Breaching The Threshold of Change

Key Ideas:

  1. Building products distribution can continue to evolve and prosper–ifit will find its new role in the channel.
  2. Distribution must be ready to extend itself either up or down the supply chain (offer more services to dealers and end-users, or source/manufacture products themselves).
  3. Distribution need not sell around their customers, but rather provide a tier of “fee” services as a helpful function to satisfy end-user needstogether with distribution’s customers.
  4. Distribution cannot stand still.

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Everyone seems to talk or write about the need for change in the wholesale building products distribution industry. Including me. However, too few of us ARE the change we need to see.

As a nearly 20-year veteran of this industry and former member of the board of directors for the Association of Millwork Distributors (AMD), I’ve been reminded many times of the famous Hans Christian Anderson fable The Emperor’s New Suit. You recall the one, in which the little boy, upon seeing the Emperor with nothing on at all—cried out “Why—the Emperor has on no clothes!”

Well, the problems facing the distribution industry (see Adam Fein’s article at “Distribution Trends) are as clear as an elephant sitting in the middle of the room–or an Emperor wearing no clothes. But not enough people stand up to do anything about it.

As manufacturers develop their capabilities to perform the functions of distribution and dealers consolidate and become larger—and command closer relationships with the manufacturers—it leaves the “middleman” in a precarious position.

How does distribution go about expanding their role in the supply chain, without alienating customers by going around them, and at the same time strengthen the value and necessity for their services to exist?

The answer’s going to vary for different products, geographies, participants, and customer needs. But as a start, company strategic plans must include an examination of andimplementation plan for:

1) Services down line (see “The Future of Distribution”)—such as assembly, jobsite delivery, installation, and field service (not in place of the retailer or pro-supplier, but as a service forthe retailer or pro-supplier).

2) Unique sourcing relationships or programs, such as directly importing products or entering into the manufacturing businesses themselves.

3) A high emphasis on taking costs out of the channel while improving accuracy, dependability, fill rates, inventory management programs, and overall benefit for customers and end-users.

4) An intense discussion with the distributor’s manufactures to create a mutual plan that achieves the goals for both.

5) Laser-focus on securing product purchase choices from the decision-maker (no—not the buyer behind the lumberyard desk, but the architect, contractor, or builder in the field). And then execute a plan to help the lumberyard secure the sale.

6) An unwavering focus on continuously improving the customer experience. Starbucks doesn’t sell coffee—they sell a unique personal experience (Starbucks’ mission statement).

I am encouraged at the recent wisdom, strength, and conviction displayed by the AMD and several companies in our industry. Perhaps we are “getting it” and willing to tackle the next wave of opportunity before us.

It’s often unpopular to be first to do something new. However, everything of significance that ever happens does so when a few people—or even a single person—charts out the new direction and takes the first steps.

If anyone ever doubts the importance that one decision can make, look no further than the decision made in 1863 during the Battle of Gettysburg. Major General Joshua L. Chamberlain—who was leading his Union Army troops at Little Round Top—had repeatedly defended attack after attack by the Confederates during one critical battle. Exhausted and nearly out of ammunition, many other men would have given up. But Chamberlain made the determined decision to CHARGE—with a fraction of his men and with only bayonets—and to persevere. The result was that the Union Army drove back the Confederates and won the battle.

Historians recount that this is the one decisive battle victory that allowed the Union to win the war, bring the conflict to an end, and change the course of history.

One decision that any of us makes can have a tremendous outcome.

I encourage the leadership in this industry to build on the ideas and momentum that have recently sprung forth, and change the heading we were on—and forever increase the benefits and vitality to our customers, our suppliers, and ourselves. And to do so this year.

My greatest disappointment would be if these outstanding initial steps and beliefs failed to find enough voices and actions to help propel the industry in a bold new direction.

And prove the critics wrong.

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A Case for Focus

For six years from 2001 and 2007—I was privileged to have been a part of the management team at Hampton Distribution Companies (HDC) in Sacramento, CA—a wholesale building products distributor. I was hired by Chris Walton, one of the brightest talents I’ve met in my career—and under his leadership—we succeeded in re-designing the sales organization, restructuring or eliminating non-performing business segments, winning an exclusive distributorship that doubled our business overnight, and reaching all-time highs in ROI. As I took over as general manager in 2004—we continued finding new ways to “reinvent” our company and the distribution function.

We took the company from 4 divisions and multiple product lines down to just 2 divisions and 2 products lines (Andersen Windows, comprising nearly 80% of our volume, and a complete line of residential door products—comprising the other 20%).

During that time, some people asked “Jeff—how could you allow Andersen Windows to become 80% of your business and put all your eggs in one basket?” To them I answered “In 2002, Chris Walton and I decided that if we were going to be an Andersen distributor—then that’s what we should do—with focus, execution, and commitment. We took the opposite approach of many of our competitors—who seemed to be adding more and more products each day.”

We followed Jim Collins’ advice in Good to Great and made Andersen our hedgehog. A hedgehog is:

  1. What you are passionate about.
  2. What you are best at.
  3. What you can make money at.

So, continuing along our determined path, we narrowed our product portfolio and increased our focus—to the point where we sold and supported just two product categories: windows and doors. Of course, we knew this put us at some risk–but the financial performance HDC achieved seemed to suggest we’d made the right decisions.

Yes, we were successful in many ways. HDC was an outstanding company made up of exceptional people. Externally, we excelled in the areas of business development through end-users, customer training and development, sales programs and promotion, value-added services, and attention to detail and execution to be the best we could be. Internally, we practiced continuous improvement, developed and empowered our people, measured constantly, promoted and rewarded desired behaviors and results, and shared information with employees to help everyone feel a part of the challenges, efforts, and success.

With this focus—we continued to hit all-time highs in profitability, improved customer satisfaction, and along the way—earned became a working model of continuous improvement.

Our sales force did a better job—not having to wear multiple hats, but rather—specializing in just one segment. Door sales people sold doors, and window sales people sold windows. We also learned from some minor mistakes along the way. Individual sales rep territory ownership and accountability is paramount in field sales. We dissolved the teams we’d established years earlier—and gave distinct and separate territories to our sales people—who then became accountable—and satisfied—managing all the functions in their market. They could now focus on a smaller geography and group of customers—providing greater involvement and impact.

This focus also allowed us rationalize our customer base—and aim at doing more business through fewer, yet more committed customers. As we reduced the number of low-volume customers we serviced, our overall volume actually increased, our costs of business decreased, and our customers received better service because we weren’t stretched so thin.

Is This Approach For Everyone?

Obviously not. Many, many organizations have proven that you can branch out, expand products and services, and grow successfully. I’m just providing one case for an organization who achieved quantifiable financial success by going the opposite direction—and focusing on those very few things we could do best. It’s up to you to decide which is right for you.

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