Diagnostic Consultative Sales

Productive salespeople often make the difference between company success and failure. The best approach to driving sales productivity should be focused on the interaction between the salesperson and the customer.

Salespeople used to simply disseminate information about their companies, by phone, mail and in person. The Internet made that “information delivery” role almost entirely obsolete and practically eliminated the need for a salesperson, if the product was a commodity that could easily be purchased from more than one vendor. Today’s transportation, logistics and supply chain solutions customers can retrieve product information effortlessly. They can electronically optimize shipments, tender loads, schedule pick-ups, check delivery status in real time, contact customer support, bill their customers, pay their carriers and so forth. The salesperson used to play the intermediary in at least some of these activities. These activities are no longer a part of the salesperson’s domain.

Ironically, the availability of information has made buying decisions more difficult, particularly when the product or service being purchased is sophisticated or has business implications that require a certain amount of experience to understand. For example, many business owners would happily order their office supplies online, but wouldn't want to purchase their complex logistics solutions, TMS, WMS, or other enterprise software the same way.

Sales professionals today must help their customers understand and solve problems. This requires a deep comprehension of a customer’s core business issues. Sales professionals must now possess the technological savvy needed to creatively and appropriately use new tools to streamline the sales process and generate profitable transactions.

Today’s sales professionals must learn to manage the complexity created in the buying process by the explosion of information and the need to undertake more sophisticated, often strategic, purchases. Salespeople must often shoulder the burden of responsibility for the diagnosis of the customer’s problem, the design of solutions and the assurance that whatever has been purchased works well.

Consultative sales is evolving, from a model in which salespeople ask questions about the customer’s needs to one where they do not assume that the customer has a complete understanding of the problem. In the past, the role of the salesperson was to understand the customer's expressed needs and to present his or her products as the best solution to them. The underlying assumption was that customers could diagnose their own needs and describe their desired outcomes.

Recently, a newer diagnostic consultative model has been developing, that assumes customers may not recognize that a problem exists. The salesperson examines the customer’s business situation, locates the root problems that are causing that business to run less effectively (in conjunction with the customer) and proposes ways to work with the customer to address the root problems. The result is a solution that the customer would not design, or request, if it were left to them alone.

Good consultative salespeople get to know and understand the customer so well that the product or service fits him and sells itself. Ideally, a good match between needs and benefits provided should result in a customer who is ready to buy.

The Case for a Business Case in Complex Sales

For complex logistics solutions salespeople, it is usually best to deal with the executives in an organization whenever possible, in order to avoid the process of getting a budget approved.

However, quite often the manager to whom you obtain access in an organization is not someone who can approve funding for the project. They may perceive the need to use your company’s services, but must first develop consensus within their organization about the need or timing for the project and obtain funding. Quite often the transportation department is competing against other departments for limited funding and the funding decision may be based on who has the better business case.

If you are a salesperson who inspires a buyer to initiate a particular type of project within their company, then you will have a head start on your competition with this prospective customer. In order to increase the chances of obtaining this customer’s business, the salesperson should offer assistance to the prospective buyer in crafting a business case that will be presented to the executives who will approve/reject the project’s budget.

Shortening the sales cycle is important. However, it is also important to deal with each prospective customer in a way that respects the way in which their company makes decisions. Speaking to the Traffic Manager of a company first and addressing the specific details with which he/she is concerned sometimes works better than speaking with the top executive in a broad brush and generalized manner. It is important that salespeople both think conceptually in order to discuss the high-level concerns of upper management, as well as think practically to solve the nuts and bolts problems associated with moving freight efficiently.

If you do speak with the front line people first (who may see a need to get a budget approved for your company’s services), you can then help them to write a convincing business case that explains the need, costs and benefits to the people who approve the budget.

Contents of a Business Case:
Outlined below are the chapters and contents of a typical report.
Executive Summary
Summarize the salient points in no more than 2 pages
Background
Outline the problem, opportunity, and current situation.
Project Description
Describe the proposed project in terms of size, function, location, approximate cost, technology, timing, and stakeholders.
Strategic Alignment
Summarize how the project aligns with the specific and published goals and strategies of primary stakeholders, especially organizations approving funding.
Environmental Analysis
Assess what similar organizations are doing to solve similar problems.
Summarize industry trends pertaining to solutions that meet the problem or opportunity.
Impact Assessment
Identify the types and severity of impacts on stakeholders for the preferred alternative (yours) and at least one other option.
Risk Management
Identify risks inherent to the project, the seriousness and probability of the impacts and the main risk management strategies proposed to manage the risks.
Costs and Benefits
Estimate capital, operating and recurring capital costs, and revenues for each viable alternative solution over an appropriate time frame, but no less than five years.
Identify both quantifiable and qualitative benefits for each viable alternative and for the preferred alternative, and indicate which stakeholders receive the benefits listed.
Conclusions and Recommendations
Summarize key findings from previous sections leading to selection of a preferred alternative and outline specific recommendations to the funding approval authority concerning how much funding is required and over what timeframe.
Implementation
Describe how the project implementation will be organized and controlled.
Approval
Outline the approval process and prepare a signature page for the legally authorized sponsor(s) to approve the business case, include complete name, title and organization of each signer.

Measuring the ROI of Logistics-Related IT

Attempting to measure the ROI of the intangible benefits of logistics-related IT services seems to indicate a need for new metrics that measure more than just the cost and savings of the investment. These new measures should focus on such things as how the service speeds up business processes, improves communications, increases customer satisfaction and assists in decision-making and quality control. These factors reflect performance improvements and what is important to customers, not simply short-term cost savings.

One such method is based upon measuring how current IT investments increase an organization’s options in the future. It is either called Option Valuation, or Modern Portfolio Theory, depending on your source. This method looks at the opportunities that a project creates for additional projects in the future, as an option value that should be added to the project’s other benefits.

There is another method called Real Options. Real Options is slightly different from the method I just mentioned. Its emphasis is on the timing of a project launch or systems upgrade, in order to take advantage of changes in cost savings, quality improvements or market conditions.

There is yet another simple method for measuring future benefits, called Expected Value. Expected Value multiplies the size of the expected benefit of a project by the probability of its occurrence. However, this approach does not provide an estimate of the option value of a project, regarding whether or not a current project makes other future projects possible.

Value Analysis is a method that involves several steps, but is centered on the idea of using low-cost prototypes to determine a rough benefits-to-costs ratio. If the decision-maker feels that the system can provide enough benefit for the cost involved, development proceeds on a full-scale system.

Information Economics is an approach that uses organizational goals to determine which factors are included in an analysis of potential benefits. This method then assigns weights to each factor related to the achievement of the relevant goals. These factors and weights are then used to evaluate the IT alternatives.

Net Present Value (NPV) is still the most commonly used discounted cash flow (DCF) method and is considered the most accurate measurement of future value in today’s dollars. A different DCF method, the Economic Value Added (EVA) approach, takes “cash-adjusted operating profit minus the cost of capital used to produce earnings”. Both of these methods leave the measurement of intangibles mostly up to the clients, while returning the IT department to measuring cost.

Ultimately, old ways of measuring ROI cannot be abandoned when attempting to determine the benefits of logistics IT. Rather, measuring cost savings is sometimes still the easiest way to measure the benefits of an IT project (and measuring the present value of the future cost savings is the most accurate way to depict those savings).

Aphorisms

1) Be kind to others, even when they don't deserve it.
2) Faults will turn to good, if you try to improve.
3) Discouragement serves no purpose. It is self-pity.
4) Boldness has genius and power in it (Goethe).
5) You create your circumstances out of your thought and actions.
6) Change is constant.
7) Timing is crucial.
8) Cool heads prevail.
9) Do what you know to be right.
10)Have fun.

