Friday, October 12, 2012

Planning Part III: Employee Enhancement

Employee Enhancement

Everybody says, “Our employees are our biggest asset.” But in the world of distribution the truth is our employees really are our biggest investment.  According to the Profit Analysis Reports generated by distributor associations, payroll cost represents somewhere between 60 and 65 percent of our total spending. 

We’re not just “whistling Dixie” when we make the claim, it’s totally true.  But sadly, very few distributors create a real plan for maintaining or improving this investment.  If we were talking buildings instead of people, rust, decay and rundown would be the descriptors in play.  Most of us hire top talent, and then we rely on our hires to keep up with changing times.  Computer skills, inventory management techniques, and sales process are left pretty much to the individual.  What’s worse; along the way, only a few of us take the time to assist the employee in their development via a formal review.

According to new research presented in The Challenger Sale, the performance gap between average and top performer has grown from 30 percent to over 400 percent.  So, moving our customer facing employees along in their development is not a good investment, it’s a great use of our funds.  My observations point that similar differentials exist in other areas of our businesses.

Let’s think about how we should go about creating an annual employee enhancement plan.

Understand Employee Strengths and Weaknesses

Planning season is a good time to analyze (and spell out) the strengths and weaknesses of your employees.  With just a little bit of thought, one can develop a list which outlines the specific areas where employees are struggling as well as areas where employees excel.  Ask yourself the following questions:

·         Is there anyone who is in the wrong position based on their strengths and weaknesses?

·         Are there any common weaknesses shared by multiple people in the organization?

·         Does everyone have the tools required to handle their job properly?

·         Are there people who employees turn to for guidance in specific areas?

·         Is there anyone who has little hope of improving their performance in the next year?

Rank your People

During times of economic stress (read that Recession), it may become important to scale back on your head count.  The very thought of this topic makes most of us uncomfortable, but we must spend some time thinking about the possibility.  Some employees are indispensable to the business; others are less valuable.  It’s important to rank employees based not only on their performance but also on their value to your business.  Understanding who falls into which group is important today and critical is we hit a rocky economy.

Your plan for the coming year should include setting performance improvement plans for the bottom tier employees.  Ask yourself; how long can we afford to hold onto an employee who does not create value for our organization?  Set a time line for improvement.  Without a time line, tough decisions can be postponed indefinitely.   We’ll operate under the assumption that nobody is inherently evil.  By keeping them around for the long haul in spite of performance issues, we diminish our financial success and endanger the attitudes of our best employees via frustration created by working with underperforming coworkers. 

 Establish a Training Plan

So many distributors occasionally set up a couple of hours of “one-size-fits-all” training and believe they have covered their bases.  While there may be some topics which impact such a broad spectrum of their people that companywide training is justified, generally it’s not that way.  The best training is individual and specific; matched according to the strengths and weaknesses of the person involved.

And we’re not talking about spending thousands of dollars for outside trainers.  Often, one or two folks in every organization have strengths which overlap other employee’s weaknesses.  Internally driven training works, however most distributors fail to invest the time to do it right. 

Your plan should include: topics for training, who will conduct the training, the goal of the training and a defined time frame.  And, none of this is difficult if you do the planning first.

Set Standards for Supply Partner Product Meetings

A few years ago we did a survey of distributors in the Electrical world on training.  The results were eye-opening.  The survey indicated that less than 50% of the product training sessions conducted by their supply partners met the mark.  One distributor even commented, “We feel obligated to hold these sessions but when you calculate the cost of taking our people off the road for one day a month, they are a complete waste of money.”

It appears as though these folks put very little thought into what goes into a successful training session.  Instead, they take center stage armed with a factory provided PowerPoint detailing product minutia of questionable importance.  Important points, like competitive positioning, target customers, selling points and applications are either ignored or come as an afterthought.

 Understanding new products is important.  But selling new products is our stock and trade.  We suggest you create a set of standards which outline (in detail) what you expect from a supplier training session and incorporate this into Supply Partner planning sessions.

A few parting thoughts

Here are a few other topics that must be included into your Employee Enhancement Plan:

·         Establish a time for annual reviews – these are best when not tied to raises.

·         Set improvement deadlines for employees who struggle.

·         Front line managers are a key to growing your people – push this information down to everyone who leads a department or group in your company.

·         Set a time for a ‘360’ review for yourself.  We all have room for improvement; don’t leave “you” out of the equation.

Distributor Planning Made Easy.  Check out our Distributors Annual Planning Workbook:



Tuesday, October 9, 2012

Planning Part II: Now on to the Numbers

Detailed Expense Budget

 Allow me a couple of Bold Statements:

·         Salespeople hate budgets.  I don’t know why this is the case.  But after three decades in the selling business, the evidence continues to pile up.  Whether they fear accountability, find the process tedious, or can’t stand a couple of hours staring at a spreadsheet – it just appears as though most shirk this duty.

·         The Top Brass of most distributors came up through sales.  And, guess what?  They still hate budgeting.  As strange as it may seem, I continually run into distributors without a detailed expense plan for the coming year.  When budgets exist, they commonly are a product of the accounting side of the business, without solid input and support from the other sides of the house.  Ouch…

The best annual distributor plans call for not only a forecast of incoming sales and gross margin (which we’ve covered), but also predict operating expenses in the coming year.  Over the year, a side by side comparison of anticipated gross margin versus anticipated expenses allows the distributor to gauge exactly how the year is progressing. 

