Commentary: Benchmark Your Financial Capabilities - Modern Distribution Management

Commentary: Benchmark Your Financial Capabilities

While the lead article's title - Manage the Panic of 2009 - might seem extreme, it's important to clarify its real meaning. Reports we're hearing from distributors in January indicate they are not in panic mode. On the contrary, every distribution company has become very focused by necessity on cost control, created by the panic and instability in financial markets.
 
I think that's an important distinction. This isn't a typical downturn, where a company just needs to reduce costs across departments by a certain percentage until the tide turns. This time a distributor needs to upgrade financial skills.
 
The traditional financing and cash flow models distributors have used for decades have changed significantly, with much tighter ...

While the lead article’s title – Manage the Panic of 2009 – might seem extreme, it’s important to clarify its real meaning. Reports we’re hearing from distributors in January indicate they are not in panic mode. On the contrary, every distribution company has become very focused by necessity on cost control, created by the panic and instability in financial markets.
 
I think that’s an important distinction. This isn’t a typical downturn, where a company just needs to reduce costs across departments by a certain percentage until the tide turns. This time a distributor needs to upgrade financial skills.
 
The traditional financing and cash flow models distributors have used for decades have changed significantly, with much tighter and in some cases very different parameters in place. In many cases, the credit tools and levers distributors have used to grow their businesses have either disappeared or been reduced significantly. The result is that traditional rules of cash flow management, which distributors historically have leveraged effectively, are outdated. Those who manage cash flow and credit functions in 2009 in the same way as before are on thin ice.
 
The natural conclusion from this shift in financial foundations is that those companies with a stronger and more flexible financial position – regardless of the length of the downturn – have much more opportunity to emerge with a stronger market position. That’s obvious at one level – better capitalized companies tend to outperform weaker ones. But in practice this core competency requires a very different management approach and benchmarks to monitor.
 
Do you manage your credit functions strategically, or has it been a broad-based sales tool and expense? Have you reduced inventory levels to an optimal level and improved forecasting capability to free some cash without hurting service levels? As Brent Grover notes in this article, as both supplier and bank financing get tighter, distributors have to get more nimble and attentive to up-to-date financial metrics.
 
As in every business cycle, distributors who adapt more quickly to the new conditions gain advantage over competitors. In this downturn, the focus has to be on gaining the maximum amount of financial flexibility and freedom to keep positioning for future growth.
 
On another note, MDM is committed to expanding our coverage of emerging growth opportunities for distributors, including globally. On page 4 of this issue you’ll find the first in a series of monthly analysis of specific markets, with a look at Brazil.

Share this article

About the Author
Recommended Reading
Leave a Reply

Leave a Comment

Sign Up for the MDM Update Newsletter

The MDM update newsletter is your best source for news and trends in the wholesale distribution industry.

Get the MDM Update Newsletter

Wholesale distribution news and trends delivered right to your inbox.

Sign-up for our free newsletter and get:

  • Up-to-date news in a quick-to-read format
  • Free access to webcasts, podcasts and live events
  • Exclusive whitepapers, research and reports
  • And more!

2

articles left

Want more Premium content from MDM?

Subscribe today and get:

  • New issues twice each month
  • Unlimited access to mdm.com, including 10+ years of archived data
  • Current trends analysis, market data and economic updates
  • Discounts on select store products and events

Subscribe to continue reading

MDM Premium Subscribers get:

  • Unlimited access to MDM.com
  • 1 year digital subscription, with new issues twice a month
  • Trends analysis, market data and quarterly economic updates
  • Deals on select store products and events

1

article
left

You have one free article remaining

Subscribe to MDM Premium to get unlimited access. Your subscription includes:

  • Two new issues a month
  • Access to 10+ years of archived data on mdm.com
  • Quarterly economic updates, trends analysis and market data
  • Store and event discounts

To continue reading, you must be an MDM Premium subscriber.

Join other distribution executives who use MDM Premium to optimize their business. Our insights and analysis help you enter the right new markets, turbocharge your sales and marketing efforts, identify business partners that help you scale, and stay ahead of your competitors.

Register for full access

By providing your email, you agree to receive announcements from us and our partners for our newsletter, events, surveys, and partner resources per MDM Terms & Conditions. You can withdraw consent at any time.

Learn More about Custom Reports

Request a Market Prospector Demo

  • This field is for validation purposes and should be left unchanged.