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We recently returned from this year’s Southern Wholesaler’s Association (SWA) meeting held on Amelia Island in Florida. As always, the SWA meeting was well-attended and included an excellent program with many opportunities for business, social and family activities. Kudos to SWA Executive Vice President Terry Shafer and the SWA team, as well as the board of directors who generously donate their time and energy to operate a vibrant regional association.
The keynote speaker at SWA this year was Kenneth W. Gronbach, an expert in the area of demographics, generational marketing and their application to business decisions. He pointed out that many of the business trends we will face in the future are reasonably evident as we study the demographics of the situation.
As an example, Ken described a toy company’s drop in sales, resulting in the CEO getting blamed for the poor performance and subsequently ousted. When the demographics are reviewed, however, it is apparent that the market had entered a period where the number of children of “toy-buying age” had decreased. Not surprisingly, the decrease in toy buying was proportionate to the reduction of children in that “toy-buying age.”
Gronbach didn’t let the CEO off the hook completely; he suggested that the toy company should have anticipated the drop in prospective customers based upon the well-documented birth rate decrease. If the birth rate was down by 20 percent in 2010, the number of first-graders will, in all likelihood, be down by 20 percent in 2016. Of course, there are other factors, but the basic math is pretty straightforward.
He was quite bullish on the future of our industry since his forecasts show continued population growth with the accompanying need for more housing. In our experience, the future never seems to happen exactly as we had hoped. There is always some unforeseen wrench in the works, but it is better than his view of the situation in other countries such as Japan.
For many years, we as consultants have operated with three fundamental tenets:
1. Family comes first. As we have assisted many family-owned/closely held companies over the years, we have aggressively defended the importance of family relationships over the details of business operation. We have never encountered an owner who, at the end of his or her career, regretted choosing family over the business.
Over the years, some have called us to express their appreciation for helping them to get their priorities readjusted and preventing an outcome that all parties would have regretted forever. Our practice has focused on keeping the family first while working to grow the business.
2. Deal in facts. Opinions on every topic are easy to find. As the old saying goes: “Opinions are like certain, much-maligned, bodily orifices; everybody has one.” Facts, however, can be in short supply when making critical decisions. Data may be plentiful but actionable information is often scarce.
Plus, the world is becoming more complicated so, even with a glut of data, it can be difficult to understand the potential outcomes and then act on a situation in a timely fashion. The implications will be obvious in hindsight but the damage will have been done, the opportunity will have been missed and the only hope is to not repeat the mistake in the future. Learning from your mistakes is almost always a costly proposition.
The next frontier of facts will be artificial intelligence (AI) or the newer, more accurate term — machine learning. This is using a technique called predictive analytics where you take a “crap-ton” (that’s an old measure for manure and political rhetoric now being applied to data) of sow’s-ear type data, apply sophisticated analysis algorithms and get silk-purse type visionary “facts.”
This type of technology — once only available to weather forecasters, the NSA, Google and a handful of mega-companies — is now becoming available to small- and medium-sized companies. Use of machine learning is probably in your future as distributors will use this technology for purchasing/replenishment/supply chain optimization, sales process optimization, pricing optimization and marketing automation. The early work has been mostly in cost reduction, but the big companies are now developing programs to uncover additional revenues.
3. Don’t kid yourself. Our last tenet is probably the most difficult. We suspect the CEO of the toy company previously mentioned was told by his marketing department that the company could expect a predictable decline in demand. He probably had the facts.
He then either “kidded” himself into thinking/hoping that somehow, magically, demand would materialize or he “kidded” his shareholders with “optimistic/inflated” sales forecasts to give him time to stitch together that all-important article of executive foul-weather apparel: the golden parachute. (Maybe selling off some shares of his stock while floating his resume on the street.)
Such is the way public companies are sometimes managed. Better to forecast good news and fail than to deal with the reality of the situation in the present. Companies often build reward systems that encourage bad behavior and then are shocked and surprised when employees misbehave. Most owners of companies in our industry don’t have the luxury of a golden parachute, so there is no kidding anybody; the buck stops with them.
The value of data
Some thoughts regarding data for your consideration:
• The only value of data and information is when it is available to the proper people, in an appropriate timeframe and is used to drive their action. We have for years recommended that you eliminate any report or screen not reasonably linked to some business action. “Interesting” or “FYI” information should be considered a distraction.
• Use the demographic data for the markets you serve or are planning to serve. Try to gather and utilize demographic data in your forecasting — wholesaling companies are configured in so many different ways that it is difficult for us to give you a proper recommendation as to the suitable demographic data to allow you to infer market trends.
Some wholesalers use population data, others use building permits and housing starts to create budgets and forecasts. One wholesaler we know watches sewer pipe. A building permit is simply permission to build a house but without sewer pipe in the ground, there are no houses in the near term. Tracking the demographic trends allows proper allocation of sales to where the action is and prudent planning for your brick-and-mortar location.
• Start using the data you have. Many wholesalers have purchased bright, shiny new ERP systems over the past decade. Some of the ROI calculation was based on the improved information that would be available from the system to aid in operating the business. Others have purchased slick business intelligence software that is bolted on to a new or legacy ERP. A similar ROI calculation is often involved.
We have, for many years, suggested that most companies never realize the forecasted ROI for either investment. It’s not that the software doesn’t perform, it’s simply that the team doesn’t take the time to review the information they have available to them and then act upon it.
• Find out what information you have access to (and use it). Many wholesalers have access to reporting and or benchmarking through the associations or buying groups they are members of. HARDI, for example, has many opportunities to gain industry information — its Trends report provides monthly sales information you can use to benchmark your performance against your region. The Distributor Performance Dashboard provides information on how you perform in many areas: sales, margins, profitability, etc. Often this information is free to participants.
• Use your website analytics. Most websites and webstores produce a wealth of data using analytics packages costing between zero and millions of dollars: who accessed the site, what they clicked on, what they purchased and if they exited without making a purchase. Most wholesalers are amazed at the level of detail that can be provided to their marketing team. Yet, we have seen very few wholesalers scan the data or, even better, take some explicit actions based upon that review.
The data can be used to improve searchability. When a plumber searches for “fart fan” and gets zero hits on your store, why not add “fart fan” to the search keywords for your bathroom vent fans? If a user searches for an item you don’t stock, should you consider stocking that item? Even more critical, if a user searches for an item you do stock but is not listed in your store, should you add it to your store? If nobody is reviewing your analytic data, these enhancements are not possible.
If your store does not have analytics, there are very competent packages available you can install for nothing or next to nothing. Google Analytics is currently one of the free packages; it provides information on page visits, search terms, bounce rate and more. Of course, the high-powered packages can get pricey but getting started is simple and probably will satisfy most wholesalers’ needs at the start.
• Start thinking about machine learning. Consider whether some of the new machine learning tools can help you discover trends and facts that you might not have otherwise unearthed. We partnered with someone to explore the benefits and uses of machine learning in several areas.
As we previously mentioned, early uses of machine learning have generally focused on cutting costs. New applications tend to focus on more efficiencies in the areas of sales departments. We aren’t only talking about warehouse robots; machine learning can be like an intelligent assistant that helps your team function better by augmenting their perceptions with machine-generated observations.
It can be used to automate the analysis so you get faster, more direct delivery of sales information that distills the wealth of data into actionable items. If you aren’t thinking about how you might apply and benefit from machine learning, start now.
So, our recommendation for this month is to start using the data that you already have and consider gathering additional information — but only as a tool in improving your business performance.