Reinventing Distribution

The best time to revisit the state of the business is preferably when external pressure is still manageable. There are several examples of companies that simply ignored the evidence that something was wrong, taking them as isolated incidents rather than symptoms of an impending collapse. Such companies ceased to exist or were incorporated by others. It is always important to keep in mind that a business dies slowly, with rare exceptions.

There are four evidences that together or, individually, should give room, at least, for an honest reflection on the part of Management:

(1) Low growth
Growth is an important indicator of business approval by its customers. A low level of growth, in line or below inflation, indicates that the business faces the challenge of continuity. Especially if this low growth is associated with a low share of wallet.

(2) Low share of customer purchases (Share of Wallet)
A low or stable share in the customer's wallet may also indicate stagnation or decline. It would indicate one of two possibilities: a fatigue in the business model or lack of harmony between the business model and its current customers.

(3) Low productivity
Productivity is a byproduct of the relationship between revenue and capacity. The components of capacity are those responsible for generating revenues: facilities, warehouses, distribution centers, stores, vehicles, equipment, working capital and labor.

(4) Low or falling profitability
Profitability is the ratio of profit to equity or invested capital. Ideally, such a result should be a higher rate than that which would be obtained in the case of a low effort investment such as the investment in the financial markets adjusted by a premium for the risk incurred.

The distribution chain, which brings together organizations involved in the passing or transfer of products from manufacturers or importers to consumers, is, by its nature, subject to continuous pressure. Concentration of suppliers; decentralization of production and distribution; concentration of customers; emergence of new formats (competitors and substitutes) and regulatory risk (licenses, permits and taxes) are some of these pressures.

The answer to these challenges lies in the correct redefinition of the basic elements: customers, products and services, region and geography. That is, a combination of the Business Model (how to make money) and Value Proposition.

Value Proposition is what the customer buys when choosing a company. This involves three elements: Brand / Image; Offer (Products / Services) and Purchase experience.

The questions that should be asked would involve:

a.    Company's role in the customers’ needs;
b.    Elements of the Value Proposition that are determinant in the selection of suppliers by customers;
c.    Which segments of clients are most attractive to a Value Proposition;
d.    In what degree and size the wholesaler / distributor is meeting the needs of the target customers;
e.    In what dimensions the wholesaler / distributor outperforms or falls short of competitors;
f.    Which dimensions of the Value Proposition or target customer definitions should be adjusted to maximize profits.

By dimensions, we understand attributes such as: Quality of products; Promotions; Price; Assortment; Availability; Little fluctuation of prices; Brands; Agility; Payment methods; Delivery; Payment terms; Tradition; Price information; Telesales; Customer Care; Packaging and Ancillary Services (credit, consulting ...).

Possible answers involve:

(1)    Act as "organizer": retail format development; independent retailers alliance offering: brand, format, purchase, technology and services;
(2)    New businesses: Go-direct (explore retail); Develop Services business;
(3)    Increase assortment and increase customer base;
(4)    Supply Government?

The fact is that the answers will bring in themselves a betting component, thus the quality of the analysis and discussion will make the process less risky!

Contact us to discuss how to reinvent distribution by sending a message to This email address is being protected from spambots. You need JavaScript enabled to view it.

At 2B Partners Consulting we aim to help companies to address the questions or problems thru the services of advisory board, interim management, managerial applications and consulting focused on financial advisory, operations improvement and organizational efficiency. Contact us to obtain more information by sending an email to This email address is being protected from spambots. You need JavaScript enabled to view it.

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