The EPTDA Distribution Forum

1. The EPTDA Distribution Forum

2. The EPTDA Distribution Forum Facilitator JEAN-MARIE FINK

3. Introducing The EPTDA Distribution Forum • Introduction by Jean-Marie Fink • Presentation by Ulrich Liedtke, Managing Director of WürthElektrogroßhandel GmbH & Co.KG: “Developments in the electrical wholesale market – food for thought?” • Customers’ Expectations • Inventory Management post recession • People Management today

4. 21st Century Customers’ Expectations

5. 21st Century Customers’ Expectations • The basic contract between a distributor and his customer is about delivering • The right item • At the right time • At the right price • SEEMS EASY • But … • Internet offers • Crisis • Purchasing prices increases • New entrants • MAKE IT LESS EASY

6. 21st Century Customers’ ExpectationsDistributors’ & Customers’ price sensitivity • Income Statement For the typical European PT/MC Distributor • SALES 100 • COGS 75 • GM 25 • ALL COST 22 • PROFIT BEFORE TAX 3 • 2 cases : • Price increase of 2 %  COGS = 75 x 1.02 = 76.5 • PBT = 100 – 76.5 = 23.5 – 22 = 1.5 • Price decrease of 2 %  COGS = 75 x 0.98 = 73.5 • PBT = 100 – 73.5 = 26.5 – 22 = 4.5 A small variation of COGS has a big impact on PBT

7. 21st Century Customers’ ExpectationsDistributors’ & Customers’ price sensitivity For the MRO Customer • Price = 25 to 33% of the full cost of a replacement order (acquisition cost) • So price is not so important to the customer of the distributor as for the distributor itself • Even if price has become again very important since the customers want to pass over as much of work as they can on the distributor = good bargaining position

8. 21st Century Customers’ ExpectationsInquiries on customers show the following hierarchy of expectations

9. 21st Century Customers’ ExpectationsConclusions Customers have downsized, decreased staff & resources during the recession Therefore your CUSTOMERS outsource more and expect you to deliver up to their expectations. You have to provide them with : • CUSTOMER INTIMACY • Know your customer, • How he has changed during the recession; • Actual issues. • GO ONE STEP FURTHER THAN JUST PRODUCTS • Life cycle monitoring; • Electrical motors or products recycling; • Repair of damaged components (spindles, linear motion). • PROTECT YOUR MARGIN • To stay long in the market

10. Inventory Management Post Recession

11. Inventory Management Post-Recession • Average income structure for an EPTDA Distributor today: • SALES 100 • COGS 75 • GM 25 • Inventory 22.5 (almost like GM) • Inventory turn /Sales 100/22.5 = 4.44 X • But 12/4.44 = 2.7 Months of sales • Inventory turn on COGS = 75/22.5 = 3.33 X • And 12/3.33 = 3.6 months of COGS • Number of articles between 100,000 on stock and 1,000,000 on record.

12. Inventory Management Post-Recession • There are 2 Basic adverse trends : • Given the actual banking environment and cost of money inventory investment is wanted as low as possible,’ • The recent increase in business since 2010 justifies an increase in stock to respond to growing customers demand and maintain a good level of customer service, BUT • What is before us? • Can we manage properly our inventory in such uncertain times? • In this part of the forum we will try to answer some of the basics of inventory management.

13. Inventory Management Post-Recession • 3 Main Issues: • Inventory Financing • Inventory Optimisation • Warehouse Management

14. Inventory Management Post-RecessionConclusions • DON’T PLAY CASINO any more with your inventory (hoping for supplier increases to have more value in the stock) and question your replenishment software. • Downside : Less quantity on stock orders means more orders of smaller quantity = more administration costs. • Look on inventory turns by segmentation of products (A, B, C, D etc). • SELL SERVICES • Your customer has the same problem as you and wants to increase his ROCE (Return on Capital Employed) by cutting his inventory and general maintenance costs. • Sell him solutions : VMI = VENDOR MANAGED INVENTORY • And don’t forget SMI = SUPPLIER MANAGEMENT INVENTORY • SEND OUT OF YOUR CENTRAL WAREHOUSEand minimize inventory locally. • You will have better chances of optimizing your inventory.

15. People Management Today

16. People Management TodayThe importance of people • Average income statement of European PT/MC Distributors • SALES 100 • COGS 75 • GROSS MARGIN 25 • COST OF PEOPLE 12.5 = 50% OF GM • ALL OTHER COSTS 10 = 40% OF GM • PROFIT BEFORE TAX 2.5 = 10 % OF GM OR 2.5 % OF SALES • COST OF PEOPLE Fix cost (difficult to reduce) • So, people are • Number One COST Or • Number One INVESTMENT

17. People Management TodayThe importance of people • People Management & Development - key issue facing businesses • Today • Global unemployment rate in the EU = 9/10 % (some countries up to 20%) • In the crisis period many distributors had to reduce their workforce (the youngest?) • Retirement age is going to hit a high number of people in the distributors organisations an those are the most knowledgeable

18. People Management Today The importance of people • There are 3 basic actions about people • Hiring • Rewarding • Retaining • Which best practices can we deploy ?

19. People Management Today Conclusions People are our most valuable asset and our highest cost. • SEARCH THOROUGHLYthe new entrants in your company. • Initial expenses will be paid back if you hire the right people fitting into your organization. • TREAT YOUR PEOPLE THE BEST • You can this way retain them inside your firm (find the right incentives); • BUT …. Select carefully those who will stay (yearly assessment). • TRAINING, TRAININGand more training to enhance the capabilities of your team and make them better “profit centers”. Adapted training by : • Segmentation of trainees (young, mature, senior); • Differentiation of content; • Giving some sales techniques for the product.

20. The Distribution Forum Taskforce

21. The EPTDA Distribution Forum Task Force JEAN-MARIE FINK JMF Consulting THANK YOU DR MATHIAS SAHLBERG Sahlberg GmbH & CO. KG FRANK BORGMANN Henkel AG & Co. KGaA