A Q&A with Profit & Productivity Summit speaker and distribution industry expert Al Bates
Source: www.distributionstrategy.com
Dr. Al Bates is principal of the Distribution Performance Project and spends his time researching, writing about and delivering presentations on topics related to distributor profitability.
We talked to Bates about how distributors should think about profitability in today’s market.
Distribution Strategy Group: What do you consider to be some of the myths around profitability in distribution?
Al Bates: One myth is that sales solves all problems, because you really have to consider how much expense you incur to generate those sales.
The other myth is, and this has been going around quite a while in distribution, “We’ve got to get the inventory level down for cash flow purposes.” And my argument is, you get the inventory down, you don’t have any sales. There are other ways to drive cash flow than simply trying to reduce inventory or accounts receivable.
Distribution Strategy Group: Why do you think these myths have held on for so long when, like you said, the results aren’t necessarily what people think they are?
Bates: I think there is a little bit of, “We’ve always done it this way.” And that’s true in every business, including mine. Also, sales is the easiest factor to measure, and every year it’s, “How much did you grow your sales? What was the increase vs. competition?” And so, sales has this kind of mythological factor, if you will. It drives a lot of our decision-making when we really should be focusing on profitability.