The Use and Abuse of Metrics in Distribution
Steve Epner, President — the Startup Within
• opinion / commentary • expert interview • Innovate for the Future • Simplfy Everything book • innovation
Monday, August 14, 2017—In this video, Randy MacLean talks with Steve Epner, President of The Startup Within, about new ways to make your business better, offered in Steve's book, Simplify Everything.
Steve devotes a whole chapter to the use and abuse of metrics and measures, showing how they often actually prevent businesses from achieving their goals.
For instance, many executives and CEOs with a finance or accounting background tend to think that all the metrics they need come out of the balance sheet and P&L statement. But most accounting numbers are not forward looking, they simply tell the story of what has happened in the past.
A Financial Metric Revolution
In addition, the financial system in place for most business was developed decades ago, when the business world was very different. Financial and accounting practices were designed to manage inventory, manage receivables, and to provide information for banks and the IRS. These metrics don't really provide valuable and current information about how money is made in your company.
It's time to take a look at new metrics and how you are using them.
In fact, most metrics that you are following have an offsetting metric. For instance, turns and fill rates. If you are only focused on maximizing turns, this means your fill rates will suffer and your service will be affected. The key is to balance the most turns with the highest service levels.
The most common metric in distribution is gross margin. This is offset by cost to serve. Because most distribution companies are just focused on gross margin, they are missing the more important focus of managing the spread between gross margin and cost to serve. This is where the profit lies.
For any measure you're looking at, you must make sure you also know the offsetting metric and know that you can create an optimal balance in order to maximize profits.
There will be tradeoff, but by controlling the tradeoff to get the maximum benefit you avoid the pitfall of focusing too heavily on a single component.
For more information about Steve Epner, visit: www.thestartupwithin.com