Positioning Now to Seize New Market
and Customer Opportunities
Tuesday, May 17, 2011
ISA Education Track 3
Dr. Bill McCleave, PE
W.R. McCleave & Associates
[email protected]
704-892-4117
copyright (c) 2011 W.R. McCleave all rights reserved
ISA 2011
What are the new market challenges and how will SSEM's meet them?
What are the best new market moves for SSEM's?
What do customers require that fits SSEM's in the new market environment?
What is the leverage "T Square" and how can you use it for future
marketplace advantage?
How can being "different" be better in the future for you and your customers?
How are smaller suppliers proving their relevancy on a daily basis?
copyright (c) 2011 W.R. McCleave all rights reserved
ISA 2011
Market Winners Leadership Cycle
What You Do With It
What You Know
Wisdom
1
Intent
Prioritization
(Strategy)
2
Knowledge
?
Information
Data
3
5
Measurement
?
Execution
(Processes)
Opportunities
To Be Different
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ISA 2011
4
Sources Of Information
 ISA Studies 2000-2010
 Standout From The Competition 2003
 Activant Studies 2005-2010
 Activant Future of Distribution Study 2011 Summit
 Where Managers Blunder 2011 W.R. McCleave &
Associates
 Distribution Consulting Research 1990-2011
 Continuing Input from You
copyright (c) 2011 W.R. McCleave all rights reserved
ISA 2011
Changes ,Challenges and
Opportunities for SSEM’s
after 20 years of channel changes
 Movement to Fewer Suppliers/Supply Contracts
 Electronic Commerce and More
 Increased Manufacturing Output with Less Labor
 Increased Automation
 Baby Boomer Impending Exodus
 Emerging New Technologies/Markets/Materials/Products
 Saw Tooth Economy –losses and gains
 Imports and exports
 Emergence Of Mega Distribution Firms
 A “Rising Tide”
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ISA 2011
Activant: Future Of Distribution Study - 2011 Summit
2: What sector(s) does you business sell to?
1: What sector(s) does your business sell to?
5%
2% 2%1%
20%
6%
7%
7%
16%
8%
13%
14%
Industrial/General
HVAC/Plumbing
Electrical
Other
Fluid Power
Fasteners
Paper/Packaging
Safety
Janitorial/Sanitary Supply
Medical Supplies
Petroleum
Tile
Source: Activant Future Of Distribution 2011 Summit
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ISA 2011
14: What is the single greatest change to your business
in the past two years that has impacted your profitability?
 Competition
 Much higher level of competition. Competitors selling at cost or below
just to get the business
 More competitive bidding process
 National competition
 The move of large national distributors into the middle to small
customer markets. The buying advantages (terms, cost, volume, etc.)
they have over regional distributors and their technical services and
resources available to their customers that [we] are lacking on.
Source: Activant Future Of Distribution 2011 Summit
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ISA 2011
Strategy
Strategy Is All About
Positioning:
What Will Our Company Do To Differentiate Itself From
Competitors?
What is it that you intend to do?
Do we play the same game as our
competitors but we play better
or
Do we play a different game than
competitors?
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ISA 2011
2: As you think about the 2011 market environment
for your industry sector, are you…
2: As you think about the 2011 market environment for your industry sector, are
you?
Extremely Optimistic
Optimistic
Neutral
Pessimistic
Extremely
Pessimistic
0%
10%
20%
30%
40%
Source: Activant Future Of Distribution 2011 Summit
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ISA 2011
50%
60%
3: As you think about your industry sector in 2011,
how do you think profitability will change?
Responses
Increase by more than 25%
4.0%
Increase between 15% and 24%
Increase between 5% and 14%
Increase between 1% and 4%
Stay the same
5.3%
23.2%
32.5%
19.9%
Decrease between 1% and 4%
Decrease between 5% and 14%
Decrease
between 15% and 24%
Source: Activant Future Of Distribution 2011 Summit
11.3%
4.0%
0.0%
Decrease by more than 25%
0.0%
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ISA 2011
What type of distributor is best
positioned to gain market share?
Global Specialty
Global General …
National Specialty
National General …
Regional Specialty
Regional General …
Local Specialty
Local General Line
0%
5%
10%
15%
20%
25%
% Of Respondents
Source MDM / Activant Survey December 2009
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(c) 2011
W.R.W.R.