The best expense budget covers the following areas:

·         Payroll Expenses - This includes salaries, commissions, bonuses, payroll taxes, insurance and other benefits.

·         Occupancy Expenses - Things like rent, utilities, maintenance, snow removal (for those of you who enjoy Iowa-style winters), lawn service, janitorial service and other areas fall into this category.

·         Sales Expenses – Company vehicles, cell phones, entertainment, demo units, association dues and anything else which falls into the category of selling.

·         Marketing Expenses – Categories here include the calendars, trinkets and other things you give to customers, trade shows, yellow-page advertising, fees associated with your webpage, and any other advertising (such as sky boxes at your local Major League Baseball stadium and memberships in hunt clubs – insert subliminal message here invite Frank next year). 

·         Other Operating Expenses – This category includes major expenses such as insurance (liability and casualty), non-payroll taxes, depreciation and bad debt loss.

·         Other Operating Income – Rebates, backside marketing funds, special programs, SPA’s every industry has their own terminology.  But these things plan a huge role in the profitability of wholesale distributors.  Managing/maximizing the dollars is critical in any budget plan.

Many distributors wrongly take the approach that they cannot impact expenses, so they fail to put adequate projections into their plan.  While some breakdowns like utility expenses seem to be globally driven and outside the ability of a distributor to impact, we can still make some very important assumptions.

New employees impact the expenses but it often takes 45-90 days to find a qualified candidate.  Working backwards, this allows us to determine the best time to begin our hunt for new employees.   Promised raises, whether costing of living or other, must be factored into the next year’s plan. 

 Besides payroll costs, other expenses can be predicted and controlled.  Here are a few points to consider:

·         Selling Expenses- With many companies in the technology sector investing heavily in demo and lab equipment, it is possible to develop a plan for coming improvements.  Further, we believe that many companies fail to rotate demo equipment and find tens of thousands of dollars sinking down the drain as new revision products come to the market.

·         Marketing Expenses – Trade shows, major programs and advertising can be anticipated and a budget created.

·         Other Operating Income – Don’t forget to manage the rebate dollars.  Is this a large number for your organization?  Whose job is it to manage the numbers?  Will anything change for the better?  Is there an opportunity to throw fifty, a hundred or a couple hundred thousand extra bucks onto the pile? 

Once the sales forecast and expense budget are established, a company bottom line goal is established.  We have a prediction of our before tax (and interest) profit for the coming year. 

What to do if the numbers don’t come out?

Many folks ask; what if the sales numbers and planned expenses do not create a reasonable profit goal?  This is a not just a great question, it’s a question that drives another question.  What would have happened if a solid plan had not been developed?

If the first two steps of your plan show an unacceptable profit picture, we must rethink the plan.  Here are a few points to direct your thoughts:

1.      Are both plans as accurate as possible?  Has the sales team gone into the “sandbagger” mode?  Does your expense budget contain a pie-in-the-sky “wish list” of nice to have upgrades?

2.      Do the stockholders of your organization want to invest in the future?  Sometimes it does make sense to spend extra dollars to expand territories, build new infrastructure, or capitalize on some specific market condition.  These must be carefully understood and not used as an excuse for anemic sales growth or poor expense control.

3.      Do you expect mid-year changes which are not part of either plan?  If so, now is the time to reanalyze the numbers by month or quarter. 

4.      Establish some management points with real metrics.  For example:  if sales for the southern territory do not improve (i.e., increase in new customers) by June 30th, we will make substantial (and measurable) changes in the territory.

Just as the sales forecast plan was the combined work of the entire sales team, the expense plan is not just the responsibility of the controller or CFO.  To be real everyone must input their best estimates and support this portion of the plan.

Distributor Planning Made Easy. Check out our Distributors Annual Planning Workbook:



Monday, October 1, 2012

Planning Part I: Let's Start with the Questions

The Who, What, Why Sales Budget

In case you haven’t noticed, we distributors are in the sales business.  Now I realize there are a bunch of you who are starting to raise your hand with questions like: What about our inventory department?  And aren’t distributors really involved in the logistical world?

Both of these are valid arguments.  However, without sales, the distributor world comes crashing to a halt.  If sales are not predictable, and budgeted for, all of the good inventory practices in the world will be for naught.

 We believe arriving at a solid estimate of next year’s sales and gross margin is critically important to your plan.  Actually gross margin dollars are more important than sales numbers in the distributor world but, developing both allows for better communication with supply partners who deal only in sales.

Most distributors take a shot at their forecast by pulling out some growth wish – 8, 10, 15 percent are commonly tossed out.  This becomes the number for everyone regardless of territory and situation.  What’s worse, midway through the year, the number loses all meaning as a management tool for the sales team.

Introducing the Who, What, Why Planning Tool

This plan is specific and manageable throughout the year and requires only a minimum of effort to set in place.  Here is a breakdown:

1.      Salespeople are provided with their customer sales for the past year broken into product categories.

2.      Salespeople review each account (who) and estimate future growth or shrinkage (what) by product category.  As they review the numbers they answer the question of why this number will grow or shrink – things like one time projects, new products specified, competitive issues and the customer’s own growth are considered.

3.      The numbers are tallied by salesperson and combined into the final plan.

Management must review the numbers with their salespeople.  Many sales guys prescribe to the old tenant of “Sandbagger or Loser” and submit dismally low projections.  This must be addressed on an individual basis.  It allows for coaching, mentoring and managing.

Distributor Planning Made Easy.  Check out our Distributors Annual Planning Workbook: