The cutting edge in gaining distribution competitive advantage is lean. Many customers and suppliers are implementing lean procedures and are asking their distributors to do the same. The problem is that lean processes have not been well defined for distributors.

This presentation addresses how to implement lean in distribution organizations with practical methods, tools and techniques and will use case studies from real distributors to describe and demonstrate lean processes and their value.

Optimizing Distributor Profitability:

The pressure to perfect distribution operations has never been higher with customers continually demanding higher performance at lower cost.  Until recently, there hasn’t been a comprehensive effort to determine the impact of implementing improved practices on return on investment (ROI) and net profit.

In the Fall of 2007, the Optimizing Distributor Profitability research consortium was assembled by the Supply Chain Systems Laboratory at Texas A&M University. The consortium was sponsored by 11 distributors from 6 different channels. The following 5- step framework was developed as a guideline for the distribution community to analyze profitability.

1. BUSINESS PROCESS ASSESSMENT
Frameworks for business processes and financials related to distribution functions were prepared. The business process framework is structured as a collection of “7S” process groups – Source, Stock, Store, Sell, Ship, Supply Chain Planning, and Support Services. The financial framework is defined based on four financial drivers – Asset Efficiency, Cash Flow, Profitability, and Revenue Growth.

Each of the “7S” process groups was further expanded which resulted in 42 business processes critical to any distributor function. The financial framework was expanded into 10 financial metrics. The workbook (shown above) was developed to assess the 42 distributor business processes and serve as a guidance to identify process gaps.

2. GAP IDENTIFICATION (BUSINESS PROCESS & PROFITABILITY)
Common, good, and best practices were defined for each of the identified business processes. These benchmarks served as an assessment platform to evaluate business process performance.  Cross-channel benchmarking numbers for the 10 financial metrics were also used to benchmark financial results. The deliverable, “Distribution Process Gap Report”, enables distributors to assess their branches and potential acquisition targets

3. SHAREHOLDER VALUE MAP
Having identified the business process gaps, distributors need to understand the importance of those gaps by linking the corresponding business processes to shareholder value. Each business process is linked to shareholder value.  The ‘Supply Chain Profitability Framework’ was developed depicting each of the 42 business processes and their connection to shareholder value. This framework helps to understand the impact of various distribution functions on shareholder value and the interaction between the major process groups.

4. PROFITABILITY ANALYZER
A spreadsheet-based analyzer, is used to determine the potential profitability. This facilitates the process of building business cases as well if one plans to implement best practices.  For each of the best practices, the analyzer attempts to determine the change in EBITDA and Return On Net Assets (RONA). The potential improvement numbers help distributors to prioritize initiatives based upon their potential profitability and impact on shareholder value.

5. BEST PRACTICES ROADMAP
Optimizing Distributor Profitability describes the five-step methodology with clear how-to-implement ideas and tools; more than 120 helpful exhibits; and a separate, over-sized Distributor Profitability Framework map to help you carefully follow how business processes and financial drivers are linked to enhance shareholder value. Get table of contents and first chapter free at:
http://www.naw.org/publications/pubs_item_view.php?pubs_itemid=126