Create a Business Strategy That Works
By Phil Masiello, President of VALUChain Associates, LLC
One of the greatest assets a business can possess is a strategic plan. When developed, researched, and executed correctly, it can catapult a business to greater success. The challenge for most business owners, however, is in understanding how to create one that is successful. The process is often times turned into an overly complicated one, requiring so much effort that by the time the plan is complete, the year is half over, the business environment has changed, and the process needs to start all over again.
The function of a strategic plan is to communicate to your entire organization who you are, where you need to go, and how you are going to get there. One of the most effective ways to communicate this vision is through a strategic plan. When implemented correctly, it focuses people on the priorities that will drive your business ahead of the competition. It sets the foundation of corporate culture.
Available to business owners are plenty of planning tools that promise great results. They take you through a series of cumbersome steps and questions, most of which make you lose sight of what you originally intended. Usually, these programs have questions like, “Determine the top 5 external forces which will have a significant impact on your businesses pricing over the next year, 3 years, 5 years.” The result of analyzing such questions is typically an overly formal document that no one is inspired to follow.
Fortunately, the process doesn’t have to be that complicated. With the proper focus, drafting a business strategy is easier than you would think.
Focusing on the Customer
The secret to creating an effective plan is keeping it focused on the most important, fundamental part of your business – the customer. Any plan that does not have an analysis of who buys your products and services is destined to fail.
Understanding your Business
Once you have a firm understanding of who your customer is and what their needs are, stepping back and taking a broad eye view of your organization is a critical next step.
Most business owners focus too closely on the day-to-day tasks and not enough on developing an overall business strategy capable of leading their organization to success.
To really drive business strategy, you must gain a better understanding of your entire business by studying all its components, people, and environments.
Setting the Foundation
Once you have a solid understanding of all the people and circumstances that make up your organization, the next step is to set your foundation. Strong and flexible, an organization can withstand most any force and keep on track to where they are going. The foundation of any good, effective, easy-to-understand plan needs to answer the following questions:
1. Who is your target customer? Are they different than the customers you are presently attracting? Where are the customers heading over the next few years? How are their purchasing characteristics changing?
2. What do your customers need/desire from your business?
3. In the customers’ eyes, are you fulfilling this need? If not, what needs to change?
4. Who is your competition? What are your competitors’ strengths?
5. From the customer’s point of view, what does the competition do better than you? What do you do better than the competition?
Measuring Goals
Once you’ve analyzed your customer, you’ll have a better understanding of what needs to be done to keep them happy and loyal. The next step is to set goals to achieve this. For them to really work, the goals need to be measurable.
Look around and you’ll find that many companies have missed the mark on setting attainable goals. With missions like “To be a great place to work and a great place to shop”, how would they ever know when they’ve actually achieved their goal? How can they possibly quantify a great place to work and shop? How can they rally the troops around such a vague concept?
The key is to set goals that work.
General Electric’s former chairman and CEO, Jack Welch, was a master at this. The goal he communicated to the entire organization was this: “GE will be the number one or number two in each of its markets. If it can’t be number one or two, then it will exit those businesses.” With this statement, he accomplished a very important thing – he implemented a strategy that everyone in the organization could grasp and understand and work towards.
If you want your business to succeed, then set definitive goals.
Making it Work
For a strategic plan to work everyone in your organization from the president to the managers to the maintenance workers must be championed with executing it. The plan needs to be articulated in a very simple way for the entire organization to understand. Having everyone in your business doing exactly what it takes to bring your business success will drive it to be a front runner.
The time and effort you put forth today will serve you well into the future. The process does take hard work, but the outcome can be dramatic and accelerate your business growth to soaring heights.
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The Grocery Supply Chain Compared to the supply chains supporting the large retail enterprises (Wal-Mart, Target, etc.), the grocery industry lags in using technology to eliminate latency and squeeze inventory and lead-time when moving goods from factory through distribution to store. With its highly competitive environment and notoriously slim margins, the grocery segment should be a fertile market for technology solutions that control the supply chain. Yet, few examples exist of successful supply chain improvement programs. Technology investments are reluctantly made and rarely deliver the results that would make them worthwhile. .......read more......
Today’s Challenge with the Grocery Supply Chain
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In Defense of Wal Mart (Part 1)
As a student of business, it is very disheartening to read CEO’s and business men discuss how the single biggest threat to their growth is Wal-Mart. Every piece of communication from retailers and wholesalers in every publication blames the woes of the world on Wal-Mart. There is no doubt that Wal-Mart has developed a business model which has provided them with the ability to replicate stores across the country with no significant competitive threat. Other than the various state and local governments altering regulations to make it more difficult to open super centers, where is the competitive threat? The issue here is not Wal Mart, but the competitions inability to develop a model and a culture of there own which can infiltrate a niche where Wal-Mart cannot go, thereby eliminating or reducing the threat.
What about the customer?
Every business strategy begins with the customer. Hence, my analysis will also begin with the customer. Whenever all of the discussions about Wal-Mart begin, I always throw this point out, if the customers weren’t satisfied with Wal-Mart, they would not have a model which enables them to continually grow and prosper. Certainly the customer is not opposed to Wal-Mart. They get the benefit of lower prices on core household items. If customers were dissatisfied with Wal-Mart, it would reflect in the sales and profits. Judging by their last year financials ($256 billion in sales, 4.82% Sales Growth, 3.5% net profit margin); customers must be a little satisfied. Whenever someone tells me a story of how Wal-Mart entered a market and every competitor closed down, I sit amazed. Again, the customer went to Wal-Mart because they were not getting something at the competitors. Wal Mart serves the needs of its customers better than anyone else, bottom line. Wal Mart doesn’t put companies out of business, lack of customers do!
What about the Manufacturers?
Manufacturers who do business with Wal-Mart certainly are not upset by the relationship. The volume of product flowing through Wal-Mart is tremendous. The manufacturers who are upset with Wal-Mart are the ones who are not doing business with them. Wal Mart is a model of efficiency and those who do business with Wal-Mart become more efficient themselves. There is a tremendous amount of inaccurate information out in the world about how Wal-Mart does business with manufacturers. Contrary to the 1000 lb gorilla they are made out to be, the process is very much a collaborative effort. Wal-Mart has a tremendous amount of information regarding their customers. They understand the Price/Value relationship better than anyone and they also understand volume and incremental dollars.
The negotiation with a prospective manufacturer begins with the need of the customer. Is this a product that the customer needs? If the need is determined, then the next question is what is the optimal selling price? What is the price that will move volume and allow Wal-Mart to remain the low price leader? Once the optimal price has been established, the next question is what profit does Wal-Mart need to make. Then, working backward they get to the optimal cost. The manufacturer has a decision at this point, he can either meet that cost, or he can’t. Sometimes, it requires the manufacturer to rethink his or her operations to become more efficient and remove the unnecessary costs inherent in the manufacturers business.
I see nothing wrong with this approach to the negotiation and sale of a product. The manufacturers who do business with Wal-Mart understand that if they maintain the agreed to service levels, costs and sales goals, then they will continue to be the supplier of choice for their item. No hidden charges, no hidden fees and not subjected to annual bidding. This is totally counter to the rest of the industry and therein lies the problem. Wal Mart does business differently and rather than change their business practices, competitors would rather complain about the Wal-Mart threat and seek to gain an advantage through regulations and laws to keep Wal Mart out.
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In Defense of Wal Mart (Part 2)
The Wal Mart Model
The primary source of Wal-Marts profitable operating model, and the key to their lower price advantage, lies in the Supply Chain. Wal-Mart has made no secret of it. They have put their supply chain management system in the public domain for everyone to see. It has been proven, studied, debated, tested, and piloted to death. Collaborative Planning Forecasting and Replenishment, CPFR, works and has been adopted in a number of retail sectors. However, it requires a dramatic change to the culture of a business.
There are many definitions of collaboration, depending on the chosen dictionary. The one I like the best is “To work together especially in a joint intellectual effort.” I can think of no greater “joint intellectual effort” than attempting to figure out today’s consumer. In today’s retail environment, the ability to effectively sell depends on the ability to "know" a customer, which is done through the efficient capture, analysis and communication of clean, accurate and timely data, sharing this information among all trading partners.
CPFR
So, what is Collaborative Planning Forecasting and Replenishment or CPFR? In its simplest form, it is bringing together everyone and every piece of data involved in the value chain for a specific product group of sku’s in one common area. There is an inherent commitment of trust involved here as the sales data, purchase data, ship data, forecasting data, budget and growth objectives, etc. which all need to be shared among the trading partners. This gathering of information and intellect in one area accomplishes several key things:
1 – It gets everyone, (the manufacturer, the category manager, buyer, warehouse, store level) focused on the customer. Now everyone involved with the specific product group is looking at what was sold when, where and by whom and how quickly it needs to be replenished.
2 – Sales grow because the correct product is in the correct place at the correct time to meet the customers’ need.
3 – Profits grow because the correct product in the correct quantity is in the correct place at the correct time to meet the customers’ need. Spoilage is reduced, inventory-carrying costs are reduced, and labor becomes more efficient and effective.
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Retail Price Differential -20%
Collaborative Replenishment 6%
Centralized Buying 2%
Distribution Efficiencies 2%
Distribution Labor cost efficiency 2%
Product Mix Effect 2%
Lower Shrink/Spoils 2%
Global Procurement 1%
Gross Margin Differential -5%
Store Labor Cost Advantage 3%
Depr. & Amort 1%
Operating Efficiencies 2%
Operating Margin Differential 2%
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This approach is what has enabled Wal-Mart to price about 20% below the competition, yet achieve only a 5% lower gross profit.