McCleave
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ISA 2011
Copyright(c)
2009
McCleave
rights reserved
30%
Successful Strategies
 Built On Trade Offs
 “Unique &
Valuable Position”
 Different Activities
or
Activities
Performed Better
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ISA 2011
Differentiation Dimensions (Possibilities)
Position
Pitch
Performance
Proof
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ISA 2011
Critical Assessments for ISA Members
Technology
Technique
Trade
Allies
Talent




Owner
Assessment


Treasure
Trump
Cards
Traffic


Life Style Business
Hold On To Avoid Consequences
Grow to Sell (cash out)
Grow To Own (control of financial return)
Business For Shareholders
Growth
Return
Business For Stakeholders
Turf
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ISA 2011
Risk
Investment
Reward
Your Energy
The “T Square” Leverage Opportunity
Technology
Treasure
The
Owner?
Talent
Technique
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ISA 2011
Differentiation Possibilities
On- Going
Critical Assessments
Position Pitch Performance
Treasure
Talent
Technology Apply
Sell
Technique
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ISA 2011
Proof
Position Pitch Performance Proof
Treasure
Distributor Income Statement
6000000
+Sales
4920000
-Cost of Goods Sold
1080000
=Gross Margin (gross profit)
880000
200000
0
200000
-Operating Expenses
=Operating Profit
+/-Other Income/Expenses
Distributor Balance Sheet
Assets
8
Liabilities
11
5800000 Current
200000 Cash
1750000 Accounts Payable
2600000 Inventory
910000 Notes Payable
3000000 Accounts Receivable
490000 Other Current Liabilities
Other Current Assets
12
=Net Profit Before Taxes
Important Concept
3150000 Current
350000 Long Term Liabilities
Super Critical Reality
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ISA 2011
20 Critical Evaluations
Treasure
Key Attributes
Income Statement
Sales
Move Forward
Potential
1 Management Capability
2
3
4
5
6
7
8
9
10
11
Sales Engine Effectiveness
Customer Base Vitality
Integrated Customer Relationships
New Customer Development
Marketing (Analysis & Communications)
Market Geography
Product Lines
Value Added Services Capability
Pricing & Value Management
Key Supplier Relationships
Balance
Sheet
-COGS
12 Purchasing Effectiveness
-Expenses
13 Process Design and Personnel Productivity
14 Financial Performance and Metrics
15 Use Of Information Technology
=Profit
Move Forward
Potential
16 Asset Availability & Utilization
17
18
19
20
Overall Innovation & Talent
Collaborative Allies
Company Morale
Brand Quality & Competitiveness
Others
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ISA 2011
Cash
Inventory
Receivables
Equipment
Debt
“Good Time”
Industrial Markets
National/Global
Mega Firm
Sample Product Technology Groups
Position
Hand Tools
“Ideal”
Power Tools
Metal Working
Regional
Multi Locations
Fasteners
Adhesives
Abrasives
Local Large
Local Small
Your Company
General MROP
operating
in your “dirt”
Many Others
On Site
Stocking
Other Industrials
Custom
Catalogs
Non-Industrial
Users
Repair
Inspection
Training
Other Distributors
Fabrication
Installation
Many Others
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ISA 2011
Sample Service Categories
Brands
Future
Industrial Markets
National/Global
Mega Firm
Regional
Multi Locations
Product Categories
New Era Competitors
Hand Tools
Power Tools
Big Box
Home Centers
Big Tools
Fasteners
Local Large
Specialty
Retailers
Adhesives
Abrasives
Local Small
Other Industrials
E-tailers
Accessories
Many Others
Your Company
On Site
Stocking
Non-Industrial
Users
Mega
Distributors
Custom
Catalogs
Repair
Other Distributors
Peer Regional
Distributors
Low Cost
Convenience
Speed
Inspection
Training
Flexibility
Security
Profitability
Tipping Points?
Peer Local
Distributors
Fabrication
Installation
Familiar Competitors
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Many Others
ISA 2011
Service Categories
Brands
Processes
Comprehensive
Support
What is it that you intend to be?
