By Louis Mosca // COO & Executive Vice President, American Management Services
A prominent food distributor in the Southwest, known for importing high-quality food products from South East Europe, is facing a problem.
From 2021 to 2022, they recorded a decrease of $8 million in revenue and a three-point reduction in their gross profit. Though only halfway through the year, 2023 is on track for another sales decline.
As the COO of a management consulting firm, this isn’t anything new or shocking. Sad to say, it’s par for the course. We’ve seen our fair share of distributors who struggle yearly, and the state of the world these past few years hasn’t really helped things.
There was talk of a recession as far back as 2018. To be fair, there will always be talk of a recession or some cataclysmic environment-changing scenarios.
Inflation hit a ten-year high in 2021 at about 7%. And though things look better than two years ago, inflation rates are still more than double than the pre-pandemic era. Facts are the facts.
With inflation came global supply chain issues. Again, while the supply chain is improving from about a year ago, it’s a far cry from where it was pre-2020.
I share all that to come back to Company A.
Sorry to say, the primary issues here revolve around ineffective management and accountability.
Of course, Company A’s struggles reflect the larger issues many businesses face in the current economic climate. Long lead times, supply chain disruptions, and inflation contributed to their declining financial performance. As a result, they have also struggled to gather sufficient customer data to predict and meet demand accurately.
To address these real issues, every business, not just Company A, needs discipline, pricing, and accountability and precise management direction.
Every owner, and every business by extension, must have a plan to achieve their goals and a method to stick to timelines. Your people should be trained to execute the plan you set.
Products should be competitively priced; you want to make money, so price your items accordingly.
Supply chains, long lead times, and ‘inflation’ don’t pick victims. Everyone is treated poorly and equally.
Discipline and pricing don’t matter if you don’t have a system of accountability set for you and your team. What does it look like when you achieve goals X, Y, and Z, and what does it look like if you come up short? How are you going to measure results daily, weekly, monthly, yearly, etc.?
So, what can Company A do to address these challenges and turn their situation around?
- They should set goals and develop timelines for each department to hit yearly targets.
- Annual training and retraining of their staff to ensure goals are met to the specifics set by upper management.
- Implement solid and transparent pay-for-performance plans. This isn’t a commission-based comp plan but a ‘bonus’ based on how much individuals or departments bring in past the yearly profit target.
- Install a series of defensive procedures I like to call ‘blocking and tackling.’ What I mean:
- Enhancing Supply Chain Visibility: By closely monitoring each stage of the supply chain and working with reliable partners, they can better anticipate potential disruptions and take proactive measures to mitigate their impact. This will help reduce lead times and improve overall efficiency.
- Fostering Stronger Supplier Relationships: By maintaining open communication channels, sharing forecasts, and collaborating on problem-solving, both parties can work together to overcome challenges and improve lead times.
- Implementing Cost Management Strategies: These can include renegotiating contracts with suppliers, exploring cost-saving technologies, and re-evaluating pricing strategies to maintain profitability.
- Investing in Customer Analytics: By analyzing purchasing patterns, preferences, and trends, they can make more informed decisions about inventory management and marketing strategies, ultimately improving their ability to meet customer demand.
- Embracing Agility and Flexibility: By remaining open to new ideas, adopting innovative technologies, and regularly re-evaluating their strategies, they can adapt to changes in the market and stay ahead of the competition.
Though the challenges faced by Company A are significant, they are not insurmountable. By taking a proactive approach and implementing the suggested strategies, the company can work towards overcoming its struggles and regaining its footing in the market.
Remember: It doesn’t matter how many people you have working for you; if they aren’t executing the plan you set, it becomes exponentially more difficult for your business to overcome challenges.
While the road to recovery may be long, with determination and a focus on continuous improvement, Company A can emerge stronger and better prepared for the future from these difficult times.
Since 1986, American Management Services has been the leading consulting firm in the United States, exclusively assisting independent small business owners with improving sales, operations, and performance.
Contact Louis at lmosca@amserv.com.
