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AH Cunningham & Associates
Case Studies

RETAIL/WHOLESALE DISTRIBUTION

 

This client started in the soft drink bottling business in the South and had evolved by the time we arrived to a warehouseman for Pepsi products and a vending operator with a food preparation enterprise doing a cumulative volume of $8.5 million. The net profit of the enterprise had run from % to 1 % over the preceding three years, an unacceptable level. 

 

This is truly a family enterprise, with the father acting as Chairman, daughter as Controller of the Pepsi operation and son as President of the vending company.  The father manages day to day operations of a third family business, which was not a part of our engagement.  A long time employee served as General Manager of the warehousing and vending operation.   During the course of the analysis all of the principals came to see the deficiencies in the businesses and the steps necessary to correct them.   

   

Upon beginning the consulting process we found as follows:

 

  • An organization that thought they could sell their way out of any problem.
  • Lack of a sales and marketing plan.
  • Low employee morale and poor communications between management and the rank and file.
  • No real delegation of decision making to lower levels of operations. 
  • No cash management, collections or forecasting established.   The company ran without any current cash management information.  Accounts payable were not handled in a very effective manner, missing discounts on some items, while not taking full advantage of payment options on others.  Likewise, no one managed receivables to ensure what was coming in and what action was required to collect past due accounts. 
  • No managerial accounting or significant management information reports existed.  
  • Shrinkage, portion control, spoilage, inventory losses were not separately accounted for. 
  • The common philosophy within the organization was that the vending operation was not to be profitable; it only existed to support the bottling/distribution operation.
  • Cash handling from the distribution and vending routes was not systematic and did not hold the route drivers accountable.

Cash management, communications and getting reliable cost information were the treble objectives of our first few weeks on the project.   We embarked on this three pronged attack by getting control of cash flow. 

 

Beginning immediately we instituted new credit policy with existing customers.  Most importantly we worked with our client's personnel to implement the policy and decrease the number of days outstanding on our accounts receivable from over 90 days upon our arrival to under 60 days three months later.   The other side of the cash in flows management was the route driver's money.  We instituted cash handling and daily reconciliation sheets that made the route drivers accountable for the merchandise and the cash.  This included strict application of policy about delivering delinquent credit customers. 

 

To complete our cash management correction, we taught the daughter (Controller) and the General Manager, how to properly manage cash outflows to reduce costs by taking prompt payment discounts.  We further taught them how to slow payments to stay within terms or vendor expectations on all of those accounts where discounts were not available. 

 

The second prong of our initial assault was to increase actual communications and encourage the delegation of decision making to the lowest practical level.  We instituted this process by implementing a weekly meeting.  All of top management was in attendance as well as representatives of every operating department within the companies.  The purpose of the meeting was very clearly defined to facilitate the flow of information about what was actually going on in the company.   As the information began to flow freely within the organization, many creative ideas of the rank and file employees started to move up the organization and provide solutions to long standing problems.  This information flow also allowed top management to delegate many decisions to the appropriate place in the organization.   The strongest benefit of this improvement in communications was creation of the feeling "We are all in this together".  After that all issues were "We" issues not "Us" and "Them" issues.  With the buy in of employees great change was possible.

 

The final prong of this assault was the gathering of good cost information in all areas of the business; this allowed us to look at sales through a new paradigm.  Once we knew what it really cost to buy, produce, package and distribute a product it became much easier to know what to charge for it.  We then could change our perception that we must sell more, to a perception that we must sell at a profit.  We began with reformatting of financial statement information and progressed through segregation of information necessary to accurately track the enterprise cost of selling products and specific lines within a product classification, eliminating the losers or re-pricing them to be winners.  We changed their entire vision of sales and made them painfully aware of the need to sell at a profit.

 

We performed many other valuable functions on this project, but these core solutions were the framework around which our client was able to build a profitable enterprise.   They considered this project so important that the family and top management agreed to forego their salary during the final weeks so that it could be completed.

We received an unsolicited letter from this client which stated in part:

  "The single most important concept that you conveyed to us was-focus on your pricing not your volume. "For year our sales department was volume driven while the company failed to make a profit.  Our sales manager and his assistant were extremely cool to the idea initially but once Pepsi (our company) got the prices up, the bottom line profit spoke volumes.  This past month, our company sold 2,000 fewer cases of soft drinks than in previous month and made $26,000 more in profit."

 

            "The vending company has gone from a support company that lost money each year to earning over $100,000 in each of the past two years.  Also by focusing on cost controls as they related to our sales levels, we were able to increase our profits in Pepsi by over 20% even though our sales increased only 1%."

 

  Those profits were after we:

 

Updated our fleet of vehicles with new purchases, painted those that were not replaced, did some needed building maintenance, gave some raises and selected bonuses, and implemented an improved retirement 401k plan."

                                   

The client then went on to conclude:

 

"Our family realizes that it was what we learned that made such a rewarding, successful, and most importantly - profitable, follow-through possible."

 

Even the most ardent supporters of sales driven mentality now see the logic to strengthening our organizational foundation and budgetary controls first.  Then when we can't increase sales because of very stiff competition from Coke, we can still earn more profit!"

 

"If our companies can ever be of service to CA, please don't hesitate to use us as reference."

 

This letter certainly tells the story of making a lasting change in the operation of a clients business, allowing them to succeed. 

 

    Practical Business Advice; We Can Help!

    AH Cunningham & Associates, LLC

    A FranCnsult Company

    Pompano Beach, FL 33062

    Lexington, KY 40502

    Phone: 954-941-8847


    Email: ahc@ahcunningham.com