Value Add
Packaging &
Services
Custom
Engineering
&
Fabrication
Successful Strategies
 Built On Trade Offs
Order
Management
 “Unique &
Valuable Position”
Process
Efficiency
Automated
Information
Delivery
Bleeding
Edge
Commodity
Product
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ISA 2011
 Different Activities
or
Activities
Performed Better
Market Segments by NAICS Classification
Your Future
Options
And/or
Customer Types
Product
Technologies
General
National/Global
Mega Firms
Regional
Multi Locations
Local Large
Local Small
Others
Decision
Drivers
Specialty
Solutions
Big Ideas
Low Cost
Stocker
Demonstrator
Convenience
Selector/
Specifier
Speed
Finder
Flexibility
Shipper
Security
Synchronizer
Destination
Profitability
Servicer
Green
Builder
Something
Else
Others
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ISA 2011
Market Segments by NAICS Classification
And/or
Your Future
Options
Customer Types
National/Global
Mega Firms
Regional
Multi Locations
Local Large
Local Small
Others
Decision
Drivers
Products
General
Solutions
Specialty
Low Cost
Stocker
Shower
Convenience
Selector/
Specifier
Speed
Seeker
Flexibility
Shipper
Security
Synchronizer
Site
Profitability
Servicer
Green
Something
Else
Others
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ISA 2011
Assessing Your Customers’ Value To The Company
Likely Net Profitability
High
Winners
“A+”
Players
“B-”
Questions
“C-”
Losers
“F”
Medium
Low
Low
Medium
High
Required Assets or Investment (inventory & receivables)
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ISA 2011
The Big Four Variables
Technique
Talent
Technology
Treasure
A Long List Of
Leverage Opportunities
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ISA 2011
Offerings
Metal
Working
Essential
Supplies
S
G
G
G
Fasteners
Safety
Motion &
Mat’l
Handling
Services
Differentiating
Techniques
Market /
Customer
Understanding
Market
Communication
G
G
G
G
Sales &
Order
Process
G
G
G
G
G
G
G
Lines &
Assortment
S G
Special
Technologies
S
S
Innovation /
Specialty
Know How
S
S
Unique
Information
S
Channel
Relationships
Cost
Savings/VA
S
S G
S
G
G
G
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ISA 2011
Other
Leverage
Opportunities
Market /
Customer
Understanding
Selector/
Specifier
Sales &
Order
Process
Finder
Lines &
Assortment
Shipper
Special
Technologies
Synchronizer
Destination
Servicer
Innovation /
Specialty
Know How
Unique
Information
Builder
Channel
Relationships
Something
Else
Cost
Savings/VA
Agreement
Demonstrator
Market
Communication
We are doing much more with less
140
We are planning to invest more in
productivity enhancements
We understand our processes better are
moving toward true “lean processes”
We are providing much better customer
service
We are providing more value to our
customers and are not getting paid for it
120
100
80
Relative Scores
Stocker
We are much more cost conscience
160
Disagreement
Big Ideas
Differentiating
Techniques
We are using our MIS capabilities more
60
We are having to work harder to collect
receivables
We have more engaged sales employees
40
20
We are operating with reduced inventories
0
We are treating our employees better
-20
We have a different management structure
-40
We are providing more value to our
customers and are getting paid for it
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ISA 2011
Leverage
Opportunities
Big Ideas
Stocker
Selector/
Specifier
Sales &
Order
Process
Finder
Lines &
Assortment
Shipper
Special
Technologies
Servicer
Management
Market /
Customer
Understanding
Demonstrator
Destination
Staff
Differentiating
Techniques
Market
Communication
Synchronizer
Talent
Innovation /
Specialty
Know How
Unique
Information
Builder
Channel
Relationships
Something
Else
Cost
Savings/VA
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ISA 2011
6: When you think of the future quest for human talent in your organization, please score the
following challenges as to their degree of difficulty:
40
Finding sales talent
Finding qualified people for all jobs
20
Replacing retiring “baby boomers” with
equally capable talent
0
Assuring adequate return on investment for
training efforts
-20
Managing effective performance appraisal
processes
Training and development of all people
-40
Developing and managing effective
compensation systems
-60
Finding middle management talent
-80
Maintaining competitive benefit packages
Motivating all teammates
-100
Finding operations talent
-120
Recruiting Younger talent (18- 35 years of
age)
Retaining people in all positions
-140
Source: Activant Future Of
1 Distribution 2011 Summit
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ISA 2011
4: What is the approximate average age
of the employees in your company?
