Understandably, distributors find themselves fighting fires with distribution in such a state of flux and transformation, post-COVID. However, as easy as it is to blame the current environment, the reality of firefighting in distribution is commonplace. Most distributors suffer from breakdowns in what we call the “peak performance cycle” for any high-functioning distributor: Assess, Compete, Transform, or “ACT.”
The critical aspect of this framework is that it preserves and provides laser focus for your most precious asset — your time — and helps prioritize where you spend it. We will walk you through each step in this cycle and what top-performing distributors should do in each stage.
Achieving peak performance always starts and ends with assessment. The first step in becoming a high-functioning, proactive distributor is assessing where you are vis-à-vis industry benchmarks, your past performance (how you are trending) and distribution best practices.
The keys to success in the Assess phase are:
- Understand your current performance. What are your benchmarks, and what represents peak performance to you, quantitatively and qualitatively? Specifically, which key metrics (and benchmarks) will you use to measure your performance against other distributors? Even if your performance is above average, is it slipping over time?
- Know what represents best practice at your organization. Do you know best practices, and are you following them? As established in NAW’s perennial best seller, Optimizing Distributor Profitability, there are 47 distribution best practices that drive performance across seven core functional disciplines. Not all best practices are created equal, so it is critical to target a subset and prioritize them, attacking them in the proper sequence. Without a game plan, it is easy to get caught up in the day-to-day.
- Schedule time into your year/quarter/month/week/day for assessment and reassessment. It is all too easy to postpone assessments or reassessments when you are in the middle of fighting fires. It is essential to set aside the time to take stock of where you are vis-à-vis your competition. Recognize where performance is subpar or slipping. Identify recurring problems that might signal the need for better processes, upgrades in systems or an influx of talent. Most importantly, formally schedule time to reassess frequently.
- Assessments should be sponsored and led at the leadership level. There must be adequate time spent here — time you should not sacrifice in the name of day-to-day execution.
BONUS: If you intend to grow by acquisition, the Assess phase becomes critically important when comparing the performance of acquisition targets to the platform company:
- It identifies pockets of weakness at the target company, providing you with negotiating leverage while simultaneously identifying opportunities for post-acquisition savings (in the form of head-count redundancy).
- It helps identify areas of strength at the target relative to current capabilities, presenting opportunities to upgrade talent and performance.
- It helps prepare, prioritize and sequence integration efforts and formalize the post-acquisition plan.
We characterize the Compete phase as an internal look at day-to-day execution and the routinization of critical initiatives that drive efficiency and optimization across every facet of distribution. This is the stage in which you get tactical, put the right software and systems in place and implement best practices.
Examples of best practice systems that provide the analytics and process plans to drive more effective performance in this stage include:
- Customer Stratification
- Inventory Optimization
- Pricing Optimization
- Supplier Stratification
Embarking on the projects mentioned above goes a long way, but true success in this phase also requires that you:
- Fight fires once. Attack challenges with a mindset toward permanent solutions: React once, solve proactively and permanently. Assign each challenge a peak performance formula of its own to assess the root cause, identify a permanent, best-practice solution, and document the actions required to handle the problem should it arise in the future.
- Anticipate potential challenges and hiccups in advance based on experience and root-cause analysis. Set up near-real-time alerts (in dashboards or via email) to kickstart immediate intervention before those challenges affect clients or suppliers.
- Automate wherever possible, but do not wing it. Integrating software and systems in the workflow of employees can save time and make decision-making more straightforward. However, many distributors make the costly mistake of shooting first and asking questions later, for example, buying a software package before evaluating whether that software fits in their employees’ workflow.
- Define and document best practices through process flows, standard operating procedures and how-to videos that every key employee can quickly access through corporate intranet pages, efficient use of systems (like Microsoft Teams), shared corporate document access, etc.
- Define roles and responsibilities and establish a clear decision-making hierarchy. The goal is to minimize ambiguity and duplication of effort, which in turn saves time.
- Eliminate or restructure meetings to have clear objectives and action-oriented takeaways. High-performing teams do not suffer from meeting overload.
- Establish routines at the department and functional level and habits at the individual level. Strive for repeatability (think assembly line).
Other key premises:
- Amazon is the epitome of peak performance in the Compete phase. It will be nearly impossible to match Amazon’s efficiency, but distributors should do what they can to keep up — and at least strive to match the efficiency of fellow distributors.
- How you compete day-to-day in terms of execution is not a differentiator. This is the impersonal aspect of the business and focuses on driving efficiency, which only indirectly improves value-add.
- Your leadership team should spend very little time in this phase of day-to-day execution. The only exception is when fighting unique challenges and stepping in to develop permanent solutions. The goal of leadership is to spend sufficient time in the Assess and Transform phases so that day-to-day execution in the Compete phase is on autopilot. This provides more time for the leadership team to provide true value-add.
The Transform phase is where your leadership team should spend the bulk of its time. In this phase, you should focus on:
- The bigger picture, thinking less tactically and more strategically.
- Shifting from a product-driven view of your value proposition (where it is easy to fall into the trap of competing on price) to an insight-driven view; customized insights, shared with core customers and strategic suppliers, can be a powerful differentiator.
- How best practices can help foster better inter-department alignment and communication (e.g., using a best practice like Customer Stratification to help the purchasing department prioritize and make better decisions around inventory management).
- Sustaining best practices through training, change management and workflow integration.
Keys to success in this phase include:
- Focus on analytics that offer external-facing insights (customer or supplier insights) as opposed to only internal-facing insights. More importantly, putting those insights directly in the hands of your purchasing teams and sales teams to add value to every conversation.
- Consider how repackaging and sharing market and product trends might benefit core customers and key suppliers. Revisit KPIs that have been traditionally internally focused (e.g., fill-rates) and consider ways to package up and share that information with customers and suppliers to help them improve (e.g., proactively provide insights about possible substitute products to overcome fill-rate challenges with specific suppliers).
- Align incentives, such as compensation bonuses, commissions and employee awards/recognition, to reinforce best practices and reward performance. Think of this in terms of translating activities in the Assess and Compete phases to incentive creation.
- Develop and refine your value proposition to synchronize your differentiated capabilities with what is truly valued by core customers and strategic suppliers.
- Identify activities or projects in which an upfront investment in time will reap significant time savings (or value-creation) in the future.
- Train for long-term best-practice reinforcement, including education on industry trends (including readily available access to those trends), in-house functional education and third party-provided certification programs, product training and software system training.
The ACT cycle speeds up if you are doing it right. As you Assess internal performance and identify shortcomings, you will begin to automatically consider root causes and how you might make systematic improvements in the Compete phase. Your focus will shift to identifying permanent solutions rather than fighting a series of individual fires. Efficiency and optimization in the Compete phase will allow the leadership team to dedicate more time in the Transform phase, during which you will engage strategically with core customers and suppliers by providing more value-added insights and focus on building sustained core competencies and engagement across your functional teams. This is where true value-add resides.