Improving Logistics Improves Your Business

Improving logistics is vitally important, if a company wants to stay profitable in today’s economy. Today, it is more important than ever that a company produce a great product and deliver it at the lowest possible cost. Many companies fail to recognize the impact of logistics improvements on revenue growth, operating expenses and capital utilization. Concentrating on logistics can improve growth and increase market share. The role of logistics in driving growth and market share is increasingly understood and accepted.

Operating Cost Reduction has been the most common area of focus and the area of greatest measurable logistics value for most companies. It has been the primary driver of TMS and WMS implementations and other logistics technology. The most common sources of value relative to cost reduction are:
1) Transportation expenditures
2) Administrative costs
3) Distribution and Fulfillment labor costs
4) Total network expense
5) Inventory carrying costs

Working Capital Reduction is also an important benefit that your business can derive from improved logistics. Improving logistics can have a significant impact on both financial performance and shareholder value. Working capital reduction should be of prime interest to all corporations, as it has a direct link to shareholder value. Logistics can affect working capital in many ways:
1) Increased inventory turns
2) Reducing receivables through improved order accuracy and information completeness.
3) Reducing safety stocks and network inventory levels
4) Improved cycle times, which increase inventory turns and accelerate the cash-to-cash cycle.
Supply chain and logistics excellence is increasingly defined by process velocity. Delivery speed, or the ability to reduce the time between order taking and customer delivery to as close to zero as possible, is one of the key goals sought by today’s organizations.

Return on Assets (profit divided by fixed asset value), is one of the primary metrics targeted for improvement as a result of supply chain management initiatives. Improved logistics directly improves a company’s Return on Assets. Better distribution efficiency and throughput can reduce requirements for capital for physical facilities and equipment (lowering the asset base), while simultaneously increasing the profit from distribution center operations. In this way, both the numerator and denominator of the ROA ratio are positively impacted.

Attempting to measure the ROI of the intangible benefits of logistics services indicates a need for new metrics that measure more than just the cost and savings of the investment. These new measures should focus on such things as how improvements will speed up business processes, improve communications, increase customer satisfaction and assist in decision-making and quality control. These factors reflect performance improvements and what is important to customers, not simply short-term profit.

Improving your logistics strategy (combined with operational excellence) will provide measurable benefits for your company, as well as for your partners and customers.

Collaborative Logistics Networks

Collaborative relationships between shippers and carriers (and between shippers) should result in greater efficiency and profitability, while satisfying the interests of all parties. An ideal collaborative logistics network should promote a high degree of visibility and activity coordination between multiple shippers, carriers, ancillaries and third-party providers. This results in optimum utilization of assets and benefits for all trading partners.

Collaborative networks employ customer-centric tools like tracking and tracing, which can be leveraged by the transportation service providers to better implement strategies like cost effective route planning, dynamic routing and rerouting. These networks can provide considerable savings on fuel, driver scheduling and help to avoid traffic congestion.

Shipper to shipper collaboration can mean co-loading trucks to make same route deliveries or co-occupying warehouses. Carriers gain by keeping their assets moving and full, assured of regularly scheduled assignments and hence dedicated revenue streams.

Unfortunately, I don't know of any examples of ideal collaborative logistics networks.

The ideal network should provide shippers with the mode and carrier that offers the best rates within the prescribed transit times. Unfortunately, I know of no optimizer currently on the market that does a good job of optimizing between LTL and parcel. This seems like a limitation that could be (may have already been) overcome by some software/application service providers.

There is another problem with providing this high level of optimization, tracking and tracing. The networks currently capable of providing this level of IT sophistication must force their members to operate within their four walls. I wonder how the same goals can be accomplished, while opening up the network to a much larger group of shippers, carriers, third parties and ancillaries, such as warehouses?

Any ideas?

Quality, Service and Cost

Over the past several years, the emphasis at most freight transportation companies has been placed almost exclusively on cutting costs and providing lower pricing to customers. Necessity forced most companies to concentrate on cost cutting and lowering pricing. Smart companies only made cuts that didn’t damage their ability to provide quality and service to their customers.

The three critical success factors are service, quality and cost. We have some degree of control over all three of them, but have the most control over the way we treat our customers. This is an element of the service factor. In freight transportation, it is at least as important as product quality (good transit time, low claims ratio, etc.,) and low cost. It is hard to say which of the three critical factors are the most important, but we can always control how we treat our customers, even when costs and quality aren’t meeting our standards.

Quality exists when a product or service meets customer expectations, at the minimum. It increases as customer satisfaction increases. In order to retain existing customers and attract new customers, an organization must produce high-quality products and/or services. If quality is poor, a company must identify the problems and bottlenecks, redesign their products/services, or lose customers by allowing their products/services to be sold as less than acceptable. Therefore, when quality is poor, costs increase and customers are lost. Talking about quality is common in most firms and a great deal of time is devoted to quality discussions at meetings. However, unless concrete steps are taken to improve quality, it will not improve.

The traditional view assumes that improving quality always trades off against lowering costs and that costs will increase with attempts at quality improvements. The quality-based view believes that firms should always try to improve quality and that higher quality products/services pay back the costs required to get them. Improving quality may initially increase costs, but quality improvements reduce costs in the long run.

The cost of lost customers cannot be exactly calculated. The lost revenue from each lost customer can be approximated, as well as the costs associated with securing new customers. However, the damage to a company’s reputation cannot be easily approximated. Once a reputation is damaged, it is very difficult to repair the damage, even if quality is improved. Companies with bad reputations must offer lower prices to sell their products than do companies with better reputations. Delivering products and services that meet or exceed customer expectations is essential for the survival of a firm today. Exceeding customer expectations may lead to your company becoming a preferred provider for your customers. In the long run, quality improvements pay for themselves.

It is hard to say which of the three critical factors are the most important; quality, service, or low cost. Freight transportation firms should continuously try to improve all three. Higher quality products/services pay back the costs required to get them. Improving quality may initially increase costs, but the quality improvements reduce costs in the long run. Cost cutting is necessary and healthy, as long as you’re not cutting too deeply. However, price slashing will not help your company to grow in the long run. Finally, we can always control customer service (how we treat our customers), even when costs and quality aren’t meeting our standards.

Pursue Outside Interests to Promote Innovation

Thag fell down while trying (for the tenth time) to balance himself on a small log. This fun, new pastime gave him a great idea! He applied the concept of falling off a rolling log to solving the problem of how to move a boulder blocking the mouth of his cave. The invention of the first wheel was almost certainly such an application of an existing concept to a new or unrelated problem. Because Thag had the ability to view his boulder problem in a new way, he could creatively solve the problem. Thag applied concepts learned in one area to another area. For this reason, cultivating interests unrelated to your job can make you a better problem-solver at work. You learn to see things from different points of view.

Innovation is one of the primary ways that companies adapt to changing circumstances. It is necessary to be flexible in order to adapt to complex, changing situations. Methods and techniques can get out of date in a short period of time. Over time, firms that survive are better at adapting to change. Extinct firms could not adapt.

Innovators rarely come up with new ideas. Instead, they convert old ideas into new ones, adapting them from one context to another. They go through a process of extending and changing the existing idea, until a new concept emerges. Cultivating various interests can lead to the application of concepts used in solving one type of problem to other, seemingly different problems. For instance, solutions such as M.B.O. (Management by Objective) were popular in the business community several years ago. Soon, M.B.O. was adapted to colleges, religious organizations, clubs and other groups that wished to accomplish goals. Likewise, concepts used to solve problems in areas unrelated to work might be applied at work.

