Editor's Note: This is Part 2 of a 3-part series. See Part 1, "How Distributors Can Generate Growth in the New Normal," here. See Part 2, "Must-Have Capabilities for Distributors to Manage Growth", here.
When it comes to growth planning, distributors tend to focus their energy on selecting and launching strategies they expect will generate growth. Then, even if their immediate results are promising, their growth falls flat before the year is out.
This was the case even before the COVID-19 pandemic forced significant changes in the industry. Now, in 2021, it’s harder for many distributors to account for long-term impacts and sustainability in their growth planning. They’re in recovery and they need quick wins. And with the amount of change that’s occurred, it can be challenging to determine what would lead to sustainability and what would lead to failure.
Our research has identified one of the main issues that lead to decreased growth when distributors implement their plans for the year. It comes down to incorrect assumptions (also known as blind spots). Distributors believe they have the opportunities available and capabilities in place to support their initiatives and reach their goals, and they quickly discover they’re wrong.
How can you know whether you can sustain a specific growth opportunity in the new normal? And what actions should you take to ensure you’re making the best decisions and investments?
1. Use analytics to detect blind spots.
Two assumptions that distributors tend to get wrong in terms of growth are customer retention and supplier alignment. These incorrect assumptions can turn into detrimental blind spots. Consider if your planning requires a certain level of customer retention and you lose far more customers than you anticipated.
Analytics can help you make better, more accurate forecasts about your opportunities. You should have mature analytics at an item, customer and supplier level. Performing stratification in these areas, which involves segmenting by characteristics and metrics, sets you up to identify patterns that lead to churn and see where there’s greater or lesser profitability in each category. This tactic uses actual data to give you a more realistic view of current and future opportunities and risks.
A building materials distributor has systematically built three critical analytics – item, customer and supplier stratifications – over the years. Throughout this crisis, the distributor used these analytics as an anchor to make essential decisions around redeploying working capital, allocating shortage products, obtaining extended supplier terms, and acquiring new customers across multiple channels. Trifocal lenses helped the distributor make decisions that were both data-driven and timely. The executives and middle management used the same terminology and made decisions with clarity and confidence.
Perhaps the most significant benefit to having this data segmented and at your fingertips is that it’s incredibly actionable. If you can anticipate risk, you can take action to reroute that risk and potentially turn it into an opportunity. In terms of planning, understanding your risks will keep you from vastly overestimating where you stand.
2. Assess your capabilities and fill in the gaps.
Distributors make several assumptions about their internal capabilities when they pursue growth. If their plan depends on certain key employees with specific training, for example, and they don’t anticipate a scenario in which they lose those employees, that plan will suffer. Or if their plan involves a heavy emphasis on eCommerce, but their website delivers a slow, painful customer experience, their assumption that their eCommerce platform could support their goals will lead to significant headaches and setbacks.
Capability assumptions extend as far out as supply chain performance. If your growth depends on a reliable supply chain but, in truth, it isn’t resilient or diverse, your entire growth strategy is at risk.
Sharpening these assumptions isn’t as simple as applying stratification. Conditions around internal capabilities can change from day-to-day, say if a staff member gets sick or finds another opportunity or if a critical supplier closes their doors for a few weeks.
The best practices to manage blind spots include timely validation of these assumptions through internal capability assessments and the cultivation of a growth mindset as a key ingredient of company culture. The capability assessments expose the gaps in critical business processes, technology readiness, and people competencies. As part of our past research, we have identified industry benchmarks (common/good/best practices) across seven process groups (Source, Stock, Store, Sell, Ship, Supply chain planning and Support services). The capability assessments compare your existing processes to these industry benchmarks. They are a great starting point, but the leadership team should also have a growth mindset to close the gaps proactively.
The final word
It’s important to nurture growth so that it’s sustainable. Your growth strategy for the rest of 2021 cannot be left to cultivate itself. You must ensure your staff is open to your new processes, for instance, and flex to adjust those processes for greater buy-in. Be ready to build out your supplier network for greater resilience. You must tend to your growth strategy and monitor your results in real-time to ensure you’re on the right track.
Senthil Gunasekaran is co-founder of ActVantage, which helps distributors drive profitable growth through analytics and talent development. He has more than 18 years of experience helping hundreds of distributors and manufacturers, while co-authoring seven books for the NAW. He also delivers executive education and speaks at industry forums, and he recently compiled a guide to revenue recovery for distributors to use in navigating through the coronavirus pandemic. Prior to ActVantage, Senthil led research and industry projects at Texas A&M’s ID program. Contact Senthil at email@example.com or visit actvantage.com.