Optimizing Distributor Profitability: The value of best practices

In 2007-08, Texas A&M's Global Supply Chain Laboratory conducted a survey of 350 distribution firms which revealed that of all assets employed, three of the top four assets are inventory, customers, and suppliers.  With that as the premise, researchers and practitioners participating in a consortium organized by the Global Supply Chain Laboratory set out to determine how to best leverage these assets in such a way as to maximize distributor profitability.  The consortium members determined that these critical questions needed to be answered:

• Can companies achieve the Return-on-Investment (ROI) requirement implied by double-digit EBITDA (Earnings before Interest, Taxes, Depreciation, Amortization) multiples in most acquisitions?
• What is the optimal EBITDA number a firm can achieve if it implements the most relevant best practices?
• What best practices differentiate top-performing firms in terms of profitability/ROI?
• Is there a systematic framework of best practice implementation that wholesaler-distributors can adopt?
• If there are so-called ‘secretive' best practices, what are they and how can a company get the implementation details?
• Exactly how do best practices enhance shareholder value?
• Where is the link that connects process to profitability?
• How is the process potential as well as financial potential assessed for an acquisition target?

Seeking answers to these questions, the consortium - consisting of 10 wholesale distribution firms and one distributor association across six lines of trade - building materials, power transmission, electrical, electronics, chemical, and architectural metal components and wood stair parts - developed a framework for identifying and implementing best practices that can be applied in any distribution operation. 

The full findings were published in Optimizing Distributor Profitability - Best Practices to a Stronger ...