Being saturated in a corporate culture can inhibit the creative thought process. Sometimes being immersed in a certain culture limits a person to what everyone else in that group views as possible, or acceptable, thoughts and behaviors. Perspective is gained by allowing oneself the time to reflect on a situation from various points of view. Seeing the world through the different lenses provided by various interests allows you to question previously held assumptions. Questioning established beliefs helps you to view everyday work situations differently and so leads to possible creative solutions to your company’s problems.

Use your spare time to cultivate interests unrelated to work. Play is as important for adults as it is for children. It will pay off by making you a better employee and a more creative person. It may cause a change in the way that you react to the problems you face each day. Problems really can be viewed as opportunities. Don’t allow yourself to always focus narrowly on the technical details of your job. Try to relax your focus in your spare time. Improve your ability to adapt to change.

Managing Sales Opportunities

Managing Sales Opportunities
For complex logistics solutions sales, the customer is often not a single decision-maker. This means the sales process can be prolonged and complex. The justification for any major initiative now receives intense scrutiny, often resulting in extended sales cycles, numerous selling hurdles, and deferred decisions. In order to train salespeople to deal as business consultants, or strategic orchestrators, when dealing with complex sales, you must teach salespeople the following:

1) Teach salespeople to choose target accounts, based upon many criteria. These criteria include such factors as the size of the account, the level of contact they have at the company, or whether there is an existing relationship with our employer that they can leverage.
2) I encourage them to develop a close relationship with people at more than one level of the decision-making group.
3) Teach them to think conceptually in order to discuss the high-level concerns of upper management, as well as to think practically to solve the nuts and bolts problems associated with moving freight efficiently.
4) Teach salespeople to ask targeted questions, in order to learn about the needs of a customer, using a diagnostic, consultative approach. This approach allows the customer to address more concerns than simply the issue that initially drew attention to the company as a target.
5) When we determine needs that we can satisfy, we begin develop a solution with the customer, using our existing suite of services and standardized IT systems, where possible. Teach salespeople that over-customization does damage to profit margins. It is why most third-party logistics companies now face declining profit margins.
6) Teach the salespeople to work towards closing the sale through insuring that the customer takes part and “buys in” through each step of the solution development.
7) Teach that as the relationship matures into the retention phase, the account becomes very profitable if it is retained. Good account management is important to avoiding the “customer churn” that many transportation companies experience.

The decision to buy is the result of a long process of investigation, consideration, and review. To be able to market and sell effectively and to make the best use of your resources, it is important to understand how your customers and prospects buy and to recognize which stage of the cycle they are currently in. Although your customers and prospects may vary in size, most companies share a common buying cycle. The buying cycle typically moves through four key stages:
Identify a business need.
Research a solution.
Design and evaluate different solutions.
Purchase

The important measures to consider are the conversion ratio, the quality of business wins and account retention. Sales and Marketing activity needs to go beyond stimulating interest. It has to play a crucial part in all stages of the process through closure and account retention.

Place greater emphasis on the whole sales process, ensuring that all parties communicate with consistent messages that adapt to different stages of the buying cycle. The process of managing sales opportunities with long sales cycles recognizes the role and relative importance of different influencers and decision-makers.

To drive the sale toward conclusion you need to develop a program that successfully builds relationships before, during and after the sale. You must also continue to qualify the process all the way through. If the process works properly, the final negotiations are more of a formality than a sales pitch. The decision has often already been made. The initial contact, discovery, the proposal and discussions, presentations, and explanation of the implementation process have all contributed to a sales process in which the decision-makers recognize the value of what your company has to offer.

Create a Core Value Proposition
The purpose of a value proposition is to identify and satisfy an unmet need in your target market. Examples might include:
To help customers increase their revenue
To help customers decrease their costs
To help customers increase their profitability
Effective value propositions create a strong differential between you and your competitors. They also help to align your business operations more closely to customer needs. It is essential for the sales team to create a unique value proposition that fits individual customers’ specific needs. To be successful, you need to present the value that means the most to each individual at the time the decision is being made.

Speak to All Decision-Makers
Develop close relationships with people at more than one level of the decision-making group. Train salespeople to think conceptually in order to discuss the high-level concerns of upper management, as well as to think practically to solve the nuts and bolts problems associated with moving freight efficiently. The objective is to ensure that your communications build understanding among all decision-makers. When the decision-makers are working as a team in your favor, you stand a better chance of obtaining the business. Each decision-maker will have his or her own agenda. However, you should encourage a collaborative decision-making process that recognizes your company’s wider contribution to the customer’s overall success.

Customer Input
The lines between companies and their customers are becoming increasingly blurred. Customers should interact easily and participate in product development and other processes. You should adopt an approach to customer relationships that encourages friendly cooperation and involvement, rather than the traditional supplier/buyer relationship. This approach can help position your company as an influential trusted resource.

Everyone is a Salesperson
Every point of contact between your company and the prospective customer is an opportunity to reinforce what you stand for, what you deliver, and how you differentiate yourself from competitors. Every employee at your company should act as if it is “their job” to help resolve the problems of the customer. Cross-functional teams assigned to larger accounts have been shown to help with working out issues that may require resources and/or agreement across several departments. Even in the absence of such teams, all employees should be coached in how to help customers by actively listening to them, in order to help solve their problems. Internal communications should therefore feature the same messages that you use in external communications.

Everyone is a Salesperson

A lot of people at a transportation/logistics company affect the customer experience and the perception that a customer has of the firm. The overall customer experience is often not managed well. The customer is then required to apply extra effort to navigate the organization to get things done, or get issues resolved. The more choices a transportation/logistics consumer has, the more pressure companies should feel to offer quality customer service.

Although it is good for customers to have a single point of contact (for simplicity), every employee at your company should act as if it is “their job” to help resolve the problems of the customer. Cross-functional teams assigned to larger accounts have been shown to help with working out issues that may require resources and/or agreement across several departments. Even in the absence of such teams, all employees should be coached in how to help customers by actively listening to them, in order to help solve their problems.

The brain changes as a function of where an individual puts his or her attention. It is the power of focus, sometimes referred to as attention density. Attention continually reshapes the patterns of the brain. People who practice a specialty every day literally think differently, through different sets of connections, than people who don’t practice the specialty.

Sales professionals have profound differences in perception from people in other functions, such as finance, operations, solutions, legal, marketing and human resources that cause them to see the world in a different way. One difference is the tendency for salespeople to see themselves as customer advocates. This is a tendency that should be shared across all of the functions of every company. Salespeople and managers should help to teach others at their company to become customer advocates. Everyone should focus on meeting the needs of the customer.

In addition, we should employ the same sales techniques used to gain insight into customers to gain insight into our fellow employees. Every one of us is a salesperson and everyone else is a consumer of our ideas and personality. Find out about other people at your company and be genuinely interested in them and their motivations, if you want them to take your ideas seriously. There is no substitute for being genuinely interested in what others think and feel. We should all practice listening to the ideas and opinions of others.

I don’t believe that a salesperson who is truly concerned about their customer’s needs has to be at odds with the people at their work who are trying to develop, price and produce the company’s product. Rather, salespeople should help others to put themselves in the place of the customer, by offering their insights in a way that does not convey a pride of ownership of the ideas. After all, they got the ideas from the customer. All everyone has to do is be willing to actively listen and be willing to work together to solve problems. The ultimate responsibility for securing customers may lie with the salespeople, but the gain (or loss) to your company that results from your level of success in retaining customers will be felt by all.

