 As
the old saying goes, “You can’t manage what you can’t
measure”. I have seen several branch managers thrust into a
title with very little instruction on how they are to
perform the job. This is one of those sink or swim moments
that we are very fond of implementing in the distribution
world. It doesn’t have to be this way.
A great deal of fear can be
alleviated by simply giving the new manager a set of
measurements to watch over. This simple set of measurements,
or scorecard, will help the new manager recognize, diagnose
and correct problems before they get too far off course. In
this article, I will list a few of the common measurements
to help you get started.
Gross Margin Dollars per Day
This is the most obvious sales performance measurement, but
with a twist. I am not a fan of top line, ego driven sales
measurement. If we are going to get our team to focus on
what is important, gross margin dollars, we must base our
measurement on the right criteria. I like to break the goal
down to a daily number so that it is easier to digest and
correct if necessary.
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Gross
Margin Dollars per Order
I like to use this measurement to help the team drive larger
orders when compared to the expense of processing an order.
Since most wholesale distributors require at least $50 to
process an order all the way through to payment, this helps
us make sure that we are staying ahead of costs.
Gross Margin Percentage
I am always very conscious of gross margin percentages. This
is where distributors can move the needle if they understand
how to use strategic pricing models. There are many
competitive influences that diminish margins. The profitable
distributor must continually fight to stay ahead.
Line Items per Order
With this measurement, we are trying to drive complementary
product sales. I always tell my clients and audience, “If we
let an order get out the door with just one line item, we
have failed to provide superior customer service.” We must
teach our sales people that asking customers about
complimentary items is a service. There is a good chance
that the ancillary item you suggest will allow them to
complete their task without further interruption.
Number of
Customers Exceeding $500 in Gross Margin Dollars per Month
This one was suggested by one of my private clients. He
likes to review this to make sure that a location is
continually working with a wide variety of customers.
Without watching this, a location can begin to put too many
eggs in one basket.
Monthly Gross Margin Dollars per Employee
This measurement was given to me by a regional manager I
worked with several years ago. He had pegged a goal of
$10,500 per head. As the number increased, he knew that it
was time to add staff. As the number began to fall below the
goal, he knew that it was time to reduce staff.
Customer Service Percentage
This is measured by comparing the number of line items
shipped complete versus the number of line items ordered. In
other works, how many times could I fill the order complete
from stock? The higher the percentage, the more satisfied
your customers are.
Number of Backorders in the Top 200 Items
This another customer service measurement that keys in on
the most popular items. A couple of years ago, a client and
I came up with this one to help make sure that they were
adequately stocked on the items their customers were most
likely to order. Again, the top 200 items are ranked by
hits. Just to clarify, hits is defined as the number of
times an item appears on a sales order in a 12 month period.
Essentially, we want this number to be very low if not zero.
Shipping these items 100% complete will make you look very
good in the eyes of the customer.
Inventory Turns
This is one of the most recognized metrics in wholesale
distribution. I just want to caution the reader that this is
a measurement of stock sales, not all sales. We are really
trying to get a handle on the investment made in the
location.
Unproductive Inventory Percentage
This metric incorporates both the inventory that has been
classified as dead and the surplus on hand. Both of these
kill operating performance. Most distributors carry at least
35% more inventory than they need to provide superior
customer service. Focus on rightsizing the inventory and
perhaps you won’t need to upsize the branch.
Days to Pay
Although this performance measurement isn’t always handled
by the branch manager, it can be a good indicator of deep
the relationship between the sales team and customer really
is. I am a firm believer that accounts receivable
performance is driven more by relationships than it is by
the customer’s ability to pay.
As I stated at the beginning of this article, these are a
few metrics to get you started. I am sure that you all will
come up with other measurements more specific to your
business. Feel free to use this as a guide. Giving your new
manager this kind of tool is a good start. In order to
really make it effective, you will have to invest the time
to help them establish goals and teach them how to course
correct. Scorecards, metrics and key performance indicators
are all designed to do one thing: keep your eye on the ball.
Remember, I am always here to help.
About the Author:
Jason Bader is the managing partner of The Distribution
Team, a firm that specializes in helping distributors become
more profitable through strategic planning and operating
efficiencies. The first 20 years of his career were spent
working as a distribution executive. Today, he is a regular
speaker at industry events and spends much of his time
coaching individual distribution companies. For more
information, call (503) 282-2333 or contact him by e-mail at
Jason@Distributionteam.com.
Also visit The Distribution Team’s website at
www.thedistributionteam.com.
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