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In Defense of Wal Mart (Part 3)
Culture is the real Key
The concept of collaboration in business between trading partners is actually very simple. The implementation is not so simple. It requires a tremendous change in the mindset, culture and “the way we do business today.” Here is where Wal-Mart has the true advantage over every competitor. They have developed the ultimate culture based upon the companies guiding principle, “We Sell for Less.” Everyone in the company is committed to this and the strategies and operating procedures are all focused around supporting this mantra. In order to sell for less, they need to buy for less and remove any unnecessary cost imbedded in the system. There are allowances of how much an associate can spend when they travel and everyone adheres to it, Including the CEO. How many CEO’s of a multi-billion dollar company share a room under $100 with another associate on a road trip? That is a testament to how deeply committed this company is to its core values. Whereas most companies talk the talk, Wal Mart walks the walk and it reflects in their growth and profitability.
The company continually works with their primary vendors to eliminate waste from the Supply Chain, from point of manufacture to point of sales. Both companies profit from it in the end. Proctor and Gamble has stated publicly that they can sell products to Wal Mart cheaper than anyone else, and make a higher profit because Wal Mart is so efficient.
Wal Mart shares information with their trading partners to make better business decisions. They provide this open access to data FREE. This open access to data and information re-enforces the collaborative partnership they foster with their supplier partners. Many of the larger retailers and wholesalers have tried to replicate this data sharing, unfortunately, they charge their partners for the privilege of working “collaboratively” and then they wonder why their pilots fail, or never achieve the same results as Wal-Mart. I watched one company implement an open access data system and charged the suppliers a sum of money equal to the amount they estimated the supplier would save by using their system. That sets the wrong tone for collaboration and defeats the entire purpose. While the rest of the world talks about culture, Wal-Mart walks the culture walk. For this reason, Wal Mart should be held up as the model corporation and Sam Walton should go down in history as the greatest cultural architect in business history.
Why Isn’t the “Wal Mart Model” Widely Accepted?
There are 2 specific reasons for this, in my opinion. First, it has been approached in the past as a technology initiative requiring very large investments in software and hardware. No business can justify those investments without seeing a tangible return first. In reality, collaboration is a culture; a process change; a change in the way we do business. The technology is important in the facilitation of the process and the information. Great technology certainly helps, but a company could collaborate with a paper and pencil if it wanted to. Second, the correct people in the industry have not been targeted. CPFR, or any supply chain process begins with the category management of an organization. The buyers and merchandisers have the largest effect on the supply chain and have the closest relationships with the vendors.
Developing a customer driven differentiation model and reducing unnecessary costs is the only way for retailers to survive against all of the competitive threats to their respective industry. There is only so much labor to be reduced; only so much to be gained from benefits and insurance; operating expenses can be tightened only so far. However, the average retail company could increase their gross profit by 1.3% by eliminating the waste in the supply chain. Companies who have adopted these principles have had tremendous success in lowering the cost of product, while increasing their net profit, which ultimately benefits the consumer. They have better in stock, lower inventory costs and higher productivity. CPFR.Org has case study after case study, pilot after pilot, which have proven the model.
What every business that is complaining about Wal-Mart needs to do is to take a step back and re-strategize. How can we take our points of differentiation and modify Wal-Marts operating model to beat them at their own game. Target is just one example of this type of thinking. They also have a very efficient supply chain model which they have adopted to their differentiated operating model. There are several parts to the Wal-Mart model which are vulnerable. For example:
1 - They cannot adapt their merchandising strategy to localized preferences very easily or quickly.
2 – They do not target the upper middle to upper income brackets with an enticing offering.
3 – In the food arena, they are weak in the core perishable areas with variety and freshness.
4 – They are inconvenient for quick trips.
5 – Selection in the core electronic, toy and sporting goods is very limited and falling behind.
My point here again is there are vulnerabilities in the model. But until competitors focus, strategize and revamp their culture, they will continue to struggle against Wal-Mart.
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Supply Chain Management
Supply Chain management from Point of Manufacture to Point of Sale has the potential to increase net profit by 600 basis points.
It all begins with the customer and the product.
Proper product flow and quantity affects capital allocation, distribution costs, labor costs, shrink, sales and customer satisfaction.
Background
If a supplier is aware of the key objectives and strategies they can tailor programs, promotions and even new products and services to meet the shoppers needs.
Suppliers must help the retailer grow the category and overall business, being a battle ground for market share or just shifting sales will not lead to long term growth.
Consumer expectations for lower cost, better service will continue to grow.
Retailers must define their optimum product mix based on their retail positioning.
Retailers have limited resources to analyze results.
Suppliers can help retailers “mine” the data and assist in identify opportunities and trends.
Significant amounts of data exist and Suppliers have better demand planning and forecasting capabilities.
The missing key is Data!
Present Environment
Proven Models
Nabisco and Wegmans performed a CPFR pilot on one category. The pilot was successful: Nabisco's sales of 22 Planters nut products grew by 31%, while Wegmans' dollar sales of nuts increased by 16%, with a surprising 18% decrease in inventory.
A simple solution of bringing product data from multiple sources into a format whereby it can be viewed by everyone associated with that product.
This will lead to better ordering, forecasting, replenishment decisions by both buyer and seller and have everyone focused on the customer needs.
Business Need
More Accurate Forecasting related to sales vs. inventory.
More productive use of the existing systems
Buyer and Seller looking at the same data and working on the same problem.
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