Over-Customization

Logistics companies have seen their profits shrinking over the past few years. In addition to the economic recession, there is another major reason why third-party logistics firms are experiencing declining profits. The industry’s business model consists of custom-tailoring technology solutions to the customer’s request and approaching new projects with all new designs and implementation. For this reason, the industry is trapped in a competitive, downward spiral of expensive project-by-project customization and declining profit margins.

Third-party logistics providers need to relax this customer-centric business model. To do this, they need to step away from the project-based approach in favor of a product-based model. Logistics companies need to define the services offered by their company, keeping them clearly differentiated and so more profitable. Bundling services is only a good idea if the company gets paid adequately for the all of the services that they bundle. By adopting a more disciplined and strategic approach to customization of their services, third-party logistics firms can pay more attention to their bottom line. They can reduce the complexity and cost that is generated by trying to be everything to every customer and so make their own company more profitable.

In the past, third-party logistics firms have been inefficient users of IT. For instance, poor integration of acquisitions and unnecessary use of outsourcing are reasons why some third-party logistics firms continue to support multiple IT platforms. This is a costly mistake. Unless these companies consolidate their IT systems, they will continue to face unnecessarily high cost structures and complexity.

Third-party logistics firms can take steps to solve these problems by providing customers with targeted responses to customers’ real needs that fall within the logistic firm’s domain of expertise. This approach requires training third-party logistics firms’ sales forces in diagnostic, consultative sales. It also requires admitting when your firm’s services cannot address all of the customer’s needs. Finally, third-party logistics firms should develop modular, high-value, IT-intensive products that sit on top of a common, company-wide IT infrastructure.

Economic hard times require innovation for companies to survive. You should put talented, imaginative people in an environment where they can introduce the kinds of ideas that will shake up the competition. However, you should also know when to “stick to your knitting”. Concentrate on what your company does best. Spend money to put only the best ideas into practice. Companies are often better off with only a small amount of innovation and a focus on operating efficiently.

Simple Sales Strategy

Listen to the customer. Understanding consumer needs and perceptions is the key to good strategic customer planning. Good companies will use both simple (point of service response cards) and sophisticated (customer focus groups) methods to find ways to improve their products and services in ways that are desired by customers.

Assess the competition’s market position, plans and strength. Competition has increased so much that achieving continuous improvement and exceeding customers’ expectations no longer assures faster-than-market growth in profits. It is the underlying strategy that will lead to sustainable competitive advantage. Accelerated profitable growth requires strategic cross-selling of the company’s transportation services (that the customer perceives are needed).

Stress Account Retention. Concentrate on how to be a preferred vendor and more profitable. As the relationship matures into the retention phase, the account becomes very profitable if it is retained. Sales and service costs drop because the customer and vendor know how to work with one another. If the account is lost, the profit stream stops. If the account was a fairly new one, the acquisition cost might not even be recovered. Customer satisfaction leads to customer retention, which provides the opportunity for account dominance or primacy. The long-term primary supplier typically gets higher realized prices. This may not be much as a percentage of sales, but it goes right to the bottom line. The preferred vendor also tends to have the ability to take a richer product mix with higher profit margins.

The salesperson plays a critical profit-generation role either in negotiating individually or in providing the information upon which headquarters-level executives make pricing decisions. In either case, diagnostic, consultative sales techniques are necessary to determine the customer’s needs. Pricing decisions are often clouded by customer threats and competitive activity.

The sales force, more than any other function, is responsible for profit-generation. If it falls down by choosing the wrong accounts, makes promises that can’t be kept, poorly manages the accounts or neglects its customer liaison role, the profit machine falls apart.

Productive salespeople often make the difference between company success and failure.

Pat Ryan’s “Optimal Mark-up on Cost Tariff” Synopsis

The price per mile to use as a base for a transportation tariff can be determined using an optimal mark-up on cost formula. This method not only considers all relevant costs, but takes into consideration the effect of price sensitivity of demand for a company’s services (the competitive factor). The resulting price per mile is not static, but is adjusted to be competitive, while seeking to achieve the average (mean) optimal mark-up on cost.

The equation for computing the profit-maximizing price based upon cost and the firm’s own price-elasticity of demand is:
___1__
P= MC (1 + 1/єp)

The relevant costs to be included in the calculation of this Marginal Cost figure (MC) are the differential costs per mile. These costs include all variable costs (but not all fixed costs) when a trucking company is not operating at full capacity. However, if a company is expanding beyond its capacity, all costs must eventually be included in the equation, as increasing capacity requires increasing fixed costs. All costs are differential in the long run.

When using the optimal mark-up on cost formula, knowledge of the own price elasticity of demand (єp) is the only estimate made in this formula. This estimate is needed for a firm to maximize profits. Own price elasticity of demand indicates what effect pricing changes will have on the firm’s revenues, based upon the amount of business that may be lost to competitors due to a price increase.

A shortcoming of some mileage-based tariffs is that the per-mile price produced by the formula is static and causes long-haul destinations to be uncompetitively priced (high) and short-haul lanes to be priced too cheaply. However, if the base rate per pound/miles is adjusted downward by some percentage from the optimal price as mileage increases from the average length of haul and upward by some percentage as mileage decreases from the average length of haul, a profitable tariff that is also competitive in the marketplace can be produced. Other adjustments should be made for metropolitan areas versus rural areas. In any case, the average rate per mile that customers pay must equal the optimum mark-up on cost rate.

From the optimal price per mile determined by the formula (applied to the average shipment weight and freight class), one would then extrapolate to all other possible weights and freight classes, by modifying the optimal price per mile, based (in part) upon the distance the shipment must travel. In order to extrapolate completely, to the other freight classes and weights, one would also need access to the National Motor Freight Classification Committee's relative freight class values.

This model for a tariff will retain both profitability and price competitiveness to all points, if it is created carefully. The resulting pricing structure will represent an LTL trucking company's own, unique class pricing system (based on their own costs & relative competitiveness), with rates that both provide enough revenue and are competitive in the marketplace.

Improving Logistics Improves Your Business

Improving logistics is vitally important, if a company wants to stay profitable in today’s economy. Today, it is more important than ever that a company produce a great product and deliver it at the lowest possible cost. Many companies fail to recognize the impact of logistics improvements on revenue growth, operating expenses and capital utilization. Concentrating on logistics can improve growth and increase market share. The role of logistics in driving growth and market share is increasingly understood and accepted.

Operating Cost Reduction has been the most common area of focus and the area of greatest measurable logistics value for most companies. It has been the primary driver of TMS and WMS implementations and other logistics technology. The most common sources of value relative to cost reduction are:
1) Transportation expenditures
2) Administrative costs
3) Distribution and Fulfillment labor costs
4) Total network expense
5) Inventory carrying costs

Working Capital Reduction is also an important benefit that your business can derive from improved logistics. Improving logistics can have a significant impact on both financial performance and shareholder value. Working capital reduction should be of prime interest to all corporations, as it has a direct link to shareholder value. Logistics can affect working capital in many ways:
1) Increased inventory turns
2) Reducing receivables through improved order accuracy and information completeness.
3) Reducing safety stocks and network inventory levels
4) Improved cycle times, which increase inventory turns and accelerate the cash-to-cash
cycle.
Supply chain and logistics excellence is increasingly defined by process velocity. Delivery speed, or the ability to reduce the time between order taking and customer delivery to as close to zero as possible, is one of the key goals sought by today’s organizations.

Return on Assets (profit divided by fixed asset value), is one of the primary metrics targeted for improvement as a result of supply chain management initiatives. Improved logistics directly improves a company’s Return on Assets. Better distribution efficiency and throughput can reduce requirements for capital for physical facilities and equipment (lowering the asset base), while simultaneously increasing the profit from distribution center operations. In this way, both the numerator and denominator of the ROA ratio are positively impacted.

