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Just like many of you with children, mine are knee-deep in youth athletics. That means as parents, we also are knee-deep in youth athletics — driving to practices, games, dinners and road trips. There are many days I feel like adding “Athletic Chauffer” to my LinkedIn profile.
One of the things making this commitment bearable is the life lessons my boys are receiving. This is especially true on the boys’ basketball team. The unofficial slogan of this little neighborhood team is “Talent sets the floor; character sets the ceiling.” Every year, the coach throws down this nugget of wisdom and sprinkles it throughout the season when he needs to give the team a boost.
The quote comes from one of the most successful coaches in modern sports, Bill Belichick of the New England Patriots. Love him or hate him, it is hard to argue his success. With such a profound quote, I began to look for a way to draw a comparison to the distribution industry. After pondering the idea, it hit me like a ton of bricks. Our products set the floor, but it is our service that sets the ceiling.
Let’s face it; the notion of product exclusivity is nearing extinction. Sure, you might get a short-term jump on the competition as a reward for pioneering efforts, but sooner or later, everyone will have access to the same product. When distributors put products on the shelf, there is often great care given to choosing the best quality products in the field. Because of this lack of exclusivity, quality can’t be the great differentiator. Everyone has access to quality products.
Another consequence of this supplier infidelity is margin erosion. Again, with many having access to the same products, you will never be the deepest pocket or get the best price. If you think you do, I may have a few hundred acres in Nevada to sell you.
“Control the controllable.” This is another one of my favorite expressions. Since we know we can’t use our products as the great differentiator — and I doubt we will convince the manufacturing community to help in that endeavor — the only thing distributors can control is what they add to the product.
Now, I am not talking about manipulation or fabrication, although it is a great way to make more money from a commoditized product. Rather, I am talking about the add-value services that make the purchase of these products so much better. We bundle, we source, we store, we guarantee, we deliver and we allow for partial-box purchases. We do a whole host of things designed to enhance the buying experience of the end user.
None of this is any great revelation. Distribution has been doing this for decades. Here is the kicker: Does our service model still add value?
Because it is our only opportunity for differentiation — and a path to higher profits — we need to step back and re-examine our service model from time to time. In our specific market, are the customers still willing to pay for the services we offer? Next-day delivery used to be a differentiator. Today, everyone delivers next day or sooner. Trade credit used to be a differentiator. Today, credit is thrown out like T-shirts at sporting events. Spray and pray.
I challenge you to examine your most treasured service offerings and throw it up against the value test: Is the customer willing to pay extra for it?
I have always been a believer that the best services were born from the desire to save the customer money. Having grown up in the contractor supply business, I know that the most expensive piece of any construction project is labor. Knowing this, a contractor supply business should focus on those services that save the contractor time. Innovative delivery services, jobsite vending systems and tool repair programs all cater to this need.
Look at the customers you serve. How do they make money? What drives profitability in their organization? If you don’t know, ask. Sit down with some of your key customers and ask them what you can do to help them make more money. We understand how to make money in distribution. It doesn’t always translate to the customer we are trying to serve.
Know your capacity. It is tempting to say “yes” when a customer is telling you his wishes and desires. Sometimes, we can put ourselves in a difficult position by creating a service expectation that is too expensive to meet. Several years ago, I was on a consulting engagement with a distributor who catered to the road construction industry. This was, and still is, an excellent company with a very solid reputation in the market.
As I was touring the facility, I noticed a bunch of small delivery trucks parked behind the building. Knowing the size of the company, this seemed a little odd. When I brought it up to the owner, he said it was a result of its one-hour delivery service. The company had to have extra vehicles ready to roll if a hot delivery request came through.
Just for point of reference, the ratio of trucks to material handling personnel was 2-to-1. The owner knew it cost him a ton of money, but he had already set the expectation. Let’s hope the customers were willing to pay extra for that level of service. Again, be careful about creating expectations that will ultimately cause you to fail.
As distributors, we all hang our hat on service. It is what we do to earn the money we extract from the supply chain. Service is the greatest playground for innovation. Be creative here. Do what others are unwilling to do. Just make sure you can back up your commitment and the customer is willing to pay for it. Remember, it’s not the products that make you; it’s your unique service offerings that will ultimately drive success.