Santa's Wishes for Distributors

Santa Shares All…. Six Lessons for Distributors

For those of you who don’t know, Santa Claus and I have a special relationship.  It began way back when I was still knee high to a short elf. It seems my grandfather, who was a jolly sort of guy himself, somehow connected with Mr. Claus.  Imagine being 3 or 4 years old and learning Grandpa and Santa were buddies. Special feeling?  You bet. I knew it was real when Santa greeted my Grandpa with, “Hey Red (my Grandpa’s nickname,) how late did you stay down at the Eagles’ Club last night?  If they weren’t pals, how in the world could this jolly red suited man know these details?

Santa knew me by name too. Really! And from that day back in the early 1960s on, Old Santa and I have enjoyed a close and special friendship.  According to Santa, yours truly has managed to make the “nice” list for 5 of my 59 years, but this story is not about me, it’s about distributors.

During a slow point down at the local mall, I managed to grab a few minutes of the jolly old elf’s time.  After our normal greeting and his all too familiar “Ho, Ho, Ho," Santa took me aside and asked me to share a few pointers with my distributor friends.  It was an “everything important in distribution can be learned from Santa” sort of moment. Rather than blast out with bloviating reindeer breath, let me pass on six of Santa’s lessons.

Lesson 1: Segment your customers
Santa said he learned this lesson some 500 or so years ago.  Once he started segmenting his customers into groups; naughty and nice, business picked up.  Today, Santa’s North Pole organization carefully tracks customer behavior and provides services accordingly.


Santa believes distributors must understand customer demographics too.  The customers, who value your service, buy in the right quantities, display the right kind of buying behaviors and allow you to make a profit deserve extra nice treatment.  Santa and his team of elves carefully insure the “nice” boys and girls get better treatment than the rest.  Simply put, distributors can drive more profitable business if they target the right customers.

Lesson 2: Build your own unique brand
The red suit and eight tiny reindeer shtick is part of the whole North Pole Brand.  Flash a picture of a slightly

overweight bearded guy dressed in a red suit with white fur trim and kids anywhere immediately recognize the brand.

Santa and his team of marketing elves first came up with this whole branding deal back in the 1600s.  Since then, dozens of marketing gurus came knocking on the North Pole door; each proposing a different strategy. On a side note, you can only imagine what would have happened if Santa would have taken on that Paisley Nehru Jacket pitched sometime in the 1960s.  Thankfully, Mr. Claus avoided the temptation of flipping his branding message.

For distributors, this means understanding what you’re known for in the marketplace and carefully advancing the message.  Are you known for having a larger stock of hard to find items than your competitors?  Is your team more tuned to technical support?  Are you good at solving logistics issues? Is your counter more knowledgeable than those of your competitors?  It’s time for distributors to stop relying on their supply partners for branding.  In the future, distributors must understand what they’re known for and advance the message.   It develops a strong and loyal following who are willing to partner.

Lesson 3: Adapt to changing customer styles
When Santa first started up, things were different. Boys and girls were known to whisper their Christmas wishes up the open chimney hearth.   Santa had thousands of elves employed at listening posts.  It was mostly tedious and time consuming work.  Later, the kids wrote their wish lists on pieces of paper and tossed them in to the fire with the hopes that Good Saint Nicholas would somehow read their smoke signals.

 For most of us, an annual letter to Santa was something of a tradition.  But today, Santa receives requests via email, instant message, phone calls, and the traditional “snail mail."   Along the way, Santa has constantly upgraded the way he monitors and processes these incoming orders.  He had to shell out some big bucks on technology and training.

Today, distributor customers communicate in ways unheard of just a decade ago. Inside sales teams receive faxes, emails, and EDI communications at the speed of light.


Santa, who keeps abreast of the younger generation, believes some distributors have missed out on the trend toward communications via instant messaging.  Applications currently exist which allow customer instant messages to appear on the inside sales team’s computer screens. This gives customers a new way to communicate with the team and allows inside salespeople to handle multiple customer requests simultaneously.  Further, as customers move toward faster and more sophisticated devices, the jolly old elf believes the trend will grow.

While we’re on the subject of mobile devices, distributors need to evaluate some of the applications designed for speeding up customer selection of products.  Santa tells me that he is working on a new “app” for Christmas 2014.

Lesson 4: Don’t forget your warehouse
It’s no secret that Santa operates from a single central distribution facility located in a remote part of the world.  One would expect that this could be a disadvantage to the fat man and his organization.  However, over the years, Santa has refined his delivery mechanism in order to meet customer needs.  The North Pole warehouse is equipped with all the modern material handling and tracking tools.  Each year literally millions of Red Rider BB guns, electric trains, Easy Bake Ovens and dolls are delivered accurately and on time.

