact of each initiative in its wider context — ensuring the strength we build in one area, doesn’t sap our speed or stamina in another.
It strikes me that the metaphor of ‘leader as coach’ is never more apt than in complex and well-established organisations — not least because, the catalogue of good companies brought down by supposedly transformative projects should give us pause for thought. But that pause must never lead to indecision.
The danger in managing this type of complexity is that answers can tend towards those that start with ‘But…’ As professionals we must accept that all decisions involve some risk, including the choice to leave matters alone. Risk can feel uncomfortable, threatening even, but a failure to commit is the surest way to ensure the competition will soon be pressing at your heels.
Making progress, while limiting our exposure requires that we draw on analysis as well as experience; creativity balanced by objective measures — and occasionally some counter intuitive thinking. Standard operating procedures, for example, might appear to be a restrictor to change — but we should view them more as athletes see solid technique. For only when we have sound and consistent foundations, can we test, and most importantly measure, the impact of changes we might introduce. In a world where all the parts are different, it’s tough to know what works, what doesn’t, or what to do next.
If I were to add one more ingredient, it would be to encourage, and be seen to exercise, appropriate humility. For no one can be right all the time and not every idea will be a success. Occasionally — though hopefully not too often — we must hold up our hands and learn from the experience. It is not being wrong that we should fear, it is being too proud to change course when the evidence is clear.
Returning to Doha, in the time I’ve drafted this piece the UK teams have won silver medals in both the sprint relays — pipped, I might add, by the Americans if not the Belgians!
The relay, of course, is all about passing the baton, with success being more than the sum of the parts. That’s a subject for another day, but it reminds me that harnessing the commitment of our teams to a bold but measurable strategy, is the best way to exceeding our expectations.
Across much of the developed world, faith in institutions is rupturing. Modern day politics, with a regrettable tendency to provide impulsive, populistic solutions to problems of extreme complexity, contributes to an undercurrent of skepticism, which in turn feeds further unease and polarization, undermining confidence. In a host of democracies, leadership is variously described as broken, dysfunctional and unrepresentative. Little wonder then, that survey after survey reveals public trust to be at all-time low.
Regardless of one’s political opinions — passions even — this is deeply corrosive. For trust is essential to positive human relationships and one of the most valuable tools in building progressive societies. Without it there can be no exchange, no collective endeavor, no promises relied on…. and worse, no dreams shared, or secrets confided. Trust, in its broadest sense, is so ubiquitous that we seldom give it a thought. And yet, a moments reflection reveals its criticality to all that we are and achieve together.
There are obvious parallels to the business environment. It will be no surprise that trust is the single most important value associated with successful brands. When we’re working together in our businesses, we count on each other as surely as mountaineers rely on their partners to hold the rope. In my current organization — along with thousands more — we call out trust as a core value in our working practices, our relations with customers, and care for each other.
And that word ‘care’ seems essential to maximizing trust’s potential. We can cooperate with individuals and institutions for their utility — because, through experience, we have learned there is more to be won than lost — and we should never diminish the importance of this fact. But to view trust entirely as a profitable exchange, risks turning it into a sort of game theory, a slightly Machiavellian approach in which we weigh up possibilities and strategize to maximize our advantage.
‘Trust as care’ is something infinitely more powerful.
To trust because we care not only for the outcome, but also for the person or the process, creates a deeper, and stronger bond. When a master craftsman gives his trust to a young apprentice, he’s saying something that no invoice or profit and loss account ever could. And what’s more, the trainee knows it too! All of us who are business professionals, will have experienced equivalent moments, and be able to recall the boost to our self-esteem; the growth in confidence it gave us.
Confidence of course, is intimately linked to trust. Search any thesaurus and the two words will be listed side by side, along with faith, reliance, dependence. But trust is a verb as well as a noun. In trusting we making an active choice, the exercise of which is essential to allow others (and ourselves) to flourish. In other words, trust is something we give; confidence — and all that comes with it — is what is received.
Institutions and organizations ignore this insight at their peril. For no matter how attractive the alternatives may seem, in the long run, people care if their politicians lie, if their faith leaders are hypocrites; if the media invents its own news. And for those of us in mainstream commerce, the lesson is much the same. Customers no longer judge a business only by its products: they want to know how well we treat our people, whether we act responsibly, and if we pay our taxes.
In a mirror image of the virtuous circle I described earlier, if companies fail to engage with these concerns, then trust will be withheld and belief will die in its turn.
Simon Sinek’s recent book, The Infinite Game talks of the need for leaders to trust and care beyond the moment. Millennials — who soon will represent 50% of the workforce — are long-term thinkers; they want to belong and contribute to meaningful roles, and they want to work in cultures that allow for self-expression, that value their contribution and allow for risk-taking without fear of retribution. Leaders, Sinek asserts, have a special responsibility to set the tone in creating an atmosphere of trust and cooperation.
