Change is constant. Building material dealers must adapt to an ever-changing environment that includes new competition, changing product mix, demanding customers, scarce qualified labor, expanding government regulations, and shrinking margins. The secret to financial success in the face of change is recognizing it and managing the details.
To assist dealers in this changing industry, the NLBMDA will once again conduct its annual “Cost of Doing Business” survey (CODB) for the industry. The survey includes dealers of all sizes and focuses on all facets of the industry. Unquestionably, the results provide great insight into our industry; however, the benefits to the participants go well beyond the primary survey report.
Comparing company performance against a benchmark of other companies shows where management needs to focus its attention. The difference between companies that achieve pre-tax profit margins at 8 percent or better versus those who struggle to achieve 3 percent (or less) can usually be isolated to focusing on just a few details. The CODB provides management a glimpse into what is possible. For instance, if the study shows that the average industry outside salesperson can generate $3.5 million in sales and more than $850,000 in gross profit per year, and your outside reps struggle to generate $2.5 million in sales and less than $500,000 in gross profit, it indicates you need to focus on salespeople and the selling process. Similarly, if it costs your company 18 percent of every gross profit dollar to deliver your products, and it costs the industry 11 percent, then you should investigate the reasons for the difference.
This year, NLBMDA is planning several exciting changes to the CODB. The scope of the survey has expanded beyond measuring just sales by customer type, product type, and transaction payment method; this year the report will include a gross margin analysis for each of the sales classifications included, a productivity analysis on fleets, and seasonality information. Survey participants receive this report as well as a customized report highlighting their results versus those in their region and industry. As a bonus, each participant will be provided with an Excel spreadsheet that models their company's past performance and allows for cash flow and operating profit projections by entering a few key assumptions.
Additionally, some dealers, recognizing the nature of change, have requested a tool that goes beyond the CODB with more timely feedback performance and insight into the cost centers associated with the building materials industry. NLBMDA has responded with a new program and a new management tool, the “Strategic Analysis Initiative” (SAI).
The program consists of two quarterly reports that provide timely analysis of virtually every operating facet of the company. The “Management Performance Report” (MPR) provides a comprehensive trend analysis that is color-coded to draw attention to the trends that might need further attention. The “Dealer Report Card” (DRC) takes the information in the MPR and creates a benchmark against similar participating companies. The DRC will help you focus management's effort on areas of the company that perform below standards set by you for your organization. Initial feedback from dealers using the program indicates that the timeliness and thorough analysis have made the SAI their primary management tool.
NLBMDA has made providing the industry with timely, valid data a priority. One way to do this is through reports like the CODB and SAI. The data found in these reports is an invaluable tool for dealers and the industry as a whole. Surveys can be found on NLBMDA's Web site, www.dealer.org, and must be returned by May 31, 2005, to participate in the 2004 report. For more information on these and other association programs, visit the NLBMDA Web site. — Steve Davis is president of MGT Strategies in Greenville, S.C.