41.57 Average
55.00 High
40.00 Mode
30.00 Low
40.00 Median
Source: Activant Future Of Distribution 2011 Summit
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ISA 2011
5: For 2011, which best describes your
anticipated employee headcount changes?
Responses
Add more than 20 employees
Add between 6 and 19 employees
Add between 1 and 5 employees
No changes
Reduce between 1 and 5 employees
Reduce between 6 and 19 employees
Reduce more than
20 employees
Source: Activant Future Of Distribution 2011 Summit
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ISA 2011
1.5%
7.6%
56.1%
31.1%
3.0%
0.8%
0.0%
9: Which sources of human talent will be
most important in the future? (choose up to 3)
Which sources of human talent will be most important in the future?
80
70
In house promotion
Employee referrals
60
Competitors
On line job postings
College recruiting
50
Temporary staffing services
Social networks (ex: LinkedIn)
40
Customers
Head hunters
30
Manufacturers
Relative or family
Newspaper ads
20
Other
Walk-ins seeking a job
10
0
Source: Activant Future Of Distribution 2011 Summit
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ISA 2011
8: Which of the following are most important
in keeping talent in your company? (choose up to 3)
Which of the following are most important in keeping talent in your company?
90
80
Company philosophy and culture
70
Total compensation
Company benefits
60
Opportunity for advancement
Bonuses based on performance
50
Job challenge
40
Flex time
Relationships with customers
30
Company location
Company facilities and amenities
20
Other
10
0
1
Source: Activant Future Of Distribution 2011 Summit
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ISA 2011
7: What is the best idea you have seen
regarding getting and keeping great people?
 Culture
 Compensation
 Good Work Environment
 Better Communications
 Better Hiring
“Pay more and demand more and hire less!”
Source: Activant Future Of Distribution 2011 Summit
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ISA 2011
13: Which of the following areas of your business represent the greatest opportunities for
improvement in the future? (choose up to three)
70
Outside sales
60
Inside sales
# Of Responses
Online marketing
50
Strategic pricing
Warehouse management
Services for sale
40
Market data mining
Delivery/freight management
30
Financial management
Information systems
20
In house manufacturing/assembly
Order entry
HR
10
Other
0
Opportunities for Improvement
Source: Activant Future Of Distribution 2011 Summit
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ISA 2011
Functional
Areas
Sales
Operations
Finance
Services
Information
Technology
Marketing
Purchasing
Inv. Mngt.
Key Internal
Differentiators
X
Management
X
Specific
Goals/Objectives
Outlined
X
Performance
Metrics
Compensation/
Reward
Alignment
Top Talent
X
X
X
Leading Edge
Technology
“Lean”
Process Design
X
Education
Investment
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ISA 2011
Leverage
Opportunities
Big Ideas
Stocker
Selector/
Specifier
Sales &
Order
Process
Finder
Lines &
Assortment
Shipper
Special
Technologies
Servicer
Use
Market /
Customer
Understanding
Demonstrator
Destination
Sell
Differentiating
Techniques
Market
Communication
Synchronizer
Technology
Innovation /
Specialty
Know How
Unique
Information
Builder
Channel
Relationships
Something
Else
Cost
Savings/VA
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ISA 2011
What do I do with Technology?
What to do with Technology?
Sell It
New Customers
New Markets
New Margins
New Talent
New Challenges
Use It
Process Efficiency
Enhanced Information
Expanded Reach
Warp Speeds
More Profits
Lose
It
We sell Old Stuff
The old fashioned way.
We can get it for you,
sometimes.
You’ll have to wait to
talk to Fred .
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ISA 2011
Positioning Your Future Product & Service Technologies
Are Current Suppliers The Key?
Product & Service Line Competition
Product Brands
Good Better Best ?
Leaders
Risers
Fillers
Fakers
Services
Distribution
Technical
Will Top “Franchises”
Still Be Valuable Risers?
Kits
Bundled Solutions
Functional
Packaging
Watch The Technology: Lasers
Magnets
New Solutions
Smart Chips
More Safety
Ergonomics
More Green
Materials
More
Time
Savings
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Apply The
Technique:
Standard &
Custom Services
Producing
Measurable
Results
10: What technologies do you plan to invest in over the
next two years to make your business more productive?
