Distributor's Link Magazine Winter 2023 / Vol 46 No 1
126 THE DISTRIBUTOR’S
126 THE DISTRIBUTOR’S LINK NELSON VALDERRAMA HOW ROCKSTAR CFOs SOLVE THE INFLATION PUZZLE from page 68 ¤ Give special consideration to workers most affected by inflation and adjust accordingly. ¤ Transparency, what about explaining how compensation is set broadly, and how workers’ pay is competitive with the broader market. This worked really well on a mid size distributor this year to retain key talent. Improve Working Capital (WC) Improving WC is cheaper and less risky than eliciting new bank loans, other debt instruments or equity . It will inevitably be more painful to cut costs than improving your company’s working capital can also help provide visibility on how efficiently your company utilizes their invested capital. How? ¤ Managing inventory, it’s important to pursue optimization without compromising service levels or risking stock-outages. This means identifying and rationalizing underperforming SKUs (stock keeping units) so that your company can focus on what they do best - which in this case are their A and B products. ¤ Improve the cash conversion cycle by instilling rigor in the process to monitor, track slippage and identify emerging trends. Feed this analysis back into operations so they can tailor customer engagements with a focus on outstanding accounts. Sometimes small actions make the difference. For example a Rockstar fractional CFO challenged many of his clients to have their customers pay by ACH instead of paper checks. ¤ Improve payment discipline by overhauling internal processes. Improve the timing and lengthen terms with your suppliers to get quick, reliable payments that meet cash-flow needs. Pricing For Profitability The days where CFOs could rely on their ability to affect cost are long gone. With products becoming more complex and fast-changing markets, unlocking prices has become a much higher priority for many companies in order not only stay competitive but also maximize profits through innovation. It’s not enough to simply view products on a cost-plus basis. To truly understand profitability at the customer, product and volume levels—what we call dynamic pricing —you need clear data about how much each decision will contribute towards your overall profitability. Upgrading Costing Practices Analyzing the cost pressures across your business can give you insight into what lies ahead for specific products. How fast is your average price increase compared to the individual costs for each SKU, for example? The chart below (Figure 1) shows the results of a distributor’s pricing change for one particular product. They had not updated the cost or price practices until the end of December 2019. Even so, the GM% was almost zero around Jan 2022. The decision to drastically change prices finally came with the realization that either information or processes were outdated. Here, Intuilize made it possible for this distributor to revamp their processes, standard, actual and forecast costing in weeks. CONTINUED ON PAGE 154
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