May the Force be with you; the Power of Actionable Analytics
May the Force be with You…a Day Dream..
Obi-Wan Kenobi stands upright and erect in the sacred space of the Jedi Temple. His loosely flowing brown Jedi robe cannot disguise ripples of muscles that made up the taunt body of a battle ready knight. Steel gray light of a computer generated dawn colors him and spreads across the equipment of the non-descript background. His eyes held in a humble pose, the young Jedi Squire reverently approaches his master. Part saint, part warrior chief Obi-Wan directs his burning eyes toward the young Luke. “Ignore what appears to be; ignore facts, trust your instincts…. May the Force be with you” says Jedi Obi-Wan Kenobi.
Suddenly the audience breaks into a thunderous applause. May the Force be with you, may the force be with you, suddenly you return to the realities of distribution. As you sit there you wonder, “Will I ever be able to anticipate the future like young Luke Skywalker?”
From where I sit, the real force in Distribution lies with the use of Actionable Analytics. In their book “Competing on Analytics – the new science of winning” Thomas Davenport and Jeanne Harris describe how top level companies migrate from using data to explain the past to employing Actionable Analytics (my term) as part of a business strategy. Actionable Analytics arm distributors with a weapon every bit as powerful as Obi-Wan’s light saber. Let’s journey through the development of this phenomenon in wholesale distribution.
In a Distant Land not so Long Ago…
The dark ages of information weren’t so long ago. When I started my career in the late 70’s a good many distributors ran their businesses without computers. Information, when it was available at all, was slow in coming and pretty sparse. Detailed information on inventory flow – things like turns, hits, stock on hand – was calculated once a year (maybe). End of the year sales data arrived sometime around Valentines Day. If a need for specific customer information for a key negotiation or important decision was required, the data was available only after sacrificing several evenings digging through old records. Many times the data simply did not exist – period. No computer, no force, it was all gut level feelings and intuition – the dark ages.
The First Great Computer Age...
Sometime during the early-80’s we all got business systems installed. These were behemoth computers that ran our business. They did the invoicing, they generated purchase orders, and they took care of a million mundane tasks associated with distribution. They had all kinds of information inside them and they spewed forth data on a daily, weekly, monthly or some other basis.
I remember my first day as the VP of High-Tech Sales for an Electrical Wholesaler. At approximately 8:15 each morning, my secretary brought in a pile of over-sized green strip paper about 6 inches tall. Near the end of the day, in she came with a second set of reports – this time 4 inches thick. Every day the paper (I mean data) was placed on my desk.
The right stuff was in there somewhere. The issue was to get it you had to order up reports from the IT department. If you had clout and the computer guys weren’t too busy you could have yet an additional pile placed on your desk in a week or so.
We all did some down and dirty analysis. Data was pulled from a report, manually loaded into a spread sheet and analyzed a few times per year. The data analysis proceeded painfully ahead. It was hard and it was slow. Analytics when they occurred were used to explain the past.
Second Generations and the birth of Analytics...
Advances in computer hardware and software brought about a new generation of business systems. Besides doing all the business things faster and better, the new generation allowed for better and faster data structure. Now the “business system” could tell you not only the suggested price but also the price a similar customer paid for the same product 14 months ago.
The software companies built a number of useful (and on demand) reports into their software. No longer was I automatically “served-up” a ream of paper a day. I could pick and choose from a number of built in reports and even customize a report to draw data from the computer. True, the report often required 8-12 hours to “spool” through the computer system. And also true you had to be computer savvy to get to the right information.
Now we could sometimes understand the present. This was a big step.
Feel the Force...
The smoking, swirling technology cocktail - created when new-generation computer hardware, networking advancements, and software breakthroughs were combined with distributor innovation - brought the force to life sometime around the turn of the millennia.
A few leading edge distributors applied subtle technological mechanisms found inside their business systems to pull out data relationships. These distributors discovered they could download dissimilar data – like selling price and inventory outage days – to draw increasingly advanced conclusions about their present situation. And, on rare occasions, they felt as though they could push those conclusions into the future.