What technologies do you plan to invest in over the next two years to make your
business more productive?
70
New Computers and
Servers
New Telecommunications
Systems
60
# of Positive Responses
New Vehicles
50
Material Handling Systems
40
GPS Tracking Systems
30
Others (please specify)
20
Automated Picking
Systems
Voice Picking Systems
10
0
Source: Activant Future Of Distribution 2011 Summit
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ISA 2011
11: What types of new business software technologies
will you invest in over the next 2 years?
eCommerce/B2B/Web Development
60
CRM Software
General Business Software (Microsoft
Excel, Access, etc.)
# of Positive Responses
50
Sales management Support
EDI
40
Document Management Software
Shipping/Logistics Software
30
Credit Card Software
Social Networking Software
20
Intranet
Inventory Optimization Software
Disaster Recover Software
10
ERP Software
Credit and collections support
0
Source: Activant Future Of Distribution 2011 Summit
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ISA 2011
Leverage
Opportunities
Big Ideas
Stocker
Differentiating
Techniques
Market /
Customer
Understanding
Demonstrator
Market
Communication
Selector/
Specifier
Sales &
Order
Process
Finder
Lines &
Assortment
Shipper
Special
Technologies
Synchronizer
Destination
Servicer
Treasure
Inventory A/R
Innovation /
Specialty
Know How
Unique
Information
Builder
Channel
Relationships
Something
Else
Cost
Savings/VA
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ISA 2011
Facilities
Equip.
Leverage
Opportunities
Big Ideas
Stocker
Selector/
Specifier
Sales &
Order
Process
Finder
Lines &
Assortment
Shipper
Special
Technologies
Servicer
Management
Sell
Use
Market /
Customer
Understanding
Demonstrator
Destination
Staff
Technology
Differentiating
Techniques
Market
Communication
Synchronizer
Talent
Innovation /
Specialty
Know How
Unique
Information
Builder
Channel
Relationships
Something
Else
Cost
Savings/VA
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ISA 2011
Treasure
Inventory A/R
Facilities
Equip.
14: What is the single greatest change to your business
in the past two years that has impacted your profitability?
Operations
 Pricing management
 Reduced lead time for custom made items
 Utilizing contract pricing/ automated rebating to increase gross profit
 Technology and Training
 We are buying better by increasing the size of orders - making it on the
buy
 Better inventory management
 We are much leaner
 Increase in inventory
 The implementation of a full sales process and CRM
 More productivity. Staff more focused on value creation.
Source: Activant Future Of Distribution 2011 Summit
copyright (c) 2011 W.R. McCleave all rights reserved
ISA 2011
Leverage
Opportunities
Differentiating
Techniques
Selector/
Specifier
Sales &
Order
Process
Finder
Lines &
Assortment
Shipper
Special
Technologies
Synchronizer
Destination
Servicer
Builder
Something
Else
Innovation /
Specialty
Know How
Unique
Information
Channel
Relationships
Comprehensive
Support
Demonstrator
Sell
Use
Treasure
Inventory A/R
Facilities
What is it that will make you more relevant?
Market /
Customer
Understanding
Market
Communication
Management
Order
Management
Stocker
Staff
Technology
Processes
Big Ideas
Talent
Value Add
Packaging &
Services
Custom
Engineering
&
Fabrication
Automated
Information
Delivery
Process
Efficiency
Commodity
Product
Cost
Savings/VA
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ISA 2011
Bleeding
Edge
Equip.
Question: Where Does Leverage Start?
Answer:
With customers you already have!
Other
Other
Safety
Training
Other
Company Events
General MRO
Design & Spec.
Advertising
Cutting Tools
Repair & Fab.
Web Site
Abrasives
24/7 Access
Catalog
Adhesives
“Integrated”
“Pro Sales Call”
Product
Component
+
Service
Component
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+
ISA 2011
Message
Component
Conclusions
 The economy is still in transition!
 Distribution is alive and getting better
 Smaller players need to understand the tools and techniques of the
“giants”
 Leverage is critical to compete in the future-more with less will rule
 There are at least four big opportunity areas
 There are more mergers and acquisitions coming
 Talent may be more available but management will be the key to results
 Razor sharp execution is essential for profitability
 You will determine how size matters!
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ISA 2011