Over the past several years, I have been focused on helping distributors become more profitable than they ever thought possible. In this mission, I have come to realize how important branch managers are to the success of an organization. They are one step away from the front lines but generally have their fingers on the pulse of customer satisfaction. Unfortunately, many of the companies I have observed fail to adequately equip these leaders with the tools to be successful. They are shown the door to the branch, handed an enormous key ring and left to their own devices. Theirs is a thankless journey that often leads to burnout. With a little thought and organization, however, we can help them channel their energy in a positive direction.
Last week, I worked with a group of branch managers from the same vertical market as part of a rigorous training course brought forth by the leadership of their trade association. At the beginning of this program, the direction was clear—turn branch managers into business managers. The owners of these companies did not feel equipped to do this internally. Hence, the program was born.
The managers and managerial candidates all shared a desire to improve the function of the operations they serve. Inefficiency and poor results were not due to a lack of their trying. They were just missing a few tools in their toolbox. When given these positions, they received very little direction. Essentially they were told, “You have been an exceptional customer service representative, so let’s make you a branch manager.” While the candidates were excited by this prospect, they had very little idea about what they were agreeing to do. If we want them to thrive in this position, we have to show branch managers how to become successful custodians of the asset.
Teach Financial Understanding
The typical branch manager has been exposed to the selling side of the business. They have figured out the fundamental desire of their company to sell products for more than they were purchased for. They have probably been exposed to terms like gross profit, gross margin, operating expense and net profit. Some of them might even understand cost of goods sold and carrying cost. In most companies, however, you would be hard pressed to find branch managers who understand how the different parts flow together to find balance. This has got to change.
At the risk of being redundant with long-time readers, I have to say that companies need to expose their branch managers to a monthly income statement and teach them what each of the components of it means. How can we ask them to make the company more money if we don’t show them where the financials are today? Talk about how overtime drives up operating expense, which ultimately erodes net profit. Talk to them about how the use of common carriers can actually reduce the overall cost to deliver orders. Teach them that a 2 percent bump in gross margin can often double the bottom line. In my opinion, whomever is charged with overseeing the branch managers should review the income statement with them every single month.
Measure Branch Performance
As the old saying goes, you cannot manage what you cannot measure. I really think this means, you cannot improve what you cannot measure. Without recording and reviewing basic measurements, branch managers will be hard pressed to show noticeable improvement. I have written a great deal about using monthly branch scorecards. In my experience, they relate to branch managers what is important and what to focus on. Without some sort of coherent list of measurable expectations, the branch is like a ship without a rudder. Let’s take guessing out of the process.Make no mistake about it, distributors are selling entities. It is in our DNA. I don’t ever want to lose sight of that when designing branch management tools. That’s why when you build the sales component of your scorecard, you should keep the verbiage focused on gross profit. For example, don’t measure sales dollars per order. Measure gross margin dollars per order. This puts your recipient in the profit frame of mind. Four or five sales-related metrics are sufficient. In order to round out the income statement responsibilities of our manager, we need to create a set of operational expectations for our scorecard. This could be a little foreign for newer managers, but a little focused education will clear each of these components up. On the operational side, I suggest inventory management metrics, fulfillment metrics and staffing ratios. Explaining how each of these metrics will reduce operating expenses provides an opportunity to drive net profit and brings you full circle to the financial responsibilities of branch management.
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Leadership Criteria
This is where our direction gets a bit subjective. Measuring leadership is based less on tangible ratios from performance and more on a consistent message of professional skills development. In working with clients, I have come to realize that constant reinforcement of skills development is just as important as the identification of the skills themselves. If you want a branch manager to improve their employee retention skills, then you must speak to this every single month. If you would like to see improvement in facilities maintenance, then you must reinforce this every single month.
With a recent client, we identified eight specific critical skills for branch managers of this company. Things like product knowledge, conflict resolution and recruiting all made the list. In order to reinforce development of these areas, the operations manager gives the branch manager a rating based on 10-point scale. Again, this is highly subjective. This is performed, documented and reviewed with the manager every month. Not only are the critical areas reinforced, but this practice has produced a brilliant byproduct. With these 12 reviews, the arduous task of an annual review is far easier to complete and gives a stronger picture of how the manager has grown in the past 12 months.
The Monthly Review
If you really want to develop stronger, profit-minded managers, you must be willing to sit down and review progress on a monthly basis. I recommend that you go over these three components: the monthly branch income statement, the branch performance scorecard and the branch manager review. In one hour, the branch manager will walk away with a very clear understanding of where they are and where they need to be. This is a guide. This is a rudder.
As I mentioned previously, I have become thoroughly convinced that we need to step up our game with regard to branch management education. These folks are so close to the point at which profit is made or lost. With a little effort, organization and a healthy dose of consistency, we can realize our goal of turning branch managers into business managers.