Distributor & Wholesaler's Advisor, March 15, 1998.

An effective Distribution System Strategy can improve a wholesaler's profitability, enhance his role in the supply chain and effectuate solid cost-control initiatives throughout an entire organization.

A Distribution System Strategy is not to be confused with a business plan, explains Joe Cahill, partner of the Supply Chain Management Practice, Waterstone Consulting, Des Plaines, IL. It requires identifying what's driving your business - customer satisfaction, return on assets, etc. Then, depending on the particular industry you serve, driving that down a level to develop practical implementation strategies.

For example, a wholesaler wants to segment his customers to support his business objectives. Effective customer segmentation requires the wholesaler's intimate knowledge of his customer base: who they are, what they buy, how they pay, how he services them, their required service levels and his returns for those service levels. "Bringing that down to the distribution strategy level means examining how you're going to do that and the systems you need in place to effectively initiate customer segmentation strategies," says Cahill.

Implementing a Distribution System Strategy solution is a blend of high-tech and new process solutions. "The technology acts as the enabler," stresses Cahill, "depending upon your investment capability, your industry and your culture." He warns distributors not to expect "boilerplate solutions" to their problems, and uses Vendor Managed Inventory to illustrate this point. "Some distributors, depending on their margins, often use an investment buy strategy. In these cases, VMI is impractical for their business."

In Cahill's experience, a DSS is often initiated by upper - or mid-management. But their development should also include line people - employees who manage the warehouse or who are in charge of getting product out the door. "The most successful DSS," he adds, "has the concensus of the corporate vice president of operations, the general managers in the field and mid-management in the warehouse."

Once the team comes together, the next step is also the biggest challenge: Identifying the company's strategic initiatives and supporting business objectives, them prioritizing them. At the same time, the team leading this project may have to gain buy-in for new processes across different operating functions (e.g., purchasing, warehousing, etc.).

The timeframe for rolling out a successful DSS differs from distributor to distributor, and depends on the strategies and tactics involved. Cahill recommends using a pilot approach, done in a maximum of six months, to "produce quick bang for the buck." For instance, if your company is integrating a new Warehouse Management System, do it in one facility before rolling it out across your network. This allows the team time to iron out the bugs and demonstrate results. It also minimizes the learning curve during the rollout in the remaining facilities.

Distribution Strategies for Integrating Newly Purchased Companies

The recent whirl of merger/acquisition activity in wholesaling is bring a new set of problems to the companies that are doing the buying. Chiefly, says Waterstone Consulting's Joe Cahill, these problems arise for companies that are moving from a regional presence to a national one as well. "National customers have to be serviced differently than regional customers," he notes. They buy differently, have different delivery requirements, need different services, etc.

How does a wholesaler tackle that? The first thing is to understand those issues and prioritize them. That means getting input from key people within the organization to clearly frame out the problems. Whether or not the wholesaler is working with a consulting firm, such as Waterstone Consulting, the next step is to do a process analysis and build a model of how the company does business and how it's structured.

In the case of buyouts, a wholesaler may want to take a closer look at his network rationalization. For instance, if you're a company primarily servicing the East Coast, then buy a company primarily servicing the Midwest and Western regions, you may have overlapping or duplicate services. For example, delivery trucks leaving Milwaukee to get products to customers in Kentucky are passing some of your other trucks that are leaving Chicago to service customers in Minnesota.

When acquiring new companies, distributors should look at future growth strategies and lay that against centralized warehouses, consolidated delivery points and even reverse logistics initiatives to support their traditional and nontraditional flow of products.

For information on Waterstone Consulting's Distribution System Strategy development, call Joe Cahill, (847) 699-9797, ext. 310 or email: jcahill@waterstone.com