In addition, attempting to measure the ROI of the intangible benefits of logistics services indicates a need for new metrics that measure more than just the cost and savings of the investment. These new measures should focus on such things as how improvements will speed up business processes, improve communications, increase customer satisfaction and assist in decision-making and quality control. These factors reflect performance improvements and what is important to customers, not simply short-term profit.

Improving your logistics strategy (combined with operational excellence) will provide measurable benefits for your company, as well as for your partners and customers.

Rules to live by:

Be kind to others.
Faults will turn to good if you try to improve.
Discouragement serves no purpose. It is self-pity.
Boldness has genius and power in it (Goethe).
You create your circumstances out of your thought and actions.
Change is constant.
Cool heads prevail.
Do what you know to be right.
Play is as important for adults as it is for children.
Exercise, because life is better with good health.

Sales Process Improvement

Developing standardized sales processes and reinforcing best practices will increase pipeline visibility, sales execution, and overall performance, leading to more predictable and sustainable revenue growth. At an organizational level, structure and process are necessary to implement a successful growth strategy and replicate success.

You can improve sales performance at the middle of the bell-shaped performance curve by documenting, replicating and teaching the best practices of the sales people that represent the top 20% of the performance curve. Research shows that top performers develop a method for success and execute a repeatable process, often subconsciously. One approach is to take what’s often a subconscious process and make it conscious, repeatable and replicable.

Many salespeople do not follow a defined sales process.
Many salespeople sell products (features and functions), not solutions (value and return on investment), to prospective customers.
Many sales managers do not leverage available sales processes and tools to manage their teams.
Sales people will accept processes, methodologies, tools and behaviors that make their jobs easier and/or make them more money. In addition, what their managers reinforce in weekly sales conference calls sends a powerful message about what the process standards are for the sales organization.

Key sales process objectives include:
Standardized sales stage definitions (from suspect to close). These stage definitions categorize all prospects and opportunities in the same way.
Standardized pipeline management and sales cycle progression
Best practice sales methods and activities, which help to achieve the sales stage milestones and progress through the sales process.
Clearly defined roles and responsibilities for executing best practice activities and the process
Alignment of sales tools, methods and systems necessary to support the activities at each stage
Improved forecast accuracy by defining the guidelines based on not only where the sales person is in the sales cycle, but also how they are positioned versus the competition
Clear and prioritized performance metrics that can be coached and reinforced by the sales management process

Performance Metrics
Most business people are familiar with the ideas of leading and lagging metrics. The former can often help to predict the latter. Key performance indicators (KPIs) usually fall into the leading category. For example, many companies find that the number of prospects on their master prospect list is one of the best predictors of how they will perform 90-days out.
You should measure KPI’s such as churn, opportunity by account/sales stage, win rate, revenue growth, margin (revenue-costs), etc.

In terms of the leading indicators, the following should be measured, monitored, and managed:
Leading Indicator Description
Opportunities in the Pipeline (#, $, %)
The total number of opportunities in the pipeline has predictive qualities to hitting sales targets.

Opportunities per Stage (#, %) Once clear and unambiguous stages are in place, one can monitor the number of opportunities per stage, and the different probabilities of closing associated with them.

Average Deal Size ($, %) It’s important for salespeople to focus on the largest deals and the key areas within their accounts and territories. An average deal size that is rising is a good sign that salespeople are pursuing appropriate opportunities.

Revenue per Stage ($, %) Once there is a clear separation between stages, one can determine weighted pipeline value per stage and compare it to previous periods to assess the probability of hitting one’s overall sales targets.

Product Mix ($, %) Once there is some visibility into the pipeline of opportunities, management can look at the product mix in terms of what’s being offered and what’s being sold. Incentives and coaching can be aligned to match the product strategy and the different price points and margins of specific offerings.

Sales Cycle Time (days) The sales cycle can be looked at from an overall standpoint (example: average sales cycle is 3 months), or in terms of looking at it from a stage perspective in terms of average length of time in the “XYZ” stage this quarter v. last quarter.

Lagging Metrics Description
Some of the key lagging metrics for the sales area include the following:
Revenue Attainment / Growth ($, %) This metric can be evaluated for the overall business, for each salesperson and for each product.

Profitability ($, %) Margins can be assessed and tracked at the gross, operating, and net levels.

Win Rate (#, $, %) Win rate can be looked at in terms of the number of opportunities won and the amount of the pipeline won, which are often different percentages.

Market Share ($, %) Market share depends upon who is calculating it and their respective interests. As long as it is measured consistently, it is valuable.

Cost of Sales ($, %) It’s often hard to get a true cost of sales figure. Most organizations look at travel and entertainment (T&E), commissions, salaries, pursuit costs, etc.

After a company identifies some key leading and lagging metrics, they need to determine the best approach for reaching their targets. The following steps are a rough roadmap of what should happen to develop and deploy a sales process improvement initiative.

1. Bring together the key stakeholders to define the goal, to design the project, and to determine the guideposts along the way.
a. A core process team should include key stakeholders and possibly, external consultants.
b. The team should define the project goals, the measurable objectives, the critical success factors, the specific activities, the timelines, the tracking metrics, and the deliverables.
d. Keep it as simple as possible. Clearly define the goal state and make sure that improvement can be measured.

2. Assess the current sales process.
a. Analyze the current sales process documentation, reports, and tools before beginning the discovery interviews.
b. Select a high-performing cross section of sales executives, sales managers, and sales professionals to interview, to gain an understanding of the current situation, improvement areas, and what the future should look like.
c. Try to identify gaps, redundancies and other opportunities to streamline and improve the sales process.
d. For each sales activity discussed, clearly identify who owns it, supports it, and reviews it.

3. Create a rough outline of what an improved sales process might look like.
a. Develop a working model that can be shared, critiqued and improved, with input from the core sales process team.
b. Conduct a workshop using one-on-one, or small group interviews, to improve, refine and validate the proposed sales process.
c. Determine the alignment of tools and technology to each activity
d. Integrate the necessary sales methodologies into the framework.

4. Implement the approved new sales process. This new process should help salespeople to close more business, do less administration and get better feedback and coaching.
a. The core sales process team should meet to create a communication plan for disseminating the new sales process.
b. One of the key critical success factors for the sales process to work is to make sure that the front-line sales managers are aligned, motivated and capable of executing the new sales process.
c. Sales managers must coach to the sales process.
d. Sales process execution must be monitored and tracked.
e. The results of the initiative must be communicated to all stakeholders.
f. Sales process improvement can never end.

Some of the biggest obstacles to execution are:
The lack of integration between various processes that link to the sales process (like forecasting), including sales methodologies, selling skills and sales tools.

The lack of clear roles and responsibilities

The sales management process often does not reinforce the sales process, key metrics, or collaborative behaviors (like team selling) and does not act as a framework to coach and improve performance.

