Economic cycles bring clear opportunities and disadvantages to distributors, and over time, have provided a roadmap for those seeking market share growth. Looking back, we recognize clear patterns that today prompt us to make changes to our business strategies. The conclusions we’ve drawn from the patterns have not always been intuitive or obvious, but fortunately they do present an optimistic picture and plenty of opportunity for you in 2020/2021. If you think market share growth will be difficult to accomplish this year given the current effect of the Coronavirus pandemic on the economic cycle, think again. The biggest shifts in market share don’t typically come at the top or bottom of distributors’ sales cycles; they occur where we are today: in the seams. History has shown that share doesn’t tend to shift widely between competitors during either boom or bust times. Now, as we turn our sights to recovery and then to expansion, it’s time to evaluate how tweaks in your business structure, and handling of receivables, inventory DOH, and working capital can help improve your market share.
As we unpack the factors that contribute to a distributor’s success – or demise – though changing economic cycles, let us first identify the four basic phases of economic growth and contraction:
Phase 1: Peak – Highest Sales: while many distributors have their highest sales growth rates during the peak of economic cycles, so does everyone else. Margins remain competitive, and not a lot of share changes hands.
Phase 2: (Seam) Contraction
Phase 3: Recession or Depression – Lowest Sales – Little working capital to invest, demand is weak
Phase 4: (Seam) Recovery and Expansion
Stabilizing the Triangle: Receivables, Inventory, and Customer Service
In Phase 4, where we sit today, as general inventories levels thicken, it’s the nimble distributor who isn’t housing a lot of inventory on his shelves and who has strict and reliable receivables policies that is often able to separate from the pack and claim market share. This is also true in Phase 2. So in terms of business levers, the ones to minimize right now are inventory and receivables. But you won’t me able to sustain that for long without excellent customer service.
Don’t Underestimate the Power of Customer Service
If you’d like to capture some of your competitors’ share, you will need the benefit of good customer service to carry you through the fallout you might feel from tightening your belt. Without consistent or improving service levels, it’s difficult to offset the bumps you encounter from making your inventories work harder and back-office efforts to get as lean as possible – two other critical success factors in 2020. Because improving turns is the bull’s eye, push, push, push your faster moving items. More frequent turns help create cash on your balance sheet which can be put to good investment use, fueling your expansion. And on the cycle goes.
Another reason that good customer service is so incredibly important right now has to do with the competition you will eventually feel from AmazonSupply. Right now you probably can’t compete with their delivery, and possibly will struggle to compete against their pricing and terms in the near future. Yet, the one place they won’t be able to touch you is your highly targeted, on-point customer service; unique to your own individual customer group.
While you focus on your service levels, what tools can you use to lean up your inventory and push those turn to their limits? Advanced distribution software with an excellent e-commerce platform is your best bet, because it gives you clear visibility into all aspects of your business and provides you with the data necessary to make the right decisions. There is no one-size-fits-all ERP software solution available today, except at the very high end, and with programs that cost hundreds of thousands of dollars. Most small and mid-sized distributors need distribution software with a workflow that matches their own – something quite different than the needs of companies with thousands of employees. So get on the phone. Call and talk to one of our sales reps and let us know your business objectives. Chances are a software upgrade will pay for itself over time, and open up another window of opportunity for you.