Santa asks distributors to take time to ask how their warehouses today differs from the warehouses of 1983. Does your system employ barcoding, part location, wave picking, or any of the tools which allow you easier throughput and cheaper warehouse operations?

Lesson 5: Never say "no"
Santa has developed a customer service plan second to none.  He has trained his team of salespeople (dressed in Red down at the mall) to never say "no."   Instead, they say, “Santa will have to check.”  There’s a big difference.

One of Santa’s distributor friends once told me this: “I never say no, I just ask; how much you would be willing to pay to make it happen?”  Distributor sales and customer service people need to be trained to offer options when the customer’s original request can’t be met.

For instance, if a customer asks for a part that’s not on your line card, do your customer service reps say “we don’t have it?"  Would it be better if they asked if a substitution can be made?  While this doesn’t seem like “reindeer science," it does provide your organization with additional sales opportunities.

Further, if the customer would like to have something sold by a competitor, do you have a plan?  Some customers want you to take ownership of the issue, regardless of cost.  Santa thinks that’s a cool concept.

Lesson 6: Understand the cost of services
Finally, Santa wanted to point out the rising cost of value-add services.  For eons he assembled dollhouses, set up elaborate train sets and put together back yard swings.   It was pretty cheap to do this back in the 1960s.  Even though the elves and reindeer work for carrots and peanuts, he has been more reluctant to put things together in today’s business environment.  Health care benefits are spiraling out of control up north too.   Instead, Santa pushed the work off to the moms and dads of generally good girls and boys.

He will still set things up for the really, really nice kids; the ones who never (ever) pout or cry.  The medium nice kids have to pay for services.  And, he’s thinking more about cash than cookies.

Santa thinks distributors, now more than ever, need to understand the cost of the value-add stuff they provide.  As a matter of fact, Santa took time to make one last point.  The great bearded one strongly recommends that distributors everywhere read Frank Hurtte’s The Distributor’s Fee-Based Manifesto. He won’t be placing this book under your tree because he still remembers that incident at the golf outing last summer (Santa really does keep track of these things).  Naughty and nice applies to everyone.

But, even the naughtiest distributor can order the book in time for Christmas.
It’s on Amazon.


Now a word from Santa’s longtime friend and veteran of five seasons of niceness:
December is a joyous time of year.  Whether you celebrate Christmas (I do), Hanukkah’s Festival of Lights (many of my friends do) or anything else, I hope you are blessed with time for friends, family and fun.

And, my Grandpa and Santa really were close friends.

Internal Control Systems (PAPAMOSS)

The primary objective of this posting is to critically discuss and explain each element of PAPAMOSS in detail, with some practical examples given to facilitate a clearer understanding. I noticed that there are lack of detailed notes available online nor in books about this topic, so I decided to do some researches and write about this PAPAMOSS’s concept. By the way, this topic is examinable in ACCA examinations (e.g. P1 & P8). Seriously, I hope that this posting can help you to understand the concept better. Kindly share this information with your friends, if you find that this is useful. In addition, if you have any comments which can improve the content of this posting, please do leave a message below.

Internal control systems

                As defined in Paragraph 4(c) of ISA 315, internal control is “the process designed, implemented and maintained by those charged with governance, management and other personnel to provide reasonable assurance about the achievement of an entity’s objectives with regard to reliability of financial reporting, effectiveness and efficiency of operations, and compliance with applicable laws and regulations.”

                     It includes all the policies and procedures (internal controls) adopted by the directors and management of an entity in order to achieve their goals of ensuring, as far as practicable, the orderly and efficient conduct of its business, including: adherence to management policies; safeguarding of assets; prevention and detection of fraud and error; ensuring the accuracy and completeness of the accounting records; and timely preparation of reliable financial statements (Kan, 2013; Kwok, 2005). Auditors generally seek to rely on the internal controls within an entity to reduce the amount of testing on final balances.

              Interestingly, the eight features of an internal control system are popularly known through these two mnemonics words, namely “PAPAMOSS” or “SOAPSPAM”. The eight features are:

Physical control:

This is mainly concerned with the custody and protection of assets such as cash and inventories. It involves tight security measures and procedures to ensure that only authorised personnel have access to the records and assets. For examples, the installation of fences, gates, doors as well as the use of locks and keys.

Authorisation and approval control:

No transactions should be carried out and no documents should be processed, without the approval or permission from an appropriate and responsible person. Approval like signing must be done with consent. Not only that, limits on authorisation should be clearly specified too.

