A 3rd Generation Distributor Learns Some New Tricks

A 90-Year-Old School Supply Company Learns Some New Tricks

Our client is a third-generation family distribution business that supplies needed items to schools and child care centers and serves as a single source, complete classroom provider to large, for-profit education and care providers.

The company approached Momentum Advisors for guidance and development of a five-year strategic plan. After a short review and due diligence period, we discovered that there were significant amounts of profits being wasted due to insufficient process and inadequately trained employees. We focused our efforts on resolving this in five key areas.

1) Warehouse Operations
We helped our client stabilize Warehouse operations by increasing capacity, creating systems for more effective management of resources, establishing a new management structure, and imparting clear expectations, goals and direction to drive accountability and increase individual performance.

Results: Established a solid foundation of accurate and repeatable processes dramatically increasing employee morale and engagement. $200,000 in annual payroll savings was achieved through faster processing (more orders), reduced dependence on seasonal staff, eliminated positions, fewer defects and increased efficiency (better use of resources). Standardized processes allowed for implementation of software that increased operational visibility, created valuable tracking information and as served as support for additional capital investment for additional savings.

2) Customer Service
In Customer Service, we created authority rules, standard work rules and visual management tools along with workflow processing priorities to allow for increased processing speed. To reduce processing errors, we also improved company-wide communications to move customer service to the front of discussions instead of the last-to-know position.

Results: We dramatically reduced order processing times and improved one-call resolution percentages, leading to increased customer satisfaction. Greater efficiencies have led to a reduction in summer staffing, an annual savings of $8,000 – $10,000, and significantly increased employee morale. Cleaner order entry and issue resolution (RMAs) have led to better capturing of waste activities (returns, replacements, damaged items, etc.), allowing management to gauge savings potential from investment in potential solutions.

3) Retail
On the Retail front, we created SKU-level performance metrics to avoid future buildup of ineffective SKUs, launched several marketing initiatives designed to improve engagement and drive sales, and increased frequency of deliveries to the stores, which combined with increased warehouse storage reduced inventory volatility within the whole system. We also reconnected managers and staff to the company, increasing morale and training all store staff in customer service best practices.

Results: In excess of $100,000 in one-time cash flow was freed up through returned product and credits, offsetting future inventory purchases. Purchases were reduced by $80,000 for store inventory that was redeployed through different channels. We also implemented systemic controls so underperforming inventory wouldn’t become a problem again. As a result of increased clarity of information available to the management team coupled with the difficult retail environment, it was decided to shutter the chain and redirect investment into the core business.

4) Corporate
Our activities at the Corporate level included implementing a standard freight policy, implementing a budgeting process for more effective cost management, and refocusing collections activities. We invested heavily in analytics and shifted the corporate culture to a data-centric approach, implementing an ROI-based investment decision review to assess existing and new projects and capital spending. We reduced reporting time for financial statements (from days to minutes) and greatly increased the availability of detailed information, allowing the management team to focus on analyzing data rather than synthesizing data.

Results: Overall annual savings in freight costs were $150,000, and the improved collections process increased cash flows by $150,000 – $200,000. Development of freight cost reporting has allowed the management team to clearly see freight costs and react accordingly, mitigating industry increases. Using a structured process to review existing projects and new opportunities has allowed the company to avoid potentially money-losing projects and restructure existing projects to improve profitability. Management now has a clear understanding of new customer marketing acquisition costs as well as customer purchasing behaviors. We also developed sales strategies and detailed sales plans based on those behaviors.

5) Shareholder
Our activities at the Shareholder level include development of a transition plan, development of an independent Board of Directors to assist in strategic management. We are also exploring alternative funding mechanisms to purchase shareholder stock as required by the company’s buy-sell agreement, reducing the impact on corporate cash flow. We are creating formal management positions with accountabilities decentralizing critical functions currently done by one family member. We are actively training and incorporating the fourth generation into key positions to ensure a smoother transition than in past generations and ensure continuity over time.