To vend, you need to know your own costs. To sell in a consultative manner, you need to know customer costs. To vend, you need to know your own sales opportunities. To sell as a consultant, you need to know customer sales opportunities. Realizing that you must come up with a cost-reducing or revenue-adding option, how can you learn a customer's current costs in the business functions that are important to you? How can you get a fix on the customer's unachieved sales potential? In profiling customer operations, how can you quantify with reasonable accuracy the problems and opportunities that will form the base of your penetration plans?
You need to develop three databases, storehouses of information that become the basic resources for value-based selling to key accounts:
An industry database on each of the industries in which you serve key customers
A customer database on each key account customer you serve in an industry
A customer's customer database on your key accounts' key accounts
From your industry database, you learn average costs, average profits on sales, average inventories and receivables, and other industry norms. The information in each of your key customer databases allows you to compare customer performance against industry averages. In categories where a customer falls below the norms, you may find sales opportunities.
Your individual customer databases teach you the concentration and distribution of customer costs. Where do they bunch up? Are these the same places for the industry as a whole? How heavy are they? What are their trends? Are they rising or are they coming under control? What variable factors affect them most significantly?
The best answers to all of these questions always come from customers themselves. Supplementary and complementary data can be found in public information sources listed in Figure 7-3.
Quarterly, annual, and 10-K reports
Investment analyst research reports
Standard & Poor's Corporate Records
Standard & Poor's Register of Corporations
Standard & Poor's Industrial Surveys
Thomas Register of American Manufacturers
Ward's Business Directory
Dun & Bradstreet Reports
Value Line Investment Surveys
Compustat database on public companies
Internet Alta Vista Document Search
AOL/America Online Hoover's Business Sources
U.S. Department of Commerce U.S. Industrial Outlook
Prentice-Hall's Almanac of Business and Industrial Financial Ratios
Dun & Bradstreet Industry Norms and Key Business Ratios
Standard & Poor's Analyst's Handbook
Robert Morris Associates Annual Statement Study of Financial and Operating Ratios
Your customer databases also provide you with knowledge of where potential new sales opportunities for a customer may be found. These may include existing products, new products, combined products, new or enhanced services, superproducts, or systems. How can your customers sell more? How can they sell at higher prices? How can they extend sales into closely adjacent markets? How can they invade new markets that offer superior profit opportunity? How can they anticipate or turn back a competitive thrust?
In order for you to know your customers' businesses, you must know more than the performance and cost characteristics of the internal business functions that you can affect. You must also know the markets your customers sell to. They are your customers' opportunity. Their needs cause many customer business functions to operate the way they do: to manufacture the kinds of products they make, to advertise and sell the way they do, to communicate inside and outside their businesses with the telecommunications and data processing technologies they use. Only when you know your customers' customers can you understand the full range of sales opportunities that can be enlarged as well as costs that can be reduced.
The essential elements of information you need to know about your customers' customers are exactly the same as the data you must develop on your customers themselves. You have to learn the major cost areas your customers affect in their own key account businesses and the main sales opportunities they help them achieve.
When you have accumulated your databases, make sure that you know the five "must knows" in order to PIP most cost-effectively:
From All Operating Managers
What are the best of breeds (BOBs) in your operation and how do you compare to competition?
What are the under-the-gun KPIs for your operation right now and how much/how soon must you improve them?
From Line-of-Business Managers
What are the critical success factors (CSFs) in your operation?
What is the economic value added (EVA) by each one percent improvement in:
Reduction in on-hand inventory?
Improvement in margins?
Reduction in cost of sales?
From Business Function Managers
What is the economic value added by each one percent improvement in:
Product development cycle?
Billing-collection cycle time?
The five "must knows" represent the crucial data points for PIPping. The only place you can learn them is from the managers of the customer operations whose contributions to profits you want to improve.
Knowing the functions and processes that are best of breed tells you where a manager will allocate priority funds to maintain leadership. Where a manager's operation is not best of breed in a critical success factor tells you that funds must be allocated to gain or regain competitive advantage.
Knowing the factors that are critical to an operation's success tells you where to prospect for closable leads whose problems must be solved fast and whose opportunities must be seized before a market changes or a competitor gets there first.
Knowing the economic value that can be added to a line-of-business or a supportive business function by various strategies tells you where you can propose the most closable PIPs and gives you a dollarized baseline for calculating an incremental improvement by following the principle of the power of one—in this case, one percent. Even a one percent improvement in the contribution added by a current strategy that yields a high value can be significant.
In order to induce customer managers to share their numbers with you, there is one immutable rule to follow: To get customer numbers, you must offer your own numbers first. The numbers you offer must be the best projection of your norms onto your best estimate of a customer's current performance.
Being sure of your solution means more than just being sure that it will work. Does it yield the best financial reward—in other words, do the dollar values work best? If you are wrong, millions of dollars may be sacrificed, as one customer discovered:
We make hundreds of components that can be configured in thousands of ways to make an unlimited number of customized products. One vendor wanted to set up a just-in-time inventory of all our components. Another one gave us a system to determine the optimal configuration for each product based on customer requirements. The JIT inventory would have saved us between $3 and $5 million. But the second vendor saved us roughly $18 to $20 million per year in manufacturing costs by reducing the number of false orders for unneeded components.