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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
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Today’s Menu
• The Coming Revolution in Distribution
• Strategic Imperatives
• Three Cases
• MPG – Managing Profitable Growth
• Transforming Your Company
• Huge New Opportunities
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The Coming Revolution in Distribution
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Blurring of Traditional Roles
• Nike
• Apple
• Amazon
• Beverages
Manufacturer Direct Sales
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Disruptive Business Models
• Amazon Business
• C.H. Robinson
• The fight for value added vs. commoditization – highest service vs. lowest cost
Powerful New Competitors
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Blurring of Traditional Channels and Market Segments
• Omnichannel management
• Social media
• Smart websites
B2B and B2C Converging
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Completely New Buyer Behavior
• New points of value
• Breakdown of brand loyalty
• Pricing visibility
• Dual marketing strategies
Rise of Millennials
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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
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Shift in Critical Differentiation
• Outsourcing of physical distribution
• Critical importance of supply chain management
• Dominance of information over physical activities
Changing Value of Operations
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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
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Transformational Analytics
This is your company
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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
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• 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
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• Baxter – Cardinal
• General Electric
Three Cases
Low CostHigh Service
• Wal-Mart
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• 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
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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?
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The Star of Value
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Improvements In All Financial Aspects
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Parallel Improvements for Key Customers – Virtuous Cycle
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The Case of General Electric
Selling Products
Power by the Hour
Internet of Things
• Big benefits
• Big issues
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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
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New Frontier of Strategic Differentiation
• What is customer service?
• What’s your worst nightmare?
• Why not me?
was
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New Locus of Value Creation
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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
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Problematic Consequences – Huge Opportunities
Islands of Profit in a Sea of Red Ink
Accounts/Products/Orders
Profitability
0
loss
low
high
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MPG – Managing Profitable Growth
Staying on Top
Three cornerstones of
strategy
Profit-based market
segmentation
Relationship hierarchy
Market mappingDecentralized
profit maximization
Service Differentiation
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• 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
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• The problem with accounting
• Transaction analysis – all-in net profit
• The hunt for profitability and ROIC
Profit-based Market Segmentation: Profit Mapping
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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
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Gross Margin is Not Correlated with Net Margin
* Disguised actual data representing product categories of a very successful public company
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Profit-based Market Segmentation: Customer Profit Map*
Vendor Loyal
Brand LoyalWhich are potential IOP customers?
How would you price these?
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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?
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Relationship Hierarchy
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• Match accounts to relationships – “wave a magic wand”
• Joint venture: Sales, Marketing, Supply Chain
• Relationship migration paths
Market Mapping
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Service Differentiation: Account Relationship Matrix
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Service Differentiation: Strategic Integration
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• 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
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Transforming Your Company
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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
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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
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The Coming Revolution in Distribution
Decisive Factor for:
Market Share
Profitability
Strategic Advantage