While Sinek’s position is something I believe we can intuitively subscribe to, it doesn’t require a management guru for us to learn this simple truth. Most of us know, as a matter of common sense and experience, that when teams show trust and care — when colleagues have each other’s back — then performance, motivation and retention, surely follow. Just as we know that organizations which fail to nurture their people will lose talent, commitment and ultimately, any meaningful purpose.
Furthermore, I’d argue it doesn’t require formal authority to make a difference. Whatever our circumstance or seniority, individual actions can and do have an impact. We can give trust — and show we care — by something as simple as passing the ball, waiting our turn, or listening respectfully to a colleague’s opinion. Trust, as we experience it, is a bi-lateral transaction — all it needs to flourish is two people, doing the right thing, by and for each other.
And hopefully we can all agree that a world with more trust is a better and more joyful place.
The ancient philosopher Aristotle understood a thing or two about how to achieve success. According to his writings, a good and satisfying life was one that navigated a course between the extremes of hedonism and deficiency. And the way to do this, he asserted, was by living in accordance with our ‘virtues’ — those qualities and behaviors that we all, universally recognize as good, and which in his view, were best nurtured by experience and daily practice rather than prescriptive rules.
Fast forward more than two thousand years and ‘virtue theory’ is enjoying something of a well-deserved renaissance, most notably through the positive psychology movement and the writings of Martin Seligman. Its relevance to business is gaining traction too, and justifiably so, because the virtue theory adds a layer to our understanding of that other ‘V’ word, V for values, which has evolved into a ubiquitous concept in the progressive workplace.
There are few organizations today that would fail to acknowledge the importance of values. The idea that an engaged workforce, aligned to the goals of the company and working with common principles, helps to drive performance, is not only common sense, it is backed by a raft of evidence which crosses sectors, cultures and continents. Whether formalized or not, the best performing organizations across the globe have strong value sets which underpin their culture and provide a sense of meaning and belonging to their people.
But if the awareness of values is now commonplace, the concept of virtues remains somewhat academic, even though its benefits are just as transformational and equally self-evident.
By virtues, we mean those personal qualities that all of us recognize as beneficial to ourselves, to others and the community at large. In his work on positive psychology, Seligman identifies several high-level categories such as courage, wisdom, humanity and justice. Beneath these are more tangible qualities such as creativity, diligence, fairness and teamwork. In all, he lists 24 strengths that are universally recognized as positive attributes and which contribute to a collective good. While each of us has a preference and greater capacity for some virtues over others, all of us are happiest and most satisfied when we are able to employ these positive characteristics in our day to day lives.
It’s not necessary to dig deep into philosophy or psychology to take some lessons from this. For leaders and professionals, the critical point is that we all give of our best and make our greatest contribution when then the work we do supports our positive motivations. Consequently, if we can align roles and responsibilities across our organizations — and provide opportunities that nurture the virtues — then both our colleagues and our businesses are more likely to flourish. Having clear values helps us to establish the rules and guidelines for common behaviors; promoting virtues goes a level deeper, encouraging our individual strengths for the collective good.
I like to think of living by our virtues as the difference between ‘being in a rut’, and ‘ploughing one’s own furrow’. In the former, we are trapped in a cycle of activity that feels meaningless and lacks personal satisfaction — even if the organization and its goals are worthy, we as individuals don’t fit, because the role we are asked to play doesn’t have room for those qualities that motivate and self-propel us. By contrast, in following a path which plays well to our individual strengths, we give and achieve more, thereby benefiting ourselves and our wider community. To use a sporting analogy: how often, do we hear soccer coaches talking of the need to give creative players ‘the freedom to express themselves’ — in a sense, that is virtue theory in action.
In a workplace setting, promoting virtues can be as simple as allowing a few hours a week for more lateral thinking (creativity and curiosity), or offering the opportunity for development training (love of learning); it might mean shaping a job to include more group activities (teamwork) or allowing colleagues to self-organize charitable activities (social awareness, kindness). In truth, much of this, good leaders do instinctively, encouraging something similar in wider organizational goals. Though they might not use the term ‘virtue theory’, many of its key elements are inherent to contemporary thinking on issues such as diversity and inclusion: valuing differences and allowing us all to give the best of ourselves.
There’s relevance in virtue theory for our corporate strategies too. In the courting stage, contemplated acquisitions and mergers almost invariably sweeten the numbers, estimating the potential for synergies, market share, pricing power and the other benefits. And yet so much of this M&A activity ultimately fails to deliver the intended results. By applying the lens of virtue theory, we might consider more carefully whether the acquirer will be a good parent or partner — are its organizational virtues compatible or in conflict with those of its target?