Managing Sales Opportunities

For complex logistics solutions sales, the customer is often not a single decision-maker. This means the sales process can be prolonged and complex. The justification for any major initiative now receives intense scrutiny, often resulting in extended sales cycles, numerous selling hurdles, and deferred decisions. In order to train salespeople to deal as business consultants, or strategic orchestrators, when dealing with complex sales, you must teach salespeople the following:

1) Teach salespeople to choose target accounts, based upon many criteria. These criteria include such factors as the size of the account, the level of contact they have at the company, or whether there is an existing relationship with our employer that they can leverage.
2) I encourage them to develop a close relationship with people at more than one level of the decision-making group.
3) Teach them to think conceptually in order to discuss the high-level concerns of upper management, as well as to think practically to solve the nuts and bolts problems associated with moving freight efficiently.
4) Teach salespeople to ask targeted questions, in order to learn about the needs of a customer, using a diagnostic, consultative approach. This approach allows the customer to address more concerns than simply the issue that initially drew attention to the company as a target.
5) When we determine needs that we can satisfy, we begin develop a solution with the customer, using our existing suite of services and standardized IT systems, where possible. Teach salespeople that over-customization does damage to profit margins. It is why most third-party logistics companies now face declining profit margins.
6) Teach the salespeople to work towards closing the sale through insuring that the customer takes part and “buys in” through each step of the solution development.
7) Teach that as the relationship matures into the retention phase, the account becomes very profitable if it is retained. Good account management is important to avoiding the “customer churn” that many transportation companies experience.

The decision to buy is the result of a long process of investigation, consideration, and review. To be able to market and sell effectively and to make the best use of your resources, it is important to understand how your customers and prospects buy and to recognize which stage of the cycle they are currently in. Although your customers and prospects may vary in size, most companies share a common buying cycle. The buying cycle typically moves through four key stages:
Identify a business need.
Research a solution.
Design and evaluate different solutions.
Purchase

The important measures to consider are the conversion ratio, the quality of business wins and account retention. Sales and Marketing activity needs to go beyond stimulating interest. It has to play a crucial part in all stages of the process through closure and account retention.

Place greater emphasis on the whole sales process, ensuring that all parties communicate with consistent messages that adapt to different stages of the buying cycle. The process of managing sales opportunities with long sales cycles recognizes the role and relative importance of different influencers and decision-makers.

To drive the sale toward conclusion you need to develop a program that successfully builds relationships before, during and after the sale. You must also continue to qualify the process all the way through. If the process works properly, the final negotiations are more of a formality than a sales pitch. The decision has often already been made. The initial contact, discovery, the proposal and discussions, presentations, and explanation of the implementation process have all contributed to a sales process in which the decision-makers recognize the value of what your company has to offer.

Create a Core Value Proposition
The purpose of a value proposition is to identify and satisfy an unmet need in your target market. Examples might include:
To help customers increase their revenue
To help customers decrease their costs
To help customers increase their profitability
Effective value propositions create a strong differential between you and your competitors. They also help to align your business operations more closely to customer needs. It is essential for the sales team to create a unique value proposition that fits individual customers’ specific needs. To be successful, you need to present the value that means the most to each individual at the time the decision is being made.

Speak to All Decision-Makers
Develop close relationships with people at more than one level of the decision-making group. Train salespeople to think conceptually in order to discuss the high-level concerns of upper management, as well as to think practically to solve the nuts and bolts problems associated with moving freight efficiently. The objective is to ensure that your communications build understanding among all decision-makers. When the decision-makers are working as a team in your favor, you stand a better chance of obtaining the business. Each decision-maker will have his or her own agenda. However, you should encourage a collaborative decision-making process that recognizes your company’s wider contribution to the customer’s overall success.

Customer Input
The lines between companies and their customers are becoming increasingly blurred. Customers should interact easily and participate in product development and other processes. You should adopt an approach to customer relationships that encourages friendly cooperation and involvement, rather than the traditional supplier/buyer relationship. This approach can help position your company as an influential trusted resource.

Everyone is a Salesperson
Every point of contact between your company and the prospective customer is an opportunity to reinforce what you stand for, what you deliver, and how you differentiate yourself from competitors. Every employee at your company should act as if it is “their job” to help resolve the problems of the customer. Cross-functional teams assigned to larger accounts have been shown to help with working out issues that may require resources and/or agreement across several departments. Even in the absence of such teams, all employees should be coached in how to help customers by actively listening to them, in order to help solve their problems. Internal communications should therefore feature the same messages that you use in external communications.

Measuring the ROI of Logistics-Related IT

Attempting to measure the ROI of the intangible benefits of logistics-related IT services seems to indicate a need for new metrics that measure more than just the cost and savings of the investment. These new measures should focus on such things as how the service speeds up business processes, improves communications, increases customer satisfaction and assists in decision-making and quality control. These factors reflect performance improvements and what is important to customers, not simply short-term cost savings.

One such method is based upon measuring how current IT investments increase an organization’s options in the future. It is either called Option Valuation, or Modern Portfolio Theory, depending on your source. This method looks at the opportunities that a project creates for additional projects in the future, as an option value that should be added to the project’s other benefits.

There is another method called Real Options. Real Options is slightly different from the method I just mentioned. Its emphasis is on the timing of a project launch or systems upgrade, in order to take advantage of changes in cost savings, quality improvements or market conditions.

There is yet another simple method for measuring future benefits, called Expected Value. Expected Value multiplies the size of the expected benefit of a project by the probability of its occurrence. However, this approach does not provide an estimate of the option value of a project, regarding whether or not a current project makes other future projects possible.

Value Analysis is a method that involves several steps, but is centered on the idea of using low-cost prototypes to determine a rough benefits-to-costs ratio. If the decision-maker feels that the system can provide enough benefit for the cost involved, development proceeds on a full-scale system.

Information Economics is an approach that uses organizational goals to determine which factors are included in an analysis of potential benefits. This method then assigns weights to each factor related to the achievement of the relevant goals. These factors and weights are then used to evaluate the IT alternatives.

Net Present Value (NPV) is still the most commonly used discounted cash flow (DCF) method and is considered the most accurate measurement of future value in today’s dollars. A different DCF method, the Economic Value Added (EVA) approach, takes “cash-adjusted operating profit minus the cost of capital used to produce earnings”. Both of these methods leave the measurement of intangibles mostly up to the clients, while returning the IT department to measuring cost.

Ultimately, old ways of measuring ROI cannot be abandoned when attempting to determine the benefits of logistics IT. Rather, measuring cost savings is sometimes still the easiest way to measure the benefits of an IT project (and measuring the present value of the future cost savings is the most accurate way to depict those savings). However, using these other analysis methods to your advantage with your clients will increase your chances of making a sale.

Transportation Pricing Basics

Here are some basic principles to keep in mind when considering your pricing strategies:

Prices must at least cover costs. If you don't at least cover costs, and this includes an amount for your time, you will incur a loss.

The best way to lower price is to lower costs. As price equals costs plus profit margin, it's obviously better to reduce the cost element than the profit element if, for any reason, you find that you must reduce your prices. Sometimes you have to reduce both.

Prices must reflect the environment in which they operate. Any price, whether yours or your competitors', necessarily reflects the dynamics of cost, demand, market changes, competition and product utility.

Prices must be within the range of what customers are prepared to pay. It's all very well having the best transportation service in the world but, if your price is more than customers are prepared to pay for it, so what? On the other hand, there is absolutely no reason to charge less than customers are prepared to pay.

The price you set should represent a fair return for your time, talent, risk and investment. Don't be shy about demanding a reward for what you offer. Your expertise and talent has objective worth.

Price = Cost + Profit Margin
If the basic price you will strike is simply your costs plus a profit margin, it follows that before you can set your prices you must know exactly what your costs are.

Operating Costs fall into three main areas:
Direct Costs- Direct costs are those things directly related to the creation of your product/service, such as trucks, raw materials, parts and supplies.
Overhead- Overheads are business costs not directly (or entirely) related to the movement of freight and include things such as taxes, rent, office supplies and equipment, business related travel, insurance, permits, repair of equipment, utilities and professional advice (accountant, lawyer).
Labor- Labor costs include all wages paid to employees. This also includes fringe benefits.

