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Key indicators for beer wholesaling executives.

Key Indicators for Beer Wholesaling Executives

Spotting and determining key operating indicators favorable to bottom line.

How would you like to get a one-page report that told you how each major department in your company was operating? Most beer wholesalership presidents receive monthly profit and loss statements and some miscellaneous sales reports. If they want to know how a department is performing, they usually ask the department manager and the typical response is "Everything is going o.k."

Most presidents do not have the time for more than this one-on-one inquiry. They have to rely on their managers for information and trust them to report honestly on how their departments are managing.

As president, you should want to be better informed and want to be in a position of knowing more about what is going on in your company. The following will discuss the key operating indicators that are easy to generate, interpret, and which allow the president to recognize performance trends for each of the principal areas in the company.

Gross profit per case

Gross profit per case allows a beer wholesaling executive to quickly see if the gross profit has changed. Presidents too often look at percent gross profit rather than gross profit per case. Twenty-five percent of an $8 package is $2 and 25 percent of a $10 package is $2.50. Do not be misled by gross profit percent.

Changes in gross profit per case can usually be attributed to pricing/discounting and a change in sales mix. If you look at your gross profit per case monthly and it changes, you will know immediately, and will be able to ask why.

It is important to remember that gross profit dollars refers to the money that is available to pay the distribution, warehouse, sales and administrative costs. Shrinkage in the gross profit per case is the hardest dollar in the company to recover. A negative trend must be spotted early and corrected. If the negative gross profit per case trend cannot be reversed, then you will have to take measures to reduce operating costs accordingly.

% sales sold on discount

The calculation of the percent of case sales sold on discount is simple: simply divide the total cases sold on discount by the total cases sold this month.

Many wholesalers know that the sales of discounted product is increasing but they do not have a gauge to measure how much. This number obviously affects your gross profit per case and the amount of money you have available for expenses.

Monitoring this number is imperative in planning and evaluating a key aspect of your mix; namely, discount sales vs. front-line sales. Again, when looked at monthly over time, you will be able to identify and quantify a potentially-devastating trend.

Number of call-ins

The number of call-ins, which gives you an instant gauge of your sales service and the ability of your salespeople, is usually available somewhere in the company. If a customer calls in, it is usually because: 1.) The salesperson skipped the stop (poor sales service and management); or 2.) The customer did not buy enough when the original order was placed (account inventory build-up levels are too low or the customer is abusing your service policy).

Sometimes call-ins are caused by legitimate reasons such as unexpected surges in an account volume due to one-time occurences. By getting the number of call-ins on a weekly or monthly basis, you will be able to decide if a problem exists or not. It is always interesting to compare the number of call-ins to the total orders taken by the company. This percentage is a good performance measurement for the sales department.

By working with sales management and developing a call-in reduction strategy, the number of call-ins should go down. You will have the ability to spot a problem, decide on corrective action, and measure results.

Sales taken vs. sales calls

This indicator is most likely new to all beer wholesaling presidents. To calculate this indicator, the number of orders taken by the salesmen is divided by the number of scheduled sales calls. For example: 1.) Assume the company takes 1,000 orders this week, of which 100 were call-ins. Therefore, the sales force has taken 900 orders. 2.) Then assume that, based on the salesmen's scheduled call routes, they are supposed to make 1,500 calls. 3.) So, 900 orders divided by 1,500 calls = 60 percent performance by salesmen.

Once you know this percent performance, you can ask, "Are sales people making a lot of calls that are not resulting in orders or are salesmen skipping stops?"

We have calculated this number for most of our clients and, needless to say, they are all very surprised by the results. It is fair to say that this sudden discovery usually results in immediate action being taken to find out why the sales force is out of control.

Number of `work-withs'

Every president knows that sales managers and supervisors must "work with" or "ride with" the salespeople. This is often incorporated into the sales manager's or supervisor's job description or into the department's policies. We have found, however, that management and supervisors seldom "work with" the salespeople often enough. At the same time, the president thinks people are being adequately supervised.

To really track this indicator, you first have to define what qualifies as a "work-with." For example, helping build a major display for two hours, doing a daylong reset, or meeting the salesman on the route for four or five calls should not count as a "work-with" day. We suggest you define "work-with" as a full day a manager spends with a sales rep on a route making normal scheduled calls. The manager must leave with the salesman in the morning and return with that salesman in the evening.