And finally, as individuals navigating our career paths, the idea of living in harmony with our strengths and preferences is an invaluable perspective when viewing our situation and prospects. Seligman describes the pursuit of virtues as the ‘gold standard of human well-being’ — the root of the positive choices we make in our efforts to flourish. At times, that may involve difficult choices — and I recognize that the freedom to act varies by circumstance — but across a career or a lifetime, finding your niche, feeling energized and ready for the day, undeniably is worth some sacrifice. For as Aristotle claimed many centuries ago, there is no one prescription for success, but being true to our positive natures is the surest route to follow.
Whether you have taken the bold decision to start your own business or have been tasked with running an existing company, the asset you are managing may well have multiple areas that deserve your special attention. For example, your business may be lacking organic growth, its leadership team may need to be recruited or upgraded, and the organization may require a couple of tangible successes to reinvigorate the team.
Transforming a business from its current state to a desired future state demands not only passion but also disciplined planning. This requires: (i) a concise, well-articulated strategic plan, (ii) a description of the benefits of the desired future state to the associates, as well as to the long-term future of the company, (iii) the reassurance that the associates, collectively and individually, are mission critical to the success of the company, and (iv) a clear glide path to the end goal, with key milestones and a rigid project management approach.
In addition, any transformational activity is largely facilitated by a shared corporate culture. According to Jozef Opdeweegh, a Miami businessman with over 17 years of experience as CEO, Chairman and Board Member of private and public companies, “Corporate culture plays a critical role in the success of a company. The value and impact of a set of shared beliefs and behaviors can hardly be overstated when convincing a group of people to meticulously undertake a challenging change initiative.”
Opdeweegh uses a definition of corporate culture based on a commonly shared notion that a company’s culture consists of the sum of beliefs and behaviors that determine how associates and management interact with each other inside and outside the workplace, as well as with other relevant constituencies, such as customers, suppliers, the board of directors, lenders and other outside parties. Notes Opdeweegh, “Corporate culture, however, should ideally also extend to the development of a collective perspective on societal and environmental considerations, for instance, the role of the organization in the broader community, or the efforts to minimize a corporation’s carbon footprint.”
Opdeweegh adds that when suggesting a set of core values to the organization, it is important to come forward with values that are highly relevant to the corporation and its success, yet are universal in nature, and impossible to contest. Says Opdeweegh, “Nobody will object to a core value of ‘fairness.’ Nobody will raise their hand to state that they do not believe in ‘creativity.'” He notes that the process of agreeing on the most relevant core values or behaviors for an organization is an iterative and democratic process, with the ultimate end-result coming from many group sessions with a relevant diagonal slice of the company’s associates.
Opdeweegh cites 6 core behaviors that are very powerful in driving the right strategic initiatives of the organization. He encourages using one or more of these for discussion purposes as you go through the collaborative process of defining your corporate culture.
- Creativity: “Think outside the box and share your perspective.”
- Customer centricity: “The customer is central to everything we do.”
- Empowerment and accountability: “Push decision making down in the organization and hold people accountable.”
- Fairness: “Be fair and respectful in everything you do.”
- Openness: “Be open and open-minded, listen and allow the best idea to win.”
- Speed: “Make quick, analytics-based decisions.”
At its core, a successful distribution business functions to add value to the customer, by flawlessly delivering the desired product or set of products at the right point in time, without quality defects and in the most cost-effective fashion. It is imperative that a successful distribution business operates with the costumers top-of-mind.
According to Jozef Opdeweegh, a Miami businessman with over 17 years of experience as CEO, Chairman and Board Member of private and public companies, there are 9 key tenets that make up an ideal distribution business model, that will not only emanate in the highest level of customer satisfaction but will also reward associates for their contribution to the success of the company and shareholders for their confidence in the company’s strategic plan.
- Quality of operations
The breadth of the product range, fill rate, on-time delivery, competitive pricing, a multi-channel approach, along with extensive and up-to-date product information, are vital in creating an excellent customer experience. In order to satisfy these demands, the logistics operations behind the distribution business need to be of exceptional quality: qualified and well-trained personnel, real-time inventory visibility throughout the cycle, continual optimization of the process flow inside the distribution centers, a relentless focus on continuous improvement/six sigma/lean manufacturing and the automation of put away and pick processes are key focal points to differentiate the business from its competitors. Furthermore, the choice of like-minded transportation and last-mile delivery partners who equally view customer service as their core mission is key to the overall customer experience.
