As we promote and endorse our industry, we always remind people of the vital role it plays in providing the superior quality of life we have in our country. Many of the great things we enjoy in our country are only possible when they are layered on top of a foundation of safe water supplies, effective and safe sanitary systems, good climate control systems, and properly engineered and safely constructed industrial operations.
The fact that nearly all the country’s population has access to this healthy infrastructure is a huge part of the environment allowing this country to prosper. Most of us quietly do our jobs, as we should, without telling our story in a way that causes people to understand the value our industry brings and then actively seek a career in it. We need to do better.
Our industry is evolving. As with change in general, some of it is good, some of it less good. As we have discussed before, there is a company with the same name as a large, highly polluted river teeming with piranha and crocodiles in South America. We will not mention its name, but it is starting to flow more aggressively into our industry, as well as many other industries. Its stated strategy is to exist by undercutting the traditional wholesaler’s margins — one critic described it as a “race to the bottom” — and operating more efficiently, reliability and conveniently than the traditional supplier does.
Traditional installer companies will consider abandoning, as consumers have abandoned, domestic manufacturers and wholesalers for competitive prices, the reliability of delivery and convenience. The polluted river company is not the only business implementing some variant of this strategy. HD Supply, Grainger and others seem to be quietly building market share in our industry. (Full disclosure: We own a small number of Grainger shares.) Since our industry is growing, the share these online behemoths are taking may be almost invisible to traditional wholesalers.
Preparing for the Flood
To compete in this new world, we believe the traditional wholesaler must be ready to go head-to-head with the polluted river guys on price (apples to apples), service, convenience and reliability. Some thoughts:
• Pricing: outsmart, not outdumb. Many of your customers will try to bait you into situations that provide your team an opportunity to outdumb. Training your team to resist their natural urges is critical to the outsmarting. The key is training. It must be your team’s first instinct to fully understand the competitive situation before dropping their price.
More and more, your pricing will be under attack. Customers will stand at your counter and pull up a competitor’s price on their phones and your team must be trained to make a smart response. Conversely, your pricing will be pulled up by a customer who is standing at a competitor’s counter. It must be thoughtfully created, market-based, competitive pricing. You must position yourself to win both of those battles.
• Umbrellas are worth more in the rain. Prices are related to the current value of the product. Don’t discount the price of your umbrellas when it is raining. When others can get the umbrella to the customer by tomorrow and you can deliver the umbrella that will keep them dry today, your umbrella has more value. When the customer complains he can get the umbrella online for less, match the price if you can deliver tomorrow or the next day.
In New York City, many stores that sell umbrellas have the normal dry price and have a wet price some might find offensive, even bordering on gouging. We never support the concept of gouging. In a business where your survival is based upon day-in, day-out repetitive business, a gouging event can seriously damage that desired relationship. Situationally not offering additional discounts is a fair thing to do.
This is one of Joe Sr.’s favorite examples of situational value. Of course, you may not sell umbrellas. But you may sell sump pumps. Leveraging the situational opportunities takes work but the work makes you money.
• Polluted river wants you to take the dumb business. A low-profit, low-efficiency deal is dumb business. Profitability is your company’s immune system. Strong profits provide a strong, healthy immune system able to fend off slow economies, new entrants into your market, supplier problems and the myriad of other maladies that face businesses.
Dumb business reduces your profits. Weak profits or losses are like a weak immune system; they do not allow the company to fend off problems, making it vulnerable. Seldom does a single factor take out a business. Instead, it is often the combination of multiple concurrent problems that weaken a business, resulting in failure or an unhappy sale of the business.
• Hire good people. Our industry has a proud history of promoting from within. We gave opportunities to people who may know little about it or didn’t know it existed. Some answered an ad in the newspaper. Some were referred by a friend. Some saw a sign in the window or at the counter indicating that the business was hiring.
Generally, if you eliminate some of the biggest manufacturers that have forgotten the great people who made them the biggest, little arrogance is in our hiring processes. Opportunities were available for good, hard-working people, regardless of background or education. We have heard so many stories over the years about individuals who started in the warehouse and grew within the company to fill every type of role — from senior warehousing specialist to vice president to even the president or owner.
You must bring in the best and the brightest possible raw material. We believe pre-employment testing is essential to ensure the individual has the raw intellect needed to perform the job well and then promoted as the company grows. As always, talk to your labor attorney about this in advance, not after someone has complained about your process.
Don’t hire dead-enders. As you select people for the team, you will find you cannot promote dead-enders. If that happens, they often cannot perform. The training and time-in-the-company investment in an individual cannot be leveraged if the person cannot grow into new roles.
• Build a team of experts with the key skills needed to excel. You can bet the polluted river guys are hiring a great team of the best and brightest folks they can find. And they are investing in training and technology to support that team. You need a team of experts, too. We run into a lot of self-proclaimed experts in our travels. Some might be experts in self-promotion rather than experts in their designated discipline. It’s the reality of the world.
How do you figure out who is an expert in shipping vs. an expert in bull-shipping? In our consulting work, we find the real experts can explain what they do and how it works in a way that normal people can understand it. So, your first task is to ask what they do and have them explain it. When someone tells you it is too complicated for you to understand, we often find that it is, in fact, too complicated for them to understand.
Many folks were taught by a mentor while others were self-taught in their functional area. We think there is nothing wrong with either approach. However, some of those self-taught folks were self-taught wrong. Others were taught out-of-date processes that do not represent the best practices of the industry as it has evolved. As we read about some of the leading-edge competition, they seem to be investing in using leading-edge technology and the latest best practices.
We have used this example before but we have seen some recent examples that revalidate the problem. Many wholesaler’s inventory management systems still have the settings entered by the software installer five, 10 or 15 years ago. We have discussed this with installers over the years. Not wishing to offend them, we have asked their opinion of the observation. Most, maybe all, have said this would never have been their objective.
As one installer said: “I enter some standard defaults then provide some instruction on the options. I assume the customer’s team will monitor the system then tune the settings for their situation. I cannot imagine that my settings would not be adjusted and evolve.”
For inventory management, there is something you can do immediately. The Wholesaler and Epicor are offering a free webinar on the topic Sept. 18. We are not the presenters, but the information we have says it will be a good reminder of some things you need to consider even if you are not using one of Epicor’s ERP packages. We think it also should be a catalyst for scheduling additional training for your inventory team. We think general training is important in the theory and objectives of the discipline, as well as instruction on the details of your specific ERP package.
The game continues to change and the pace of change is getting faster. Your competition is no longer just the lazy, easy-going “friendly competitor” down the street. Take some time to figure out how and where to up your game so when the polluted river starts to flood your territory, you have your flood walls in place