Personnel control:

These are procedures put in place to ensure that staffs have capabilities commensurate with their responsibilities. Kan (2013, p.162) highlights that the hiring of well-motivated competent employees, who have the required integrity for their tasks, will ensure that the control system operates properly. Most importantly, the consideration here should stress on the qualification, selection, training and the worker’s innate personal characteristics. Besides, big companies usually have their own dress code systems which require personnel to wear specific attire or uniform in order to indicate a personnel’s rank or department.

Arithmetical and accounting control:

Persons in charge should ensure that all transactions have been authorised before they are sent for recording and processing purposes. After that, the persons in charge must check whether they got left out anything and make sure that all transactions are correctly recorded and accurately processed. Such controls may include checking the arithmetical accuracy of the records like control accounts, cross totals, reconciliations, trial balance and sequential controls over documents.

Management control:

These are the controls exercised by the management outside the daily routine of the system. For example, overall supervisory controls, review of management accounts, budgetary controls, internal audit function and other special review procedures.

Organisational control:

Kan (2013, p.162) states that a well-defined organisational structure shall show clearly how responsibilities and authorities are delegated as well as identify lines of reporting for all aspects of the enterprise’s operations. A tall organisational structure usually has a narrow span of control where managers can manage their subordinates easily but communication might be distorted due to higher level of hierarchy plus employing many managers is costly. Research organisations normally have these characteristics. Conversely, a flat organisational structure has a wider span of control where managers have fewer time to supervise all their subordinates but there will be lesser distortion in communication as the hierarchy level is shorter plus subordinates are cheaper to hire as compared to managers. This is common in manufacturing industries (Jones and George, 2003, pp.311-312). 

Supervision control:

Supervision by responsible officials of the day-to-day transactions and the recording thereof is an integral part of any control system. For instance, management accounts are reviewed for reasonableness by a qualified accountant. Centralisation might facilitate supervision across management.

Segregation of duties:

Ideally, responsibilities and duties must be separated to a number of people, so that no individual can fully record and process a transaction completely. Furthermore, it reduces the risk of intentional manipulation or mistake and increase the element of checking. Functions which should be separated include authorisation, execution, custody, recording and so on. However, if collusion takes place or if people work together to circumvent the system, then segregation of duties may be ineffective as this situation often making fraud difficult to detect (Gray and Manson, 2011, p.282).  

Conclusion

            It is noted that significant deficiencies in internal controls shall be communicated in writing to those charged with governance in a report to management. The written communication should include a description of the deficiencies and their potential effects. ISA 265 requires auditors to find out the number of identified deficiencies and their relative significance. Auditors may also provide suggestions for remedial action.

References

Gray, I. and Manson, S., 2011. The audit process: principles, practice and cases. 5^th ed. Australia: South-Western Cengage.

Jones, G.R. and George, J.M., 2003. Contemporary management. 3^rd ed. New York: McGraw-Hill.

Kan, E., 2013. Audit and assurance – principles and practices in Singapore. 3^rd ed. Singapore: CCH.

Kwok, B.K.B., 2005. Accounting irregularities in financial statements: a definitive guide for litigators, auditors, and fraud investigators. Aldershot: Gower Publishing Limited.

Admit it, Your Company Newsletter is BORING!

Distributor Newsletters, Naughty or Nice—You be the Judge
We’ve been analyzing a bunch of Distributor newsletters and blog sites lately. Yep, just like Santa, we’re quietly watching you to see who has been naughty and who has been nice.

We’ve learned a valuable lesson. Watching nice boys and girls at work is fairly boring. Poor old Santa probably gets much of his weight problems from eating while he’s bored stiff. There’s nothing exciting about nice.

Have we been sniffing Christmas tree needles again? No, there is a point to this.

The Nice Distributor Kids fill their newsletters and blogs with product facts, specifications, and catalog cut sheets. This is what the customers are supposed to want, right?

Well….we don’t think so.

Reading through the product spec sheets disguised as distributor newsletters is so dull, even Santa would find himself chugging down a dozen cookies and warm milk to get through them.



Customers who are probably only marginally interested anyway are definitely going to give them a couple of seconds before their finger starts hovering over the delete key. Add in another stock picture captured from a catalog and they’re going to laugh with glee as they send your information twirling down the toilet into their trash file.

People want to be entertained. People want to be amused. People want to get mad, sad, or feel something in response.

And now a word from Santa’s Helper, Elfy Obvious: Customers are people too!

Finally, a word from the Jolly Old Elf himself---
Include your personality in your blogs and newsletters. And, if you don’t have a personality, ask Santa to bring you one.

And, speaking of lists; Santa probably won’t be brining you a 2014 business plan. If you don’t have a plan for a marketing newsletter, better add it to the master plan.


Now without further ado, here is a poem to kick off the Holiday Season:

Twas a mid-week morning, quiet with peace,
When Assistant Elf shrieked, “good gravy, look at these!”
Fearing the worst, I ran to her desk,
“This newsletter is boring, who would send such a mess?”