- Organic Growth
The key differentiating factor as well as the proof of concept, and one of the main drivers of shareholder wealth creation is the achievement of organic growth exceeding that of the relevant competition. Customer empathy, SKU (Stock Keeping Units) proliferation, relevant information and excellent knowledge about the product range, as well as the overall quality each aspect of the supply chain are indispensable characteristics that define a better distribution business. This type of distribution business will garner outsized customer loyalty and recurring sales.
- Gross Margin Management
One of the most relevant success factors for a distribution business is the laser-focused management of gross margin, both in percent of sales and in terms of currency. In some instances, the sales force has not be provided with the analytical tools to allow them for the promotion of those products that generate the highest margin potential. This is of particular importance in a landscape with certain SKUs (Stock Keeping Units) that have identical characteristics and can serve the customer requirements with the same effectiveness, which is often the case. Additionally, in their quest for revenue, the sales force may be inclined to engage in price discounting, which harms the margin potential of the sale. Finally, a number of distribution organizations lack the sophistication to keep track of ancillary services that may have been offered to the customers or are reluctant to charge for those services, which further erodes the margin.
The key is to develop the business analytics and IT infrastructure that will allow for the identification and sale of the highest margin product in order to serve customer’s needs at the right price. This also allows for the appropriate charge to the customer for the ancillary services and the delivery method he or she enjoys.
- Back Office Efficiency
Many distribution businesses maintain a back office that is inert, too large and costly. By virtue of their business model, large distribution businesses operate via geographically dispersed distribution centers. Lack of an integrated ERP (Enterprise Resource Planning) solution and the absence of a standardized operating platform often create a detrimentally decentralized management structure. This leads to a large discrepancy in customer experience, in product and service offerings, and in the quality of operations across geographies. Furthermore, it may lead to an erosion of the leverage the distributor otherwise would be able to exercise on its suppliers. Lastly, it creates duplication in management and support structures – efforts and costs that can easily be avoided. In a successful distribution business, the operating system and the SKU management should be centrally managed, with the execution residing in the different regions, but based on a provided prescriptive playbook.
- Network Optimization
A large number of distribution businesses operate from a suboptimal set of distribution centers. Often their network consists of a combination of too many facilities and less than optimally located distribution centers from a geographic perspective. This leads to duplicative inventory and inflated working capital requirements. A distribution business needs to constantly assess the size and location of its distribution facilities, so it can live up to its (next day) customer delivery promises from the fewest number of distribution centers. Case studies show huge savings can be generated in the area of network optimization, with a payback that often is less than 12 months, while at the same point in time enhancing the overall customer experience.
Since an online sales model does not require brick and mortar, and it does not require a direct sales force and the related costs, the bottom-line profitability of e-commerce sales vastly exceeds the profitability of the same SKU through another sales channel. A successful e-commerce sales effort requires a user-friendly web experience, impactful SEO efforts, detailed product information, breadth and availability of inventory, and on-time delivery of the entire order. It is also essential to have a simple return policy and a great back office to deal with product information, defects, and returns. Online sales may be boosted through the creation of an online user community consisting of customers who have purchased the product and can provide others with first-hand product information and applicability. Most often than not, e-commerce is one of the channels through which sales can be generated, in a multi-channel strategy that also includes direct sales and catalog sales. It is most certainly the most cost-effective and agile sales channel.
- ERP-Solutions (Enterprise Resource Planning)
A distribution business may handle as many as 1 million distinct SKUs. In order to effectively run the distribution organization, it is imperative the company has real-time global inventory visibility to know exactly where different SKUs are stocked. This level of visibility allows for the avoidance of duplicative inventory, the calculation of appropriate inventory levels in the network through demand forecasting, and the minimization of risk of obsolescence. In many regards, the ERP solution is the engine of the distribution organization and is an invaluable part of network optimization. While implementation of a state-of-the-art ERP solution may be costly and time-consuming, with the cost amounting to as much as the equivalent of one year EBITDA (Earnings Before Interest, Taxes, Appreciation & Amortization), it is hard to imagine a world-class distributor that does not possess such a tool.
- Customer and Supplier Segmentation
In any distribution business, there are a number of items that are high volume. Conversely, there typically are a number of products that are only sold very occasionally and may have a negative impact on the profitability of the organization. In a similar vein, the average distribution business will spend time, effort and money maintaining relations with suppliers who provide low-demand products. It is important to continually reassess the contribution margin of low-selling items and to cut certain parts of the long tail, both in product and in supplier range.
- Private Label
A distributor can significantly enhance its gross margins by focusing on the sale of private-label items, or items that have the desired functionality but that are being sourced through contract manufacturing and branded under a proprietary brand name. Certain competing suppliers may react negatively towards competing private-label products. Nevertheless, in the area of more generic SKUs, a distributor should aim at selling its own branded products and ideally, private labels will constitute 15% or more of overall revenue.