The EPTDA Distribution Forum

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The EPTDA Distribution Forum Facilitator

JEAN-MARIE

FINK

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Introducing The EPTDA Distribution Forum

Introduction by Jean-Marie Fink

Presentation by Ulrich Liedtke, Managing Director of Würth

Elektrogroßhandel GmbH & Co.KG: “Developments in the

electrical wholesale market – food for thought?”

Customers’ Expectations

Inventory Management post recession

People Management today

21st Century Customers’ Expectations

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21st Century Customers’ Expectations

The basic contract between a distributor and his customer is about delivering

• The right item

• At the right time

• At the right price

SEEMS EASY

But …

• Internet offers

• Crisis

• Purchasing prices increases

• New entrants

MAKE IT LESS EASY

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21st Century Customers’ ExpectationsDistributors’ & Customers’ price sensitivity

Income StatementFor the typical European PT/MC Distributor

• SALES 100• COGS 75• GM 25• ALL COST 22• PROFIT BEFORE TAX 3

2 cases :1. Price increase of 2 % COGS = 75 x 1.02 = 76.5

• PBT = 100 – 76.5 = 23.5 – 22 = 1.5

2. Price decrease of 2 % COGS = 75 x 0.98 = 73.5• PBT = 100 – 73.5 = 26.5 – 22 = 4.5

A small variation of COGS has a big impact on PBT

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21st Century Customers’ ExpectationsDistributors’ & Customers’ price sensitivity

For the MRO Customer

Price = 25 to 33% of the full cost of a replacement order (acquisition cost)

So price is not so important to the customer of the distributor as for the distributor itself

Even if price has become again very important since the customers want to pass over as much of work as they can on the distributor = good bargaining position

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21st Century Customers’ ExpectationsInquiries on customers show the following hierarchy of expectations

MRO customers Distributors Answers

First Price Acquisition Cost Improvement

Second Non stop operationsAnd more efficiencyIn the production

Customer intimacy and technical advise + adequate service

Third Less capital employed

Analysis of capital employed + adapted services

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21st Century Customers’ ExpectationsConclusions

Customers have downsized, decreased staff & resources during the recession Therefore your CUSTOMERS outsource more and expect you to deliver up to their expectations. You have to provide them with :  CUSTOMER INTIMACY

o Know your customer,o How he has changed during the recession;o Actual issues.

  GO ONE STEP FURTHER THAN JUST PRODUCTS

o Life cycle monitoring;o Electrical motors or products recycling;o Repair of damaged components (spindles, linear motion).

  PROTECT YOUR MARGIN

o To stay long in the market

Inventory Management Post Recession

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Inventory Management Post-Recession

Average income structure for an EPTDA Distributor today:

• SALES 100• COGS 75• GM 25

Inventory 22.5 (almost like GM)

Inventory turn /Sales 100/22.5 = 4.44 X• But 12/4.44 = 2.7 Months of sales

Inventory turn on COGS = 75/22.5 = 3.33 X• And 12/3.33 = 3.6 months of COGS

Number of articles between 100,000 on stock and 1,000,000 on record.

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Inventory Management Post-Recession

There are 2 Basic adverse trends :

1. Given the actual banking environment and cost of money inventory investment is wanted as low as possible,’

2. The recent increase in business since 2010 justifies an increase in stock to respond to growing customers demand and maintain a good level of customer service,

BUT

What is before us?

Can we manage properly our inventory in such uncertain times?

In this part of the forum we will try to answer some of the basics of inventory management.

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Inventory Management Post-Recession

3 Main Issues:

1. Inventory Financing

2. Inventory Optimisation

3. Warehouse Management

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Inventory Management Post-RecessionConclusions

1. DON’T PLAY CASINO any more with your inventory (hoping for supplier increases to

have more value in the stock) and question your replenishment software.

Downside : Less quantity on stock orders means more orders of smaller quantity

= more administration costs.

Look on inventory turns by segmentation of products (A, B, C, D etc).

2. SELL SERVICES

Your customer has the same problem as you and wants to increase his ROCE

(Return on Capital Employed) by cutting his inventory and general maintenance

costs.

Sell him solutions : VMI = VENDOR MANAGED INVENTORY

And don’t forget SMI = SUPPLIER MANAGEMENT INVENTORY

 

3. SEND OUT OF YOUR CENTRAL WAREHOUSE and minimize inventory locally.

You will have better chances of optimizing your inventory.

People Management Today

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People Management TodayThe importance of people

Average income statement of European PT/MC Distributors1. SALES 1002. COGS 753. GROSS MARGIN 254. COST OF PEOPLE 12.5 = 50% OF GM5. ALL OTHER COSTS 10 = 40% OF GM6. PROFIT BEFORE TAX 2.5 = 10 % OF GM OR 2.5 % OF

SALES7. COST OF PEOPLE Fix cost (difficult to reduce)

So, people are

1. Number One COST

Or

2. Number One INVESTMENT

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People Management TodayThe importance of people

People Management & Development - key issue facing businesses

Today

• Global unemployment rate in the EU = 9/10 % (some countries up to 20%)

In the crisis period many distributors had to reduce their workforce (the youngest?)

Retirement age is going to hit a high number of people in the distributors organisations an those are the most knowledgeable

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People Management Today The importance of people

There are 3 basic actions about people

• Hiring

• Rewarding

• Retaining

Which best practices can we deploy ?

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People Management Today Conclusions

People are our most valuable asset and our highest cost.

1. SEARCH THOROUGHLY the new entrants in your company.

Initial expenses will be paid back if you hire the right people fitting into your organization.

2. TREAT YOUR PEOPLE THE BEST

You can this way retain them inside your firm (find the right incentives);

BUT …. Select carefully those who will stay (yearly assessment).

3. TRAINING, TRAINING and more training to enhance the capabilities of your team and make

them better “profit centers”.

Adapted training by :

Segmentation of trainees (young, mature, senior);

Differentiation of content;

Giving some sales techniques for the product.

The Distribution Forum Taskforce

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The EPTDA Distribution Forum Task Force

DR MATHIAS SAHLBERG

Sahlberg GmbH & CO. KG

FRANK BORGMANN

Henkel AG & Co. KGaA

JEAN-MARIE FINKJMF

Consulting

THANK YOU