On Thursday, August 26, Barnes Dennig hosted the annual seminar for the Wholesale/Distribution Niche. We had a great turnout to hear Mike Marks present on Creating a Digital Roadmap to Drive Profits.
Mike began his presentation showing that the distribution industry remains robust but is facing dramatic changes. At the heart of these changes is a shift in the Competition Model and the changes that technology present. In this blog, we will be taking a closer look at how to create a Digital Roadmap to work this industry disruptor to your advantage.
- Decide how much you are willing to invest over your next planning horizon;
- Determine whether to invest the resources externally or internally;
- Put identified alternatives on a “heat map” of most valuable returns and invest the funds you identified in step 1;
How to Use It:
- How To Do the Math: This analysis is driven by cash availability. Mike suggests that distributors analyze their cash needs over the next 24 months and not violate a 30% Margin of Safety (MOS).
- Create three proforma’s: optimistic, realistic, and pessimistic.
- Next determine a “worst case” proforma that causes you to run out of cash or trigger a covenant with a lender.
- The cash that reduces your MOS to 30% when looking at the difference between your pessimistic and worst-case scenarios is the maximum that you can invest.
- Determine where you want to go. Are you maximizing your exit value because you want to sell in 3-5 years, or are you playing to win in the long run?
- External or Internal? Determine whether you are ahead or behind your customers and competitors, and if you are current, invest internally to lower your recurring SG&A expense;
- External: Hire a telemarketing firm for around $2,000 to $4,000 to do a broad market survey of potential customers targeting specific NAICs Codes. Ask about their use of digital technology and craft the questions so they are specific to your market.
- Internal: Conduct an anonymous internal survey about critical constraints and weaknesses. Another step is to analyze your SG&A expense levels, with a target reduction goal of 5%.
- Heat Map: Plot the cost/benefit on a two axis “heat map” and choose the lowest cost, highest impact options.
Mike had many examples and insights throughout his presentation. He helpfully provided areas he would invest in right away, including: investing in strategic pricing, use the research you perform to look for some real unique activities to provide to customers, calculate an MOS right away to know how much is available to work with, set up a customer and supplier “advisor board” on technology utilization, and create a real board to get outsider perspectives on performance and operations.
For more information on these topics or if you’d like to watch the playback recording of this event, contact us at Barnes Dennig here.