Increasing Your Geographic Footprint

Transcription

1 Increasing Your Geographic Footprint Jumping to the Next Lily Pad An I.B.I.S., Inc. Executive Brief by Brent R. Grover Research Fellow NAW Institute for Distribution Excellence I.B.I.S., Inc All Rights Reserved.

2 1 Introduction Does your strategic plan call for expanding your company s geography? 1. We definitely plan to expand our footprint and have targeted where we want to go. 2. Our company is interested in having more locations but we have no specific plans. 3. No, we don t intend to move into new geographic markets. When facilitating a strategic planning project with our distributor clients we work on three critical choices distributors need to make about which sandboxes they want to play in. The decisions are: which customer segments do we want to go after, what products and services do we want to provide to these customers, and where do we want to operate. Into which geographic markets are we going to deploy our people and our capital? Opportunistic distributors are willing to handle profitable orders from customers almost anywhere but exactly where do they want to assign sales people, make deliveries, build or even acquire branches? The geographic decisions define the distributor s market presence, and they must of course have the support of their key suppliers to achieve the market penetration needed to earn their targeted return on sales and return on investment. It s tempting for distributors to want to expand their market footprint aggressively. Due to limitations of management staff, talented sales people and capital not to mention support from suppliers expansion must be done with great care. Many distributors have gotten into trouble by trying to expand too fast, and too far. As strategic planning advisors, we suggest placing geographic markets into three broad categories: 1. Focus and grow: intensify our efforts by increasing investment of people and capital. 2. Maintain: continue our current level of commitment to these markets. 3. Harvest: reduce our efforts, or possibly curtail them altogether. This article talks about three ways to intensify geographic presence: (1) In-market (2) Adjacent markets and (3) New markets.

3 2 In-Market Intensifying local market presence by adding more locations can be more than a defensive move to discourage competitors from entering the market. Building a dominant market position can bring the benefits of pricing leadership and being the exclusive supplier to many customers: One of the challenges of an in-market expansion is that the new location will steal some customers from nearby established operations. Another concern is how long it will take for the new location to exceed its break-even sales level. Acquiring a small local competitor creates the opportunity for a tuck-in integration whereby the acquirer closes a location (if overlapping), adds more customers and eliminates a competitor. Distributors who supply contractors (electrical, plumbing, HVAC, etc.) must consider how far a customer will drive from a job site to pick up supplies from a favorite supplier. That answer may be as little as 20 minutes. Adding new locations within the current market coverage area isn t as bold, or as potentially rewarding, as expanding the distributor s footprint. New in-market locations can be an effective way to intensify market coverage and prevent competitors from moving into the distributor s home territory. Adjacent Markets Moving into a nearby market is usually the safest and lowest-cost way to expand the business. An adjacent market branch brings new customers as well as added convenience for some current accounts. The distributor s company is already somewhat familiar to prospects in the new area: Supplier support can t be taken for granted even when expanding incrementally. The new location may be in the service area of competing distributor. This must be explored carefully. An adjacent market acquisition presents an opportunity to bolt on a competitor in a nearby market and enjoy considerable overhead savings for the combined entities. Continuing to operate the acquisition under its old name may be advantageous. Opening a location in a nearby market enables management and support staff to play an active role, as needed, in the new branch. A new market can be tested by establishing a sales territory there and making daily deliveries (even at considerable cost) to get started.

4 3 Moving into adjacent markets can be a low risk, high payoff strategy for distributors. The classic adjacent market move is a gradual expansion of footprint by going to the next lily pad but staying in the same pond (thanks to Tom Peters and Bob Waterman for the analogy). New Markets Venturing into a more distant market is an exciting and potentially large investment of time and capital. An offensive thrust needs to be strategically important to the company as it may take a considerable amount of time to exceed the break-even revenue level. A distant new location (far enough away that an overnight stay is usually necessary) can test the stamina of the managers and support staff. It s crucial that a capable manager be willing to relocate to get the new branch off the ground. Recruiting talented sales people, always a challenge, is especially hard in a new market. It s a big plus if one or two solid sales people are willing to relocate to the new branch. Acquiring an established distributor in the target market is often a better choice than building a greenfield location from scratch. This make-or-buy decision is a difficult one because there are very few perfect acquisition targets. Breaking into new geographic markets requires a tremendous amount of planning including coordination with key suppliers. The commitment to open a branch in a new market is a major investment in facilities, people and working capital. Final Thoughts Deciding which geographic markets to pursue is one of the major strategy moves for distributors, the others being which products and services to offer and which customer segments to focus on. The choice of geographic markets must be tied to the overall strategy. Call now to discuss how technology drives an increased geographic footprint

5 4 About the Author Brent Grover Brent Grover founded Evergreen Consulting in 2001 as a boutique firm advising companies in the wholesale distribution channel exclusively. Brent is a Research Fellow at the NAW Institute for Distribution Excellence, faculty member at Case Western Reserve University and a board member at five companies. He is a CPA (inactive) and winner of the AICPA s Elijah Watt Sells Award. Brent was CEO and co-owner of a nationally known and highly innovative distributor (National Paper & Packaging Co.). He started his career in consulting at Arthur Andersen & Co. He has written nine books and many articles on distributor management. Brent also writes a weekly blog covering the latest trends in the distribution industry. About I.B.I.S., Inc. I.B.I.S., Inc. is a premier Microsoft Dynamics Partner with over 26 years of experience implementing Microsoft Dynamics AX, GP, and CRM solutions along with Advanced Supply Chain Software for distributors and manufacturers. With four Microsoft Gold Competencies, including enterprise resource management (ERP), customer relationship management (CRM), business intelligence (BI), and application development, IBIS has the expertise to implement, customize, and support a wide range of Dynamics business applications. IBIS is a two-time winner of Microsoft Dynamics Outstanding Partner of the Year Award, the winner of Worldwide Partner of the Year Award for Microsoft Dynamics GP, a Worldwide Finalist for the Microsoft Dynamics AX Partner of the Year, a Microsoft Global Independent Software Vendor Certified for Microsoft Dynamics, and a ten-time Microsoft Dynamics Inner Circle Partner. IBIS is AMR Research Industry Certified in distribution and discrete manufacturing. About Advanced Supply Chain Software Advanced Supply Chain Software powered by IBIS is the leading supply chain management solution for distributors and manufacturers who want to optimize their supply chains for profitability. Fully embedded in Microsoft Dynamics AX 2012 and designed in partnership with industry and supply chain experts, Advanced Supply Chain Software is uniquely suited for the supply chain challenges of a new generation.