by Jason Bader
There is an old saying, “You can’t manage what you can’t measure.” I am a strong advocate for the use of branch management scorecards when trying to motivate teams to improve performance. It just makes sense. Managers who oversee several branch locations struggle with how to coach and motivate branches without a document to guide the discussion. This is one of the greatest reasons to produce and maintain these performance measures. Documenting the performance is just the first step. If you really want to drive change, you have to bring a little black bag of strategies to the party.
I have been helping companies develop branch scorecards for a number of years now. Everyone has their own little spin on how they want to present the information. I have no problem with that. Each entity has its own culture and they ultimately know what will fit best in their organization. Some companies keep it simple by only measuring certain sales-related metrics. Others find ways to incorporate asset-related performance. My preference is the latter, but the creation of monthly revenue-driven goals will go a long way to improving profitability.
Building the sheet of metrics is a trick unto itself. Make sure they are easy to measure. How easy can they be extracted from your distribution software? If the creation process is too cumbersome, I suspect that many of you will eventually “round file” the program. Keep it relatively simple.
In an earlier article, I walked down several metrics that I often suggest to the companies I coach. I shared the list with one of my clients today. We reviewed the list, talked about how to capture the data and discussed why each particular metric was valuable. It is important to get a philosophical understanding of why we are measuring something so that when it comes time to share the document, you are comfortable explaining the benefit. Unfortunately, this is where many companies stop.
Producing the document every month and sending it to the responsible manager will not produce the productivity improvements you seek. I would concede that exposure will drive some measure of change, but providing a couple of strategies for improvement will help get that manager off on the right foot. Sometimes people just need a little view of the path before they can apply creativity. Build your strategic starter kit before you begin coaching. Here are a few of mine.
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. I like to see managers write the gross margin dollars on a wall calendar. Use black ink for days that exceed the goal. Use red ink for days that fall short of the goal. You can also talk about using a couple of other scorecard metrics, gross margin dollars per ticket and lines per order, to improve performance.
Gross Margin Dollars per Ticket
When this metric is in decline, I start looking at ways to round the customer up to larger package sizes. Simple comments such as, “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 up this metric. Increasing the lines per order metric is my favorite strategy to drive improvement in the dollar per ticket goal.
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 their team to add-on sell is too simplistic. Help that person 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.
Gross Margin Percentage
The first tactic I 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 them to see the value. I generally believe that product knowledge training is one of the best solutions to diminished margins. Make product training, by manufacturer reps, a part of your weekly activity. Teach your manager 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.
This metric measures the percentage of dead, slow and surplus inventory in the branch. Setting expectations on this metric can help you drive better turns and help prevent the inevitable cry for a bigger facility. Coach the manager to review a monthly hits ranking. Show them how to find, quarantine and liquidate this inventory. Cash conversion of unproductive inventory requires creativity and consistency.
These are just a few of the metrics that I recommend to clients, but I think you get the idea. The first step to operational improvement is to create the monthly scorecard. Step two is to review the metrics with the individual branch manager. Step three is to help that manager develop strategies to tackle unsatisfactory metrics. Showing up to your meeting with a little black bag of tricks will make this process a whole lot easier.
If you are interested in a more complete list of metrics, request a copy of my previous article “Building a Branch Management Scorecard.” As I continue to coach distribution companies toward profitability, and peace of mind, I have come to believe in the magic of monthly performance metrics. If you need help getting started, please don’t hesitate to reach out. Good luck.
Jason Bader is the owner of The Distribution Team, which specializes in helping distributors become more profitable through strategic planning and operating efficiencies. For more information, call (503) 282-2333 or contact him by email at Jason@Distributionteam.com or visit www.thedistributionteam.com.
This article originally appeared in the March/April 2017 issue of Industrial Supply magazine. Copyright 2017, Direct Business Media.