The Force Grows...
The comparison reports and data cross compilations spread across the country as distributors talked and benchmarked best practices. Like a Tsunami of knowledge, instructions on how to massage data spread from distributor to distributor. Companies like Taylor Market Media Group, Inc. accelerated with the introduction of Sales Management Plus (SMP). David Bauders’ Strategic Pricing Associates (SPA) created advanced scientific analytics around pricing strategies. And leading ERP vendors like Activant built interfaces to make it easier for their clients to interact with products like SMP and Strategic Pricings Associates.
Smart front-ends like SMP not only provide the tools to do analysis on historical sales faster and with less computer savvy than using just a new generation software platform, but extend the functionality of traditional data analysis with Actionable Analytics. Actionable Analytics is the ability to take the information and assign tasks, set target accounts and trigger marketing follow up.
Just getting data alone is not sufficient, you need to act on the data and be able to track your activities and results. Now you got something that will lead to a continuous business process improvement that will lead to long term strategic growth.
Companies who know how to Target Accounts are 47% more effective than those who do not.
But applying the force of Actionable Analytics must be pressed beyond the marketing side and used to build our bottom lines. Data automatically drawn from invoice files of your Activant or other ERP system is served back in a form that allows gross margin optimization.
Computerized analysis at SPA builds complex “pricing cubes” that interpret the pricing sensitivity of customers and product lines. This data is adjusted to focusing discount activities only on products which are price sensitive. Sound complicated? In theory a single calculation is actually pretty simple – but the SPA application considers tens of thousands of customer and product price combinations. And, the suggestions are served up in a form humans can understand.
But the force continues – SPA data assists in implementation and metrics around the human interaction as well. Keeping with our Star Wars theme – the force guides you and then nudges you when your aim is off.
The Force of Actionable Analytics Illustrated...
On Electrical Wholesaler has driven his business forward by using Activant’s Eclipse and TMMG’s SMP by creating natural product groupings. He directs the sales activities of his company analyzing the gaps occurring in the product groups.
One such grouping is lighting products. The grouping contains lamps, ballasts, fixtures, and miscellaneous replacement parts. This distributor uses the relatively high market share with lamp products to search for missing business. With a quick automatic setting the distributor owner can look for customers who have purchased over five hundred dollars in lamps but no ballasts. This group is saved within the SMP system and categorized via salesperson. Each salesperson can then be assigned follow up tasks to investigate whether his/her ballast business is being “poached” by the competitor. This provides the management team a complete platform to proactively guide, manage, analyze and follow up with their sales and marketing teams. But Actionable Analytics don’t stop here.
Each of the customers is carefully categorized according to type and size. Detailed reports are fed back via Strategic Pricing Associates with breakdowns of customer size, order size and pricing level. Improperly categorized customers are identified and discount levels adjusted to maximize gross margin dollars generated. Customer contracts are systematically reviewed and renegotiated. Inside sales feels less mental anguish on new orders because the system pricing level is solidly measured and well defined.
Armed with the force of Actionable Analytics, salespeople feel more confident as they discover new opportunities. They know where to look and can predict the outcome ahead of the call. Further, analytics around pricing transform the character of the final customer negotiations from pricing levels to a more meaningful discussion of value added.
Competing on the force of actionable analytics...
If Obi-Wan Kenobi (from above) granted you the power to compare the gross margin generated from a series of joint calls vs. the gross margin generated when the calls are skipped and a telemarketer called the customers, would you have an advantage? If you could determine which customer segments respond to product mailers vs. the customers who valued local trade shows, would you be thrilled? I would be.
And if good old Obi-Wan gave you the power to fine tune your margins to the point you added 50% to your bottom line (David Bauders’ clients have gone on record with typical gains of 2 point gross margin improvement), you’d swear the future looks pretty bright.