A company can break down the operating cost into its component costs. The component costs (drivers) of the operating cost can be identified and measured as a percent of total sales, in order to determine the percentage change in each cost category from year to year. In this way, a company can see which costs are increasing the fastest, whether year-to-year cost increases are due to fixed or variable costs, and whether the costs are within their control.

Here is an example of some of the operating costs that you must consider:

1. Driver/owner operator, P&D costs
2. Insurance cost
3. Fuel cost
4. Fleet maintenance cost
5. Equipment capital cost
6. Sales & Marketing cost
6. General operating cost

Some cost increases are at least partially addressed through surcharges and accessorial fees by most carriers. For instance, one cost that is outside of a company’s control, fuel price fluctuations, has been addressed through fuel surcharges. However, other costs beyond a company’s control, such as the recent fuel efficiency deterioration (caused by new environmental emissions regulations) are costs that cannot be addressed by surcharges or accessorial fees. Yet other costs are at least partially under a company’s control, such as driver costs, sales and marketing, insurance, fleet maintenance and equipment capital cost. However, these costs still tend to increase every year (especially labor cost).

Prices should be set at levels that will shift products and services and not only to beat competitors. At the end of the day, you set your prices as high as you can while still shifting your products and services. Don't think that keeping your price as low as your competitors is enough. It isn't. As a matter of fact, you may have competitive advantages that mean you can price higher than your competitors.

Convergent Marketing and the Role of the Salesperson

Competition has increased so much in the transportation/logistics industry that achieving continuous improvement and exceeding customers’ expectations no longer assures faster-than-market growth in profits. It is the underlying strategy that will lead to sustainable competitive advantage. Accelerated profitable growth requires strategic cross-selling of services.

Convergent Marketing is used when all of the services offered by your company are branded with the parent company name. In this situation, your company strategy should be to have a collaborative sales team operating under a single brand, with customized service offerings to serve individual customer’s needs.

Transportation companies that sell multiple services should determine the most powerful method(s) for showing prospects both the cost savings and the intangible benefits that they offer. Concrete examples of past successes should be used, including the details of how cost savings were achieved, concentrating on examples where the company acted as a lead logistics provider, or at least provided multiple services.

The salesperson plays a critical profit-generation role either in negotiating individually or in providing the information upon which headquarters-level executives make pricing decisions. These decisions are often clouded by customer threats and competitive activity. The sales force, more than any other function, is responsible for profit-generation. If it falls down by choosing the wrong accounts, making promises that can’t be kept, poorly managing the accounts or neglecting its customer liason role, the profit machine falls apart.

The more “roots” you can sink into a customer’s business, the more likely you are to retain their business. Providers are adding more and more services to their portfolio, as customers demand more integrated solutions. Sales and service costs drop over time, because the customer and vendor learn how to work with one another. Customer satisfaction leads to customer retention, which provides the opportunity for account dominance, or primacy. The long-term primary supplier typically gets higher realized prices. This may not be much as a percentage of sales, but it goes right to the bottom line. The preferred vendor also tends to have the ability to take a richer product mix with higher profit margins.

Productive salespeople often make the difference between company success and failure. Although CRM programs can monitor sales productivity, the best approach to driving sales productivity should be focused on the interaction between the salesperson and the customer. Teaching salespeople standard methods of prospecting, cross-selling, follow-up and making sure competitive pricing proposals are presented to prospective customers (on-time and administratively correct), are examples of the sort of sales enablement that work best.

Everyone is a Salesperson

A lot of people at a transportation/logistics company affect the customer experience and the perception that a customer has of the firm. The overall customer experience is often not managed well. The customer is then required to apply extra effort to navigate the organization to get things done, or get issues resolved. The more choices a transportation/logistics consumer has, the more pressure companies should feel to offer quality customer service.

Although it is good for customers to have a single point of contact (for simplicity), every employee at your company should act as if it is “their job” to help resolve the problems of the customer. Cross-functional teams assigned to larger accounts have been shown to help with working out issues that may require resources and/or agreement across several departments. Even in the absence of such teams, all employees should be coached in how to help customers by actively listening to them, in order to help solve their problems.

The brain changes as a function of where an individual puts his or her attention. It is the power of focus, sometimes referred to as attention density. Attention continually reshapes the patterns of the brain. People who practice a specialty every day literally think differently, through different sets of connections, than people who don’t practice the specialty.

Sales professionals have profound differences in perception from people in other functions, such as finance, operations, solutions, legal, marketing and human resources that cause them to see the world in a different way. One difference is the tendency for salespeople to see themselves as customer advocates. This is a tendency that should be shared across all of the functions of every company. Salespeople and managers should help to teach others at their company to become customer advocates. Everyone should focus on meeting the needs of the customer.

In addition, we should employ the same sales techniques used to gain insight into customers to gain insight into our fellow employees. Every one of us is a salesperson and everyone else is a consumer of our ideas and personality. Find out about other people at your company and be genuinely interested in them and their motivations, if you want them to take your ideas seriously. There is no substitute for being genuinely interested in what others think and feel. We should all practice listening to the ideas and opinions of others.

I don’t believe that a salesperson who is truly concerned about their customer’s needs has to be at odds with the people at their work who are trying to develop, price and produce the company’s product. Rather, salespeople should help others to put themselves in the place of the customer, by offering their insights in a way that does not convey a pride of ownership of the ideas. After all, they got the ideas from the customer. All everyone has to do is be willing to actively listen and be willing to work together to solve problems. The ultimate responsibility for securing customers may lie with the salespeople, but the gain (or loss) to your company that results from your level of success in retaining customers will be felt by all.

Pursue Outside Interests to Promote Innovation

Pursue Outside Interests to Promote Innovation

Thag fell down while trying (for the tenth time) to balance himself on a small log. This fun, new pastime gave him a great idea! He applied the concept of falling off a rolling log to solving the problem of how to move a boulder blocking the mouth of his cave. The invention of the first wheel was almost certainly such an application of an existing concept to a new or unrelated problem. Because Thag had the ability to view his boulder problem in a new way, he could creatively solve the problem. Thag applied concepts learned in one area to another area. For this reason, cultivating interests unrelated to your job can make you a better problem-solver at work. You learn to see things from different points of view.

Innovation is one of the primary ways that companies adapt to changing circumstances. It is necessary to be flexible in order to adapt to complex, changing situations. Methods and techniques can get out of date in a short period of time. Over time, firms that survive are better at adapting to change. Extinct firms could not adapt.

Innovators rarely come up with new ideas. Instead, they convert old ideas into new ones, adapting them from one context to another. They go through a process of extending and changing the existing idea, until a new concept emerges. Cultivating various interests can lead to the application of concepts used in solving one type of problem to other, seemingly different problems. For instance, solutions such as M.B.O. (Management by Objective) were popular in the business community several years ago. Soon, M.B.O. was adapted to colleges, religious organizations, clubs and other groups that wished to accomplish goals. Likewise, concepts used to solve problems in areas unrelated to work might be applied at work.

Being saturated in a corporate culture can inhibit the creative thought process. Sometimes being immersed in a certain culture limits a person to what everyone else in that group views as possible, or acceptable, thoughts and behaviors. Perspective is gained by allowing oneself the time to reflect on a situation from various points of view. Seeing the world through the different lenses provided by various interests allows you to question previously held assumptions. Questioning established beliefs helps you to view everyday work situations differently and so leads to possible creative solutions to your company’s problems.

