Galileo, Chief Executive Officer

The primary role of the food industry CEO is to reconcile the company with the external environment. One of the uncontested methods of doing this is by maximizing organizational strengths and minimizing weaknesses.

I am puzzled by the number of c-leaders who rest on this line of thinking.

A supplier’s strengths that were relevant as little as 6 months ago may be irrelevant today--or matched by a competitor to level the playing field. A weakness once considered an inconvenience or annoyance in the larger context may now be the deciding factor in supplier selection when that weakness does not exist in a competitor.

Customers we talk to are doing great things and taking big risks to adapt to changing consumer demands and tastes. They realize their strengths from yesterday will not necessarily carry them into the new competitive environment: A major restaurant chain is diversifying its casual dining brand with a fast-casual variation. A new system-wide breakfast program is threatening other giants’ share of the morning day part. C-stores are focused on enticing consumers away from QSRs—and its working. A mass merchandiser is opening hundreds of smaller concept stores. Retail private label continues to grow, influencing new shopping behaviors with quality as good as national brands and at a better price.

These expanded customer models require an evaluation of a supplier’s ability to keep up, to educate themselves on the new business, to help them be competitive and reach their goals, and meet other important performance metrics. Those that fall short add costs and complexity to the accounts they are trying to win, maintain or grow.

“A lot of manufacturers don’t get it,” one chain executive told me. “They miss the mark in areas critical to our business today. The problem isn’t necessarily their price; it’s that the cost of doing business with them is just too high.”

Internal meetings that review supplier performance have a direct impact on the financials supplier CEOs are tasked to deliver. It’s disturbing how often problems, negative experiences or perceptions that lead to volume loss are discovered too late. When all factors are tallied, RFPs or sample requests from competing suppliers can result in split volume, price pressures that drive down margins and extend ROI on investment, missed opportunities…or the volume disappearing completely.

Think about it: Changing or adding a new supplier carries with it considerable cost and risk for the customer. What does it say when the benefits of making a change or foregoing one supplier in favor of another outweigh the costs or risks?

Uncovering and avoiding these scenarios ultimately rest with one individual. Only CEOs possess the total-enterprise perspective and authority to reconcile their company with the realities of customer perceptions and feedback. That requires a willingness to look at hard facts--a job that should not be delegated or filtered through vice presidents or functional managers. It means getting the most unbiased, clear-eyed read from an independent, experienced resource with no stake in the outcome. A two-way direct dialogue between the customer and an experienced third party food industry specialist who knows how to probe and gather input from multiple areas of the customer organization to determine what’s being said, what’s being decided, the “why” of past decisions, and extract perceptions and experiences that affect future business decisions is essential. This information becomes the basis for improvements that drive more customers and cash towards winning suppliers.

Galileo said, “All truths are easy to understand once they are discovered; the point is to discover them.”

How will you discover what customers believe are your organization’s truths?

The Supplier/Broker Dance

Cutting the rug with a food industry CEO doing the Customers and Cash Boogie, our rhythm stalled for a few moments when I asked how broker reviews improve his organization’s financials.

Broker reviews do not improve sales. Their costs are buried in supplier financials, offering no insight into the supplier/broker relationship or processes that guide it. Supported by data, they also include storytelling, guesswork and opinion--all in good faith but insufficient for solving problems, making decisions or producing predictive outcomes: “XYZ account went out of business”, “You’re not paying enough attention to our line”, “Competitor X bought the gold level program”. Comparing period-to-period sales or results-to-quota when market conditions, leadership, personnel, competition and strategy keep changing is an exercise so imbedded in sales management culture that its cost-to-benefit is unknown and unchallenged.

Estimate the total number of salaried hours required to source data, assemble, analyze, travel, and conduct broker reviews. You can conservatively estimate a cost of at least $6,500 for each. Multiply times 20 brokers, and your company spends a minimum of $130,000. In net income terms, that equates to tens of thousands of case sales.

Have broker reviews really increased sales revenues for your company? Lifting a section from management handbooks, brokers and suppliers benefit less from this practice and more from consistent, reliable, collaborative processes between your company and theirs.

Resuming the Customers and Cash rhythm with my chief executive client went like this:

• Discard this costly, long-standing practice. Just as you would remove barriers to production efficiency, challenge any practice that is a barrier to sales productivity.
• Re-route broker review costs to curtailing or preventing firefighting in the sales system.
• Define and analyze the functions in your supplier/broker relationship before trying to measure them or drawing conclusions.
• Drill into the flow of activities brokers undertake on behalf of your organization: Scheduling, selling, communicating the voice of the customer, supporting customer programs, administrative paperwork, invoicing. Work with your organization to help take out complexity, cost and time wherever possible.
• Pay attention to the inputs and outputs of these primary functions because that’s where the real costs and inefficiency reside. Brokers don’t resist or resign lines that pay too little; they resist or resign lines that cost too much to represent.
• Effective supplier/broker relationships should be based on reliable, repeatable processes that are consistent across all markets, even when a change in leadership occurs on either side. Business can only be managed by the set of processes that define its activities.
• Collaborate with forward-looking sessions that estimate the resources required to deliver the numbers and cascade responsibility for achieving them throughout both the supplier and broker systems.
• Whether results are up or down, let your sales leaders review the processes that either contributed or derailed them--but only after you, as CEO, have been involved in establishing and imbedding them.

The supplier/broker relationship should be organization-to-organization, not sales manager-to-account executive: aligned with missions, actionable, consistently measured and reported, tracked as a time series, predictable and compatible with the way brokers do their job. CEO involvement in establishing guidelines is critical because broker performance is directly related to many of your organization's most important metrics: Gross revenue, salesperson productivity, strategic execution, new product introductions, customer acquisition, retention and turnover, and more.

Socrates said, “The unexamined life is not worth living.” Unfounded, calcified beliefs could be costly and slowing down your organization, preventing more effective practices from emerging.

Broker reviews is one of them.