Just like many of your children, mine are knee deep in youth athletics. That means that as parents, we are also knee deep in youth athletics—driving to practices, games and dinners and taking other road trips. There are many days that I feel like I should add “Athletic Chauffer” to my LinkedIn profile.
One of the things that makes this commitment bearable is the life lessons my boys are receiving. This is especially true on the boys’ basketball team. The unofficial slogan of this little neighborhood team is, “Talent sets the floor; character sets the ceiling.” Every year, the coach throws down this nugget of wisdom and sprinkles it throughout the season when he needs to give the team a boost. The quote comes from one of the most successful coaches in modern sports, Bill Belichick of the New England Patriots. Love him or hate him, it is hard to argue his success. With such a profound quote, I began to look for a way to draw a comparison to the distribution industry.
After pondering the idea, it hit me like a ton of bricks. Our products set the floor, but it is our service that sets the ceiling. Let’s face it, the notion of product exclusivity is nearing extinction. Sure, you might get a short-term jump on the competition as a reward for pioneering efforts, but sooner or later everyone will have access to the same product. When distributors put products on the shelf, they often choose the best quality products in the field with great care. Due to the lack of exclusivity, quality can’t be the great differentiator. Everyone has access to quality products.
Another consequence of supplier infidelity is margin erosion. Again, with many having access to the same products, you will never have the deepest pocket or get the best price. If you think you do, I just may have a few hundred acres in Nevada to sell you.
Control the controllable. This is another one of my favorite expressions. Since we know that we can’t use our products as the great differentiator, and I doubt that we will convince the manufacturing community to help in that endeavor, the only thing a distributor can control is what they add to the product. Now, I am not talking about manipulation or fabrication—although that is a great way to make more money from a commoditized product— rather, I am talking about the add-value services that make the purchase of these products so much better. We bundle, we source, we store, we guarantee, we deliver and we allow for partial box purchases. We do a whole host of things designed to enhance the buying experience of the end user.
None of this is any great revelation. Distributors have been doing this for decades. Here is the kicker: Does our service model still add value? Because it is our only opportunity for differentiation, which is hopefully a path to greater profits, we need to step back and re-examine our service model from time to time. In our specific market, are the customers still willing to pay for the services we offer? Next-day delivery used to be a differentiator. Today, everyone delivers the next day or sooner. Trade credit used to be a differentiator. Today, credit is thrown out like tee-shirts at sporting events.
I challenge you to examine your most treasured service offerings and toss them into the value test: Is the customer willing to pay extra for it?
I have always been a believer that the best services were born from the desire to save the customer money. Having grown up in the contractor supply business, I know that the most expensive piece of any construction project is labor. Knowing this, a contractor supply business should focus on those services that save the contractor time. Innovative delivery services, jobsite vending systems and tool repair programs all cater to this need.
Look at the customers you serve. How do they make money? What drives profitability in their organization? If you don’t know, ask. Sit down with some of your key customers and ask them what you can do to help them make more money. We understand how to make money in distribution. That doesn’t always translate to the customers we are trying to serve.
Know your capacity. It is so tempting to say yes when customers tell you their wishes and desires. Sometimes, we can put ourselves in a difficult position by creating a service expectation that is too expensive to meet.
Several years ago, I was on a consulting engagement with a distributor that catered to the road construction industry. This was, and still is, an excellent company with a very solid reputation in the market. As I was touring the facility, I noticed a bunch of small delivery trucks parked behind the building. Knowing the size of the company, this seemed a little odd. When I brought it up to the owner, he said that it was the result of their “one-hour delivery” service. They had to have extra vehicles ready to roll if a hot delivery request came through. Just for point of reference, the ratio of trucks to material handling personnel was 2 to 1. The owner knew this was costing him a ton of money, but he had already set the expectation. Let’s just hope the customers were willing to pay extra for that level of service. Again, be careful about creating expectations that will ultimately cause you to fail.
As distributors, we all hang our hat on service. That is what we do to earn the money we extract from the supply chain. Service is the greatest playground for innovation. Be creative here. Do what others are unwilling to do. Just make sure that you can back up your commitment and the customer is willing to pay for it. Remember, it’s not the products that make you, it’s your unique service offerings that will ultimately drive success.