Use your spare time to cultivate interests unrelated to work. Play is as important for adults as it is for children. It will pay off by making you a better employee and a more creative person. It may cause a change in the way that you react to the problems you face each day. Problems really can be viewed as opportunities. Don’t allow yourself to always focus narrowly on the technical details of your job. Try to relax your focus in your spare time. Improve your ability to adapt to change.

The Over-Customization Problem

Logistics companies have seen their profits shrinking over the past few years. In addition to the economic recession, there is another major reason why third-party logistics firms are experiencing declining profits. The industry’s business model consists of custom-tailoring technology solutions to the customer’s request and approaching new projects with all new designs and implementation. For this reason, the industry is trapped in a competitive, downward spiral of expensive project-by-project customization and declining profit margins.

Third-party logistics providers need to relax this customer-centric business model. To do this, they need to step away from the project-based approach in favor of a product-based model. Logistics companies need to define the services offered by their company, keeping them clearly differentiated and so more profitable. Bundling services is only a good idea if the company gets paid adequately for the all of the services that they bundle. By adopting a more disciplined and strategic approach to customization of their services, third-party logistics firms can pay more attention to their bottom line. They can reduce the complexity and cost that is generated by trying to be everything to every customer and so make their own company more profitable.

In the past, third-party logistics firms have been inefficient users of IT. For instance, poor integration of acquisitions and unnecessary use of outsourcing are reasons why some third-party logistics firms continue to support multiple IT platforms. This is a costly mistake. Unless these companies consolidate their IT systems, they will continue to face unnecessarily high cost structures and complexity.

Third-party logistics firms can take steps to solve these problems by providing customers with targeted responses to customers’ real needs that fall within the logistic firm’s domain of expertise. This approach requires training third-party logistics firms’ sales forces in diagnostic, consultative sales. It also requires admitting when your firm’s services cannot address all of the customer’s needs. Finally, third-party logistics firms should develop modular, high-value, IT-intensive products that sit on top of a common, company-wide IT infrastructure.

Economic hard times require innovation for companies to survive. You should put talented, imaginative people in an environment where they can introduce the kinds of ideas that will shake up the competition. However, you should also know when to “stick to your knitting”. Concentrate on what your company does best. Spend money to put only the best ideas into practice. Companies are often better off with only a small amount of innovation and a focus on operating efficiently.

Improving Logistics Improves Your Business

Improving Logistics Improves Your Business

Improving logistics is vitally important, if a company wants to stay profitable in today’s economy. Today, it is more important than ever that a company produce a great product and deliver it at the lowest possible cost. Many companies fail to recognize the impact of logistics improvements on revenue growth, operating expenses and capital utilization. Concentrating on logistics can improve growth and increase market share. The role of logistics in driving growth and market share is increasingly understood and accepted.

Operating Cost Reduction has been the most common area of focus and the area of greatest measurable logistics value for most companies. It has been the primary driver of TMS and WMS implementations and other logistics technology. The most common sources of value relative to cost reduction are:
1) Transportation expenditures
2) Administrative costs
3) Distribution and Fulfillment labor costs
4) Total network expense
5) Inventory carrying costs

Working Capital Reduction is also an important benefit that your business can derive from improved logistics. Improving logistics can have a significant impact on both financial performance and shareholder value. Working capital reduction should be of prime interest to all corporations, as it has a direct link to shareholder value. Logistics can affect working capital in many ways:
1) Increased inventory turns
2) Reducing receivables through improved order accuracy and information completeness.
3) Reducing safety stocks and network inventory levels
4) Improved cycle times, which increase inventory turns and accelerate the cash-to-cash cycle.
Supply chain and logistics excellence is increasingly defined by process velocity. Delivery speed, or the ability to reduce the time between order taking and customer delivery to as close to zero as possible, is one of the key goals sought by today’s organizations.

Return on Assets (profit divided by fixed asset value), is one of the primary metrics targeted for improvement as a result of supply chain management initiatives. Improved logistics directly improves a company’s Return on Assets. Better distribution efficiency and throughput can reduce requirements for capital for physical facilities and equipment (lowering the asset base), while simultaneously increasing the profit from distribution center operations. In this way, both the numerator and denominator of the ROA ratio are positively impacted.

Attempting to measure the ROI of the intangible benefits of logistics services indicates a need for new metrics that measure more than just the cost and savings of the investment. These new measures should focus on such things as how improvements will speed up business processes, improve communications, increase customer satisfaction and assist in decision-making and quality control. These factors reflect performance improvements and what is important to customers, not simply short-term profit.

Improving your logistics strategy (combined with operational excellence) will provide measurable benefits for your company, as well as for your partners and customers.

Tough Pricing Environment

Price Maintenance/Improvement

For the past few years, companies in most U.S. industries have had difficulty increasing their prices, due to increased global competition and slack demand. This lack of pricing power definitely extends to the transportation industry. Pricing power remains limited in transportation, given strong competition and reduced demand for transportation services, although spare capacity is being eroded. Although many trucking companies have gone out of business in the past few years, overcapacity in all segments of the industry still exists.

You must always integrate pricing decisions with strategic marketing decisions. For instance, decentralizing most pricing decisions may be the best way to determine what customers are willing to pay, as pricing will vary between geographic areas and market segments. However, the more decentralized your pricing process (that is, the more pricing authority you push out to the field, be it to regional managers, district managers or salespeople) the higher level of pricing skill you need to build in those people. Additionally, you need a higher level of incentives tied to pricing in their compensation plans. A lot of companies push pricing authority out to the field, but fail to create the conditions for success. The salesperson plays a critical profit-generation role either in negotiating individually, or in providing the information upon which headquarters-level executives make pricing decisions. If you decide to decentralize pricing decisions, you also need to monitor performance more closely, in order that your profit margin is maintained.

Price rigidity (stickiness) is defined as when prices do not adequately change in response to underlying cost and demand shocks. The more monopolistic the market, the stickier pricing becomes. Even in markets with a host of competitors (like LTL trucking), rivals often take into account the prices charged by other companies when they set their own prices. Price elasticity of demand measures the responsiveness of quantity demanded to a change in price. Your own price elasticity of demand measures how much business will be lost to another company within the same mode, with a given price increase. Quantitatively, an estimated price elasticity measures the percentage change in quantity demanded (or supplied) resulting from a 1 percent change in the price, other factors constant. Within each mode, each company will have its “own” price elasticity of demand.

Historically, the average “own” price elasticity of demand for North American trucking companies is relatively inelastic (-.5). This means that a price increase of 10% will result in a decrease of 5% in quantity demanded, for the services of the average North American trucking company. However, in today’s recessionary economy, this average price elasticity has increased, due to overcapacity. The average may now be closer to -.7, -.08 (or higher), meaning that a price increase of 10% will result in a decrease of 7%, 8% (or more) in quantity demanded for the services of a company increasing their rates.

This recession has created a “Catch 22” situation for most trucking companies. Is it worth the calculated risk of losing some of your business to maintain the average profit margin on all of your business? After all, a one percent improvement in price yields bigger gains in operating profit than a similar improvement in variable costs, fixed costs, or volumes.

Price maintenance/improvement shouldn’t be approached as a project that you can complete in six months and then move on to the next thing. It is a constant process. With changing market conditions, you need to change the way that you think about price versus volume, versus market share. In addition, companies should concentrate on whether their customers pay on time as much as they do on their pricing.

Ultimately, prices must be within the range of what customers are prepared to pay. On the other hand, there is no reason to charge less than customers are willing to pay for your service. You don’t want to give away a price advantage your company possesses that is based upon superior service, in exchange for a temporary volume increase. It’s easy, when you start delving into the analysis and research about optimum pricing levels, to forget that the goal is to set the prices as high as you can, while still getting the customer to utilize your company’s services.