By Jason Bader
The first step to operational improvement is to create the monthly scorecard. The second step is to review the metrics with the individual branch manager. But steps one and two alone will not produce the productivity improvements desired.
Without a document to guide the discussion, managers who oversee branch locations struggle with how to coach and motivate. For that reason, there is a third step: helping the manager develop strategies to tackle unsatisfactory metrics.
Providing a couple of strategies for improvement will help get things off on the right foot. Here are a few recommendations:
1. Gross margin dollars per day
If the branch is not meeting this goal, start looking at how the goals are being communicated. Challenge the manager to communicate the daily performance—e.g. writing the gross margin dollars on a wall calendar, using black ink for days that exceed the goal and red ink for days that fall short of the goal. Other scorecard metrics—gross margin dollars per ticket and lines per order—can also be used to improve performance.
2. Gross margin dollars per ticket
When this metric is in decline, start looking at ways to round customers up to larger package sizes. Simple comments like, “Did you know that those paint cans come in a case of 12?” or “Did you know that we have a quantity break at 50?” can drive behavior. Subtle changes in margin can also drive this metric up. Increasing the lines-per-order metric is a great strategy to drive improvement in the dollar-per-ticket goal.
3. Lines per order
As mentioned above, improvements in this metric can really drive dollars in the door. This one might take a little coaching. Just telling the manager to get his or her team to add-on sell is a little too simplistic, so help him or her develop a plan. Review the highest hit items and have team members list complimentary items. Make complimentary item review a regular part of inside sales team meetings.
4. Gross margin percentage
The first tactic to employ is a discussion about the impact to net profit. It is generally accepted that a 1 percent improvement to gross margin can spark a 40 percent improvement to the bottom line. This ratio gets managers to see the value. Because product knowledge training is one of the best solutions to diminished margins, make product training—by manufacturer reps—a weekly activity. Teach managers how to look for subtle margin improvement in slow-moving product. If all else fails, take away commission below a certain threshold. A zing to the wallet usually gets the message across.
5. Unproductive inventory
This metric measures the percentage of dead, slow, and surplus inventory in the branch. Setting expectations on this metric can help drive better turns and help prevent the inevitable cry for a bigger facility. Coach the manager to review a monthly hits ranking. Show him or her how to find, quarantine, and liquidate this inventory. Cash conversion of unproductive inventory requires creativity and consistency.
Bader is the owner 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.
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