The Coming Revolution in Distribution: How to Stay on Top€¦ · The Coming Revolution in...

Copyright © 2018 - Jonathan L.S. Byrnes

The Coming Revolution in Distribution:

How to Stay on Top

Jonathan L.S. Byrnes [email protected] Senior Lecturer, MIT (http://mit.edu/jlbyrnes) Founder & Chairman, Profit Isle (www.ProfitIsle.com)

January 31, 2018

Today’s Menu

• The Coming Revolution in Distribution

• Strategic Imperatives

• Three Cases

• MPG – Managing Profitable Growth

• Transforming Your Company

• Huge New Opportunities

[email protected] Copyright © 2018 Jonathan L.S. Byrnes


The Coming Revolution in Distribution


Blurring of Traditional Roles

• Nike

• Apple

• Amazon

• Beverages

Manufacturer Direct Sales


Disruptive Business Models

• Amazon Business

• C.H. Robinson

• The fight for value added vs. commoditization – highest service vs. lowest cost

Powerful New Competitors


Blurring of Traditional Channels and Market Segments

• Omnichannel management

• Social media

• Smart websites

B2B and B2C Converging


Completely New Buyer Behavior

• New points of value

• Breakdown of brand loyalty

• Pricing visibility

• Dual marketing strategies

Rise of Millennials


Transformation of Mass Markets

• EDI

• Social media

• Loss of traditional cross-sell and up-sell

• Precision markets with mass customization

Changing Value of Sales Force


Shift in Critical Differentiation

• Outsourcing of physical distribution

• Critical importance of supply chain management

• Dominance of information over physical activities

Changing Value of Operations


Need for All-in Net Profit Metrics

• Gross margin does not predict net profit

• Transaction-based net profit metrics – cross-referenced by customers, products, and supply chain

• Unmanaged profit levers

• Decentralized, all-in net profit metrics in real time for front-line managers

• Fight for information throughout the value chain

Transformational Metrics


Transformational Analytics

This is your company


Fundamental Business Model Shift

• Sweeping revolution in manufacturing technology

• Huge impact on value chain, on segmentation, on strategy

• Beware of averages: your Islands of Profit are early adopters

Additive Manufacturing


• Need for transformational management

➢ Paradigmatic change, not tactical improvements

Strategic Imperatives

• Need for immediate action

➢ Timeframe for paradigmatic change is 3-5 years at best

➢ Next year is too late

• Need for extreme clarity

➢ Double down on your Islands of Profit – strategic differentiation, market segmentation, value footprint, and precision profit information


• Baxter – Cardinal

• General Electric

Three Cases

Low CostHigh Service

• Wal-Mart


• Stuck in the mud

• What business are we in?

• Major cost reductions – foreseen and unforeseen

• Surprise revenue increases

• Pile on!

The Case of Baxter’s Stockless Inventory


What’s Going On?

• Huge new profit increases

• Decisive strategic differentiation – enduring financial gains

• It’s not about the products!

• 30-60% supplier base reductions across industries

• Who wins big? Who gets pushed out?


The Star of Value


Improvements In All Financial Aspects


Parallel Improvements for Key Customers – Virtuous Cycle


The Case of General Electric

Selling Products

Power by the Hour

Internet of Things

• Big benefits

• Big issues


The Case of Wal-Mart

• Displace Mom and Pop stores in small cities

• Archipelago of stores in the South and Midwest

• Powerful supply chain efficiencies

• Attack larger cities

• Low-cost position – massive supply chain and vendor efficiencies

• Diversification – groceries


New Frontier of Strategic Differentiation

• What is customer service?

• What’s your worst nightmare?

• Why not me?

was


New Locus of Value Creation


New Era, New Imperatives

• Stable, homogeneous markets

• Broad-market targeting

• Separate revenue and cost initiatives

• All things to all customers

• Dynamic, heterogeneous markets

• Precision account targeting

• Integrated profit management

• Extreme strategic clarity

Mass Markets Precision Markets


Problematic Consequences – Huge Opportunities

Islands of Profit in a Sea of Red Ink

Accounts/Products/Orders

Profitability

0

loss

low

high


MPG – Managing Profitable Growth

Staying on Top

Three cornerstones of

strategy

Profit-based market

segmentation

Relationship hierarchy

Market mappingDecentralized

profit maximization

Service Differentiation


• It’s all about customer value

• Strategy is defined by what you say no to

• You have to be best at something

Three Cornerstones of Strategy


• The problem with accounting

• Transaction analysis – all-in net profit

• The hunt for profitability and ROIC

Profit-based Market Segmentation: Profit Mapping


Rep 1 1,349 346

Revenues Gross Margin Net Profit ($000) ($000) ($000)

216

Rep 2 664 131 (25)

Rep 3 2,773 328 64

Rep 4 3,920 556 217

Sales Rep Comparison Example


Gross Margin is Not Correlated with Net Margin

* Disguised actual data representing product categories of a very successful public company


Profit-based Market Segmentation: Customer Profit Map*

Vendor Loyal

Brand LoyalWhich are potential IOP customers?

How would you price these?


Profit-based Market Segmentation: Product Profit Map*

Who is managing the

product mix and substitutes?

These are profitable when

sold to IOP customers

Over half of the sales and supply chain costs are supporting unprofitable

business

How many of these are bought only by Minnow

customers?

How do you insulate these

from competitors?


Relationship Hierarchy


• Match accounts to relationships – “wave a magic wand”

• Joint venture: Sales, Marketing, Supply Chain

• Relationship migration paths

Market Mapping


Service Differentiation: Account Relationship Matrix


Service Differentiation: Strategic Integration


• Antidote to silo-based behavior

• Profit toolkits – Sales Management, Product Management, Supply Chain Management

• Drive to your own best practice

• Real-time net profit metrics – magnitude of improvement, speed of improvement

• Training tightly integrated into the process

Decentralized Profit Maximization


Transforming Your Company


Transforming Your Company: Foundation Capabilities

Profit Landscape

Strategy Alignment

Profit Toolkits & Real-time Metrics

• Profit mapping

• All-in profit stacks

• Account selection

• Relationship selection

• Market mapping

• Sales

• Marketing – category management

• Supply chain management


The New World of Distribution

• Focused Strategic Profit Initiatives

… Driving Huge New Profitable Growth Increases

• Coordinated Decentralized Profit Management

… Driving Huge New Efficiency Gains

• Financial Performance

… Going Through the Roof


The Coming Revolution in Distribution

Decisive Factor for:

Market Share

Profitability

Strategic Advantage

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