Industrial Distributors: Facilitate Growth by Fixing Critical Constraints

“Every action that brings a company closer to its goal is productive. Every action that does not bring a company closer to its goal is not productive” – Eliyahu Goldratt 

If it doesn’t feel like your company has seen much growth yet this year, that’s okay— it’s still early, and even the most optimistic forecasts for 2024 didn’t predict a growth year. 

Supply chain and staffing issues are still affecting the wholesale distribution industry, and it can feel hard to make much progress when such big market forces are pushing against you.  

Still, there are plenty of things you can do to keep moving forward this year. Growth is still possible, but it’ll require smart defensive strategies and agile offensive moves that fix your biggest critical constraints.  

Defensive Business Strategies to Consider 

1. Manage cash flow 

Our first recommendation is to watch your cash flow. After a period of growth with increased buying from different suppliers, it’s good to make sure that you’re doing 100% of your available stock rotations with those suppliers. Review accounts receivable and see where you can tighten up. Also, take a close look at your debt line, credit line and debt capacity, and renegotiate if you’ve got good numbers. Use our handy Cash Flow Modeling Spreadsheet to get started. 

2. Inventory Replenishment Planning 

You should also consider reviewing the replenishment paths for your inventory over time. Since the pandemic hit, every wholesale distributor we’ve talked to has accumulated mistakes that need to be ironed out. Take your top five suppliers and check the safety stock and reorder rate. When a distributor has issues with stocking what they sell, instead of selling what they stock, they end up with a long tail of inventory and lots of tied up working capital. If you can get 80%-90% of your top suppliers’ recurring reorders done automatically, you can greatly mitigate those issues. 

3. Business Expense Tracking 

Finally, look at your expenses. Back in 2021, before the recent growth period, you may have thrown a lot of money at your problems. And who could blame you? But now, you have a chance to go back and find ways to reduce those expenses. Establish concentric circles that help you create stages of expense reduction if business conditions set get worse – i.e., things you can do to reduce expenses without letting people go to keep your top performers around.  

Such measures include getting rid of floating holidays, offering early retirement packages or temporarily suspending 401k matching. Ideally, you won’t need to do any of those things, but it’s good to have a plan so that you don’t panic and jump right to staff reduction.  

Pursue as many of these defensive strategies as makes sense for your company, and you’ll have a proper cost structure, a stronger balance sheet and fewer surprises. At that point, you can think about going on the offensive. 

Offensive Business Strategies to Consider 

This is when you can start targeting your major critical constraints. Find the one thing that you could change at each location that would have the biggest improvement on revenue, growth, or profit.  Then, make a non-recurring investment to address it. This will lower your costs going forward. 

Quick reaction is also key to any offensive strategy. A quarterback in football knows what play he’s going to run, but he still has to react to the defensive coverage to get the ball to the right receiver. React quickly to changes in tough markets, as this affords you more runway to get things going. Take too long to decide, and you’ll end up on the ground.  

If things are too slow, don’t let a good crisis go to waste. Take it as an opportunity to make a big, value-adding change, like upgrading to an ERP or CRM system with better automation capabilities or overhauling your ecommerce platform. If you spend all your time twiddling your thumbs waiting for things to pick up, you’ll miss your chance to make things efficient when they do, and then those thumbs might end up getting carpal tunnel.  

To be successful, do the research and build a technology investment roadmap. Use our roadmap outline to help align with your customer base’s needs and go-to-market strategies. 

Ideas for increasing revenue 

Here are a couple ideas for boosting revenue that could make sense for your company this year: 

  • Have a contest to see which sales rep can have the smallest percentage of line items sold that are at LPP (last price paid). This will encourage your reps to not settle for repeat orders and instead push to sell at least a little bit more each time. Even if a customer spends just a penny more than they did last time, you’re at least moving in the right direction. 
  • Go elephant hunting. (Not literally, of course.) Each quarter, for each sales rep, find a big account that belongs to a competitor and encourage them to spend the quarter trying to poach them. You’ll need to put a plan together, set up and measure joint calls with key suppliers, involve your sales manager, and maybe even show up yourself. If you can successfully steal at least one big account, it’ll be worth the effort.  

Finish the year strong 

If you’re still writing 2023 on your proverbial checks, it’s time to switch from autopilot and start making moves.  

>> Learn what distributors need to focus on in 2024 plus a few best practices for enacting meaningful change. 

You’ve still got three quarters to go, so get proactive and take it one step at a time. As I like to say, the biggest danger a distributor faces is complacency. To be successful, you just need to do the work.