In 2020, Distributors Should First Give Their Companies a Physical Examination

In 2020, a sudden epidemic has left many FMCG distributors in trouble, with inventory piling up and cash flow drying up, making them feel they can't hold on. In fact, this epidemic is not a bad thing for distributors. It makes us stop, discover problems, and gives us a chance to re-examine ourselves. The epidemic will eventually pass, and spring will return. Recently, New Distribution, together with Liu Huaming, partner and senior consultant at Sima Consulting, launched a series of articles titled "Decoding Operations, Welcoming 20" for FMCG distributors, helping them grow with real cases. Weak growth, lack of competitiveness, and declining profits are the main problems distributors face today. When we attribute all this to a poor environment, hard-to-sell products, and lack of manufacturer support, we still find distributors with annual growth rates exceeding 50% and annual sales breaking through hundreds of millions or even over a billion. In the same market environment, with the same categories and products, why are you the only one not doing well? Because you haven't seriously examined your business management model, you don't dare to face your own shortcomings, and you've never thought about solutions. Let's calm down, sort out your company, and discover problems. Sima Consulting conducted a one-month survey, collecting operating data from multiple trading companies, and found some key points that can help distributors improve. -01- The more basic, the more important Why become a distributor? The answer is only one: to make money. For a trading company, no matter how many products you represent, the only purpose is profitability. But many distributors don't understand their company's profitability, including the driving factors behind it. So the first thing distributors need to do is understand what the key drivers of your business are, and whether you have achieved them. 1. Sort out key drivers The figure below shows a trading company's self-assessment scores for profitability drivers. The gray part represents the factors that the distributor believes are most important for the trading company's profitability, and the blue part is his actual scores for these factors. Self-assessment scores for company profitability drivers: We can see that this distributor scored low in coverage, channel structure, sales discount expense efficiency, and distribution, which he considers very important. So the first business problem distributors face is the inconsistency between ideas and actions. We are used to focusing on management and organizational structure, but we neglect our most basic work. We think network coverage, distribution intensity, and store factors are key: covering high-quality stores, covering more outlets, selling more goods, and doing more store displays. But in actual operation, we often don't do well, not because of ability, but because of lack of attention. Neglecting these basic key factors will cause distributors to have lower terminal coverage and item counts than competitors in their own region, losing many opportunities to be purchased by consumers. But to gain sales, distributors are forced to turn to more expensive promotions to exchange for sales. But this loses our profits. Below is a self-assessment table for trading company profitability drivers (KSF). Distributor bosses should take some time to review and sort out the key business drivers with their core management team, and evaluate their company's profitability. 2. Compare with actual business actions After sorting out the key profitability drivers, distributors should compare with actual business actions to find out which aspects they do well and which they don't. We should continue to do well what we do well, and correct what we don't do well in time. 1) Compare with actual business data to see if key business data is optimal? For example, we can take stock of the number of network coverage to see which types of outlets are dominant and which are at a disadvantage; we can understand whether our product structure ratio is reasonable; we can understand our sell-through rate; and we can understand whether our sales discount expense efficiency is high. By quantifying actual business data, we can more clearly understand how our business is doing. 2) Review daily work plans to see if we are grasping key business drivers? At present, most distributors have the thinking of enterprise management and have formed a company-based operation mechanism. Therefore, making daily work plans is one of the necessary tasks for distributors, but many distributors often ignore key drivers when making plans. For example, for salesperson KPI assessment, we only look at monthly distribution quantity, ignoring the number of new outlets opened each month; we only focus on logistics supply chain, but give up attention to inventory turnover; we make annual plans for promotional activities, but never calculate sales discount expense efficiency. It seems that you and your employees work hard every day, but many times we don't grasp the key points and are busy without direction. 3) Find differences. The key business elements that are not done well and not paid attention to are business opportunities for improvement. Through the profitability driver (KSF) self-assessment table, we can intuitively understand our shortcomings, that is, the points we haven't paid attention to, and they are your opportunities. 3. Grasp the basic drivers The more basic, the more important. Maybe many distributor friends haven't paid attention to coverage and distribution for a long time. You need to persist in basic, boring work to get good results. So distributors must grasp basic work and do the most important things, such as placing products into more terminals and making terminals sell more of your products. To make more stores sell, first master more terminals, then sell products into more stores. To achieve higher sales, first have a reasonable product structure, then make single products have higher sales. Distributors can collect terminal network data and single product sales data to understand their position in this regard. If your coverage, distribution, and display data are already at the forefront of the market, then you can move on to elements such as administrative expense management, organizational structure adjustment, and leadership and business capability improvement. -02- Build an efficient organization An efficient organization can help distributors quickly break through the market, capture channels, and seize opportunities. But in daily communication, we always complain that our team is not good, but we don't know why it's not good and in what aspects. Today, we will use an organizational physical examination to help everyone quantify problems from two aspects: compensation and employee status. 