You must also be knowledgeable as to how many "work-with" days the total sales management and supervisory staff are supposed to execute each month. For example, five supervisors are each supposed to spend three "work-with" days a week; therefore, each week 15 (five times three) "work-with" days should be targeted.

If the "work-with" targets are not achieved, you can be sure your sales force is not doing the best possible job because they are not being supervised and properly trained. This indicator may help explain why other factors, such as number of displays, new placements, or gross profit per case are showing negative trends.

Most presidents know the number of new placements the sales department has achieved for a specific product that is being promoted. Seldom, however, does the president know the number of placements company-wide for all products--those being promoted and those not being promoted--on a monthly basis.

The beer industry was built on distribution. Properly-planned distribution is essential to your long-term viability. If, for example, you are running a Labatt's distribution contest this month and get 50 new placements but do not get any new placements of other products, how well is your sales force full-line selling? Is sales management fulfilling the distribution plan the company needs and wants?

If you want to look deeper at distribution, consider chain distribution on new authorizations. If there are 40 Safeway supermarkets in the territory and you get a new product authorized, how well did the sales force execute in actually getting that new product in all 40 stores?

Percent performance on new authorization in chain accounts is a readily-available number you should look at regularly. Also, if you think distribution may be a problem, in addition to looking at the number of new placements monthly, you may want to look at the number of placements lost. This will help you gauge whether you are winning or losing the war.

Number of ad features sold

The number of ad features sold per month will often dictate the success your company has. Presidents are usually made aware of the major ads but often do not have a good handle on total ad activity. How informed the President is will frequently depend on the degree of his day-to-day involvement in the distributorship.

This key operating indicator (K.O.I.)--the number of ad features, looked at for one month--does not mean much, but looked at every month on an ongoing basis can reveal a trend in ad activity and your competitiveness. An interesting measurement is to compare your number of ads to the total number of ads for all competitors in your market. Then you can compare your percent of ads to your percent of market share.

Number of displays built

Similar to the number of ads sold, the number of displays built allows you to broadly evaluate company execution in this vital beer-selling function. A beer wholesaler can discount, get new placements, even get ad features, but if enough displays are not built, sales will suffer and return on your marketing investment will be less than optimal. The number of displays built must be looked at over time to help you gauge whether the trend is positive or negative.

Payroll-per-case

Payroll-per-case is a number that shows up on most wholesalers' financial statements. This indicator should be recapped on your key indicator report so you can look at numerous months of payroll-per-case and look for trends.

Problems to look for in this area are: 1.) Over-staffing 2.) Inflation of pay scales (salary levels are too high) 3.) Failure to adjust the staff seasonably 4.) Improper mix of lower- and higher-paid people 5.) Overtime problems.

Some wholesalers may chose to break down payroll-per-case by department (sales, delivery, warehouse, administrative), while other wholesalers may only want to look at the total. Whichever you choose, remember you are not trying to duplicate the information on the P&L. Rather, you want to get a simple report that lets you look at all the key operating units to help you measure performance, monitor trends, and identify problems. Remember, the key to using this indicator is looking at numerous months and numerous indicators at the same time.

Total overtime expense

As president, you need to look at overtime wages paid to all departments combined. This helps you gauge your staffing needs, productivity, staff scheduling, and overall management of people and work flow. If you detect a problem, then ask for the departmental breakdown.

Sometimes the size of this expense shocks the unexpecting president, while other presidents are already monitoring overtime expense and have it under control. You have to remember that overtime is paid at time-and-a-half wages while overtime productivity is usually lower than productivity during the first eight hours. Therefore, you are often paying more to get less productivity. The other side of too much overtime is too little overtime. If you never have overtime, you may be over-staffed.

Average-cases-per-truck

Average-cases-per-truck per-day is an indicator that is available in every distributorship but seldom makes it to the president's desk. This number helps you evaluate asset utilization (trucks), daily and seasonal delivery staffing and routing, and the effectiveness of the sales effort.

By looking at the average cases per truck per day over time, you will have a good indication of an area that you typically have had to trust to a delivery manager. When the average cases increases or decreases, you will know that it is happening and you will be able to ask why.