She was right, just like always, (since she’s typing this up,)
But this business is just not full of much fluff.
The newsletters, blogs, social media and ads
Just don’t pack a punch with reader ladies and lads

You see we’ve been searching and researching the net,
Through the email, Twitter, Constant Contact we get,
And what we’ve been finding is tough to admit,
Is facts, and numbers, and boring bull-- hockey.

Where’s the fun, where’s the humor?
Let’s shake this old rumor
That distributors are dull, lifeless and boring
Let’s keep them reading, engaged and exploring!

“But why would we do this?” the masses cried out,
We’re serving our customer, no need to branch out!
The truth is you’re making it on hard on yourselves
Personality is easy, it’s just not on your shelves.

Give your readers fun news, along with the stats
Help them get to know you beyond just the facts.
Run a contest, tell a joke, give them something to treasure,
They’ll find value in your antics, while hard to just measure.

Nice elves give stats, stock photos, and codes
Naughty ones do too with stories and odes
Keep your readers from hitting the dreaded DELETE
Give them something they’ll want to “Like” and re-Tweet.

Santa will expand on this for good girls and boys,
In the following weeks, we’ll consider them toys.
Examples of what makes us shudder in fear,
And how to exchange them for messages worth cheer!

If you want to get working, but don’t know how to start
Just drop us a line, and we’ll tear it apart.
Your blog, your newsletter, and all in between
I’ll be the gentle one, Assistant Elf is quite mean.

Check out Assistant Elf dancing through our office!

Santa says to remember our Holiday special running through the end of this month!  Get a printed copy and shareable copies of Frank's book on Annual Planning.

One on one telephone coaching session with Frank is also included for $300!  Appointments are filling up, grab a spot while you can!

Who's the Bank?

Distributors as Bankers?

High interest rates must be on a lot of peoples’ minds these days. During the past month I have received several emails asking my opinion on the distributor’s role as the extender of credit; the organization providing some of the funds necessary for their customers’ operating capital.

Let’s look at the current situation: customers who expect extended terms seem to be multiplying like cockroaches in a roadside diner. In the good ole days, customers paid their local supply house distributor at the end of the next month. Some of us even offered special discounts for those who paid by the 10th of the month.

Somewhere in the late 1990s, a number of large companies (reportedly led by GE) unilaterally made the decision to pay their local distributors in 60 days rather than the normal 30 days. The conversation went something like this:
“The time and effort required to process your invoices takes us longer than 30 days. So, we’re going to start paying in 60 days. If you want our continued business, you’ll accept this policy.”

What’s a distributor to do? This big company represents important revenue; the interest rates were/are relatively low, what the heck- why not just absorb the cost of the extra days?

Fast forward through a decade and a half, and we find the typical distributor’s A/R portfolio contains dozens of companies paying in 60 days and a few who pay in 90 or even 120 days.
(For those of you shaking your heads on the 120 day thing… there are whole industries where 120-day payment is standard.)

Regular readers know I am a big fan of Abe Walking Bear Sanchez, who promotes credit as a business attractant. Mr. Sanchez suggests credit costs are just part of doing business.
I agree, however, I see a shift going on.

More and more customer organizations are coming up with excuses to pay under extended terms. The list of excuses is long but here are a few we have heard:

“Our projects take several months to finish so we don’t pay until the project is complete.”

“We pay our suppliers when we get paid from our customers.”

“All of our A/P work is done at our headquarters location, so it takes us extra time to handle your invoices.”

“Our company only does business with 60 day terms.”

At the same time, distributor supply partners require straight 30 day payment. As customers continue to push for longer payment terms, distributors lose what my dad’s generation used to call “the inventory float”. This was the time he had to sell product before he had to pay his supplier. He often made large purchases and sold them on a cash basis within days of receiving the inventory. The margins generated helped cover the cost of the inventory.

Today we see this “float” going away.

As long as interest rates remain low, the costs of supporting the inventory costs for an extra 30 or 60 days are relatively insignificant. However, an uptick in interest rates could create a negative impact on the distributor business model. And, the impact affects not only stock sales but sales made directly from supplier to customer.

As we move forward (and watch interest rates available to distributors) it may be time to examine the following:
• Is it time for lending institutions to take a new look at how they value distributor A/R numbers? Many currently seriously discount any accounts over 60 days. In a world where large companies are dragging out their payment days, is there any magic in the 30 day number?
• Should suppliers change the terms on products sold to distributors? Does it make sense for distributors to finance the manufacturer’s gross margin? Do supply partners realize how this spread in payment might impact a distributor’s ability to finance growth?

Your thoughts?