1. Analyze compensation data As labor costs rise, distributors invest more and more in compensation. But some distributors pay high wages, yet employees are not very motivated, and company performance grows slowly or even declines. Some distributors pay not very high wages, but employees are very motivated, and company performance keeps growing. Why? Because your compensation distribution mechanism is unreasonable, affecting the company's operating efficiency. The figure above shows the employee compensation and sales revenue of two trading companies. By comparing the actual income of A and B trading companies, it can be seen that the correlation between employee compensation and sales revenue in A company is not as high as that in B company. So A company's compensation plan is not a good one, possibly due to too high base salary, unreasonable incentive plan, or unclear rewards and punishments. B company's compensation plan is relatively good, effectively promoting company sales revenue through compensation income. High base salary, egalitarianism, and unclear rewards and punishments, leading to more work not necessarily meaning more pay, are problems faced by most small and medium-sized distributors. We think higher base salary and better benefits can retain employees, but we ignore that employees' expectations for compensation are constantly rising, and young salespeople value their own worth more. So a compensation plan that can motivate employees is a good plan. For example, some well-performing distributors adopt compensation plans such as 0 base salary + high commission, equity dividends, and partnership systems, which can motivate employees to achieve higher income and realize their own value while helping the company achieve sustained revenue growth. 2. Understand employee status Employee status is an important reference data reflecting team effectiveness, including cohesion and execution. 1) Check team cohesion to gain insight into the password for performance growth; We divide cohesion into four quantitative aspects: my acquisition (2 points), my contribution (4 points), my belonging (4 points), and my development (2 points). The specific content is as follows. My acquisition:

A. Do I know what is required of me at work? B. Do I have the materials and equipment I need to do my work? My contribution: A. At work, do I have the opportunity to do what I do best every day? B. In the past six days, have I been praised for doing good work? C. Do I feel that my supervisor or colleagues care about my personal situation? D. Is there someone at work who encourages my development? My belonging: A. At work, do I feel that my opinions are valued? B. Does the company's mission or purpose make me feel my job is important? C. Are my colleagues committed to doing quality work? D. Do I have a best friend at work? E. In the past six months, has someone at work talked to me about my progress? F. In the past year, have I had opportunities to learn and grow at work? The figure below shows the scores obtained by several trading companies through organizational physical examination. From the data, we can find that Company A has the lowest score in "my contribution", indicating that employees in this company have not been able to use their strengths in their current positions or their work performance has not been recognized by leaders. Company B has the lowest score in "my acquisition", indicating that when the boss assigns tasks, employees feel they have not received corresponding support. Through research on evaluation data from multiple trading companies, it is found that cohesion level is closely related to performance growth. The higher the cohesion score, the higher the company's average performance growth in the same year. So through organizational physical examination analysis, problems in daily management surface, and distributors can use this as a basis to propose solutions to exposed problems and improve team cohesion. 2) Check team execution to understand key factors for achieving performance Many times, distributors always complain about poor team execution, but is poor execution really the employees' problem? Not necessarily. Research has found that execution failure has the following situations: A. Employees don't know or don't understand the company's ultimate goals; B. Employees don't agree with the company's goals and mission; C. Employees don't know how to turn goals into actions; D. The company's systems and processes cannot effectively support employees in completing company goals; E. Departments and teams are not working together towards the company's vision; F. Employees are not responsible for their commitments. So starting from these aspects can help distributors judge the strength of company execution and find out where problems lie. And propose targeted solutions, such as training on company goals, quantifying KPI assessments, military orders, ensuring information sharing, timely announcement of business achievements, and holding weekly, monthly, and quarterly meetings. To summarize: By sorting out key drivers, we can clearly see how big the gap between ideal and reality is, thus providing a basis for making correct decisions and investing resources in the most important things. That is to do the basics well. With direction, we need to use real business data to find out the status of key business implementation, then review our daily work plans to see if we have grasped the key points, find the differences, and that is your future business opportunity. After sorting out the external environment, we need to examine the internal organization: whether the compensation system is reasonable, whether employee execution is strong, and whether company cohesion is high. They can all be quantified to show problems in front of you. Poor sales and low profits may not be because your products are bad or your brand is weak, but because there is no clear market positioning. You need to understand your terminal network quantity, product distribution situation, and single product sales quantity. If there is no efficient team management, you may need to understand whether there are problems in the company's distribution mechanism, cohesion ability, and execution ability.