Return-load percent

If you are a driver-sell operation, return loads are a key indicator as to how well load planning is being managed. High return loads cause excess wear and tear on trucks, result in more breakage, make controlling code dates difficult, and increase warehouse payroll expense. Many presidents guess their return-load percent to be 25 or 30 percent when actually it is over 50 percent.

If you are a pre-sell operation, however, return loads (or refusals) tell you that a different set of problems exist. Salespeople may be "ghosting" orders, delivery routing may be poorly structured, your delivery vehicles may not be getting to their stops on time, or the customers may be ordering 10 cases, but taking only five cases. In all of these examples, if you are aware of the return-load percent, you will know you have a problem and can instruct your managers to take corrective action.

Average day's inventory

The brewery often dictates how much inventory you must carry. Your ability to forecast and then perform to your forecast also influences your inventory on hand. As president, you must look at average day's inventory on hand each month and use this information to evaluate ordering performance.

Too much inventory causes numerous problems. Breakage increases, code dates may become a problem, warehouse labor is higher, interest expense is higher, cash flow may be strained, etc. If you never run out of product, you are probably carrying too much.

Inventory discrepancy

Total inventory discrepancy is a number the president seldom sees. And if it is available, it is most likely wrong. Most presidents and inventory managers look at inventory discrepancies incorrectly. The following example should help explain this:

In this example, most inventory managers inform the president that the inventory is short two cases net (-120 + 110 + 3 + 5) and no one perceives a major problem. Actually, the inventory is off 238 cases total (120 + 110 + 3 + 5). The inventory manager really has not accounted for the whereabouts or accuracy of 238 cases, yet you have been led to believe the inventory is off two cases. Do not lose control of your most valuable asset. Ask for the total discrepancy, not the net discrepancy.

Accounts receivable

If you distribute beer in a credit state, average age of accounts receivable is an indicator you must look at monthly. It is not uncommon to find the president unaware of this indicator, and, worse yet, it is not uncommon for the controller and credit manager to be unaware of it also.

Everyone is usually aware of the status of "problem accounts," but no one really looks at the entire credit and collection process to determine if slippage has occurred. If your average age of A/R moves from 30 days to 33 days, you may have a significant problem and you may need to intervene and find out what the problem is.

Why use K.O.I.?

A key operating indicator is a readily-available number that gives you quantitative information about your business. As such, an indicator is empirical, measurable, provides a benchmark for monitoring trends, and enables you to "keep score."

A key operating indicator provides a performance standard that allows you the ability to measure key areas or activities in the daily operation of your distributorship. The information typically tracked as a key operating indicator is usually readily available and known at the department level but never gets communicated to you, the president. Therefore, you are less informed and can lose control.

Frequency and format

Key operating indicators should be calculated and reported to you at least monthly. You may prefer to receive some of them weekly. The format we have found to work best is a one-page report that has space to allow all the indicators to be listed monthly for 12 months on the same page. An example of this key operating indicator report can be seen in Exhibit 1.

Do's & don'ts

Do not try to duplicate a lot of information that is on your P&L. Most of the indicators we recommend are non-financial. There are always a few financial indicators that we do recommend that are calculated from information on the financial statements. These financial indicators are usually not looked at by the president, but they should be both looked at and closely scrutinized.

In selecting the indicators, you want to make sure you discern between "need to know" and "nice to know" numbers. Keep your indicators as few as possible. Also, do not look at an indicator for one month and assume it tells you everything. You must look at the indicator over a series of months and look for trends.

If you use the indicators properly, you will identify problems in their infancy rather than letting them fester and cost you profits. Also, you will realize a side benefit that cannot be under-estimated. If you pay attention to these indicators and your managers know it, they will pay attention to them as well. This will have a positive impact on your operations and bottom line. Once you have tracked an indicator for six months or more, you will know the trend and find it easier to establish realistic objectives. [Exhibit Omitted]

Joseph J. Verno is a founder and managing partner of The Denver Management Group, Inc., a nationally-recognized management consulting firm to the beer wholesaling industry. Verno grew up in a family-owned beer distributorship and has consulted to major breweries and wholesalers nationally. He has authored numerous articles and was regularly featured in Beer Marketing Management. Verno is also a noted speaker at seminars and workshops throughout the U.S.
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Title Annotation:analyzing operating statistics
Author:Verno, Joseph J.
Publication:Modern Brewery Age
Date:Sep 11, 1989
Words:2826
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