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AH Cunningham & Associates
Distribution

We came to this distributor, located in the South Eastern United States, with a mission to profile their successful trader/salespersons.  Then create a training program to build more successful trader/salespersons.  In addition, we were to identify and train a Chief Operating Officer and build an organization structure that would support growth beyond their current levels of operation.   This client was already successful and profitable, what they sought was improved lifestyle and a continuing ability to succeed and grow without the hands on involvement of ownership.  In addition, the principals of the company had a strong desire to expand their reach into manufacturing of pharmaceutical products in both the domestic and foreign markets.   At the time of our arrival the company had attained annual revenues of slightly under $70,000,000 and profit in excess of $4,000,000.   The company founder was a pharmacist aged forty (40) and the other major shareholder his brother aged (54) a barber by trade.   After our arrival we found that in addition to those stated goals we had also to define and hire a Vice President of Finance. 

 

This business literally started out in the founder's living room, buying excess pharmaceutical inventory from manufacturers and reselling it to retailers making a small but reasonable margin on turning the product over.  The secret of the business was building relationships with the manufacturers and wholesalers, being a man of your word and being your supplier's problem solver.   From his start in his living room in the rural South East our young pharmacist had already built two structural steel warehouse buildings and carved about 5,000 square feet of office space from 80,000 total square feet under roof.   Our initial joke was "Before we are done you will have this entire cow pasture under roof".   As you will see by the time we were done it was no longer a joke.

  

The founder had been contacted by a business broker who had buyers interested in his business.  This contact was made before we began our project.  The founder was interested in selling at that time.  After we began the project, the broker and his potential buyers came in examined the business and offered the founder and his brother $20,000,000 for a 65% stake in the company. Based on the work performed already the founder and his brother believed that a greater benefit would flow to them long term by maintaining 100% ownership.

 

Upon beginning the consulting process we found as follows:

  • A company that worked at a certain size and level of activity based on the innate human decency of the founder and his brother.
  • The company was completely staffed by local people with a good work ethic and a desire to make the company succeed.
  • Every person in the company was more than willing to do anything requested, even if they were not properly trained or instructed.
  • The company had an extremely effective picking system and shipping system that allowed for 98%+ on time shipment rate and over 99% error free rate.
  • There was no real organizational structure or policies in place.
  • There was a very sophisticated AS 400 IBM system and a custom software program in place to track age, provenance, cost price, movement, expiration dates and similar information required to deal in controlled pharmaceuticals.
  • A very well paid work force, especially in comparison to all of the other rural employers with whom they were competing.  When word got out that the client was hiring, it would not be unusual to have fifteen or twenty applicants stop by just on word of mouth from other employees.
  • A solid employee benefits program, but without any pay for performance incentives.
  • No training or cross training programs for employees at all levels of the organization.
  • Accounts receivable over 90 days old from three of America's largest retail drug store chains totaling nearly $1,000,000.

 

As the foregoing points out there was a lot right in this company and its continued viability at the current level of operations was excellent.   But what helped them succeed up until now helped them make the decision to grow the company to the next level, a mature business which would survive the founders and flourish.

During the course of our initial assessment we agreed that a project of 660 hours would be required to set the course for that growth and development.

 

The first several weeks were extremely busy as we interviewed people, started a testing regimen, evaluated activity, assessed skill levels and generally found out what we had to work with and what made our people successful.   

 

One of our first steps was determining what must be accomplished for the company to be successful.  The second step was determining just where that work should be accomplished.  Finally we had to decide what should be done structurally to ensure its completion.  In order to do this we jointly built a structural organization chart that listed every task necessary to operations.  We then went back and determined what position in the company should be responsible for the task and who should have oversight of the task.   Once this was accomplished we gave each manager and supervisor in the company delegation worksheets and determined how those tasks should be delegated within their departments and who should be primarily responsible for its accomplishment.   

 

While all of the things in the foregoing paragraph sound tedious and boring it was, all necessary to develop a profile of the trader/salesperson and begin development of the training regimen. 

 

We spoke earlier of testing all of the existing trader/salespersons.   This testing was specifically for intelligence, personality traits and stress management skills.  By evaluating existing trader/salespersons, we found those common traits upon which their success was founded. Examining the traits and skill sets of successful trader/salespersons, we began building a training regimen, which included on the job training on the warehouse floor, throughout the data processing area, accounting, customer service and finally apprenticing with all of the trader/salespersons.   The O-J-T portion of the training program takes six months to complete and the apprenticing portion covers ninety to one hundred eighty days.  Since its inception the program has turned out four new trader/salespersons all of whom have experienced great success. 

 

The second crucial step was building a strong organization on which the company could rely and grow.  We took all of the information garnered from interviews, testing, assessment, functional organization and delegation and created an organization structure with all necessary positions, lines of authority, lines of communication and staffing.  We then created position descriptions for each spot on the positional organization chart.  Each of these position descriptions included responsibilities, duties and standards of performance.   Using the position descriptions we developed evaluation protocols to measure the value of employees in their positions.  Once all of the above elements were in place we created a training/cross-training regimen for the warehouse floor and an employee incentive plan that rewarded extraordinary performance.  

 

A third major element was the financial reporting-cash flow element that arose from the $1,000,000 in overage accounts receivable.  The company had been getting their monthly financial statements from their outside accountant not having any trained accounting personnel on their payroll.  The problems attendant to having financials prepared outside including turn around time, accuracy (especially as regards inventory) and lack of interpretation, were all present here.   We first analyzed the old receivables and started a telephone and fax campaign to eliminate the old unpaid or partially paid invoices.  At the same time we started the collection of old accounts we defined the company needs for a CFO or Vice President of Finance, began advertising for same and started the interview process to hire a qualified candidate.   After reviewing several hundred resumes and interviewing over the phone and in person 10 qualified candidates we, with management hired a well qualified candidate, who among other things fit in with the personality of the organization.  Over three years after his hiring the VP of Finance had the financial accounting system preparing all regular financial statements and all required management information reports and maintains the over 90 days receivables at less than $50,000 at all times. 

 

Remember, among other things we were to train the Chief Operating Officer.  We are pleased to report this young man who was 32 years old at the time has progressed to the point where he manages all day to day operations, has complete authority to act and has increased both profitability and gross revenues of the operations.   His efforts and abilities along with those of his co-workers allowed our client to make this statement to me on the phone;

 

"Although you have never asked me to be a reference the things I would gladly tell anyone asking about your services are, you did exactly what you said you would and you dramatically improved the quality of my life."

 

 The subsequent achievements and adventures of this client have kept us regular visitors to their converted cow pasture to all of our good fortunes.   We spoke at the beginning of this study about the 80,000 square feet of building when we started.  At the time we are writing this the client has put on two additions of warehouse space totaling over 160,000 square feet and over 10,000 square feet of office space.  In addition, they have added two pharmaceutical lines being manufactured under license from one of the giants in the pharmaceutical business.  The hospital supply business has more than tripled from the prior year's levels. Revenue has exceeded $165,000,000 annually.

 

 

    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