9 - Managing growth Flashcards
What is a significant management challenge when managing growth in distributors?
Managing growth in distributors involves hundreds of decisions affecting margins and costs, which can quickly turn profit into loss.
What is the difference between growing with the market and fighting for market share?
Growing with the market is easier than fighting for market share against competition, especially in a shrinking market.
What are some competitive advantages that can help overcome growth challenges?
- Product exclusivity
- More effective advertising and promotion
- Better prices
- Improved service
- Greater availability
- More responsive delivery speeds
What are the two major benefits available from growth for distributors?
- Cost structure efficiencies
- Working capital efficiencies
What is the potential risk of rapid growth for a distributor?
Rapid growth can lead to overtrading and running out of cash.
What does the internally financed growth rate formula help determine?
It helps determine how much growth a distributor can finance from its own internal resources.
What is the working capital turn?
The number of times the capital is used each year, calculated as sales divided by working capital.
How did ABC Co achieve a 9% sales increase despite a low potential growth capacity?
- Improved working capital turn from 11 to 12.6
- Reduced cash balances from $401m to $232m
What is the impact of adhering to listing requirements for public companies?
It incurs high costs and demands the highest standards of management.
What is a crucial strategy for managing fixed costs effectively in distribution?
Delaying investments in increasing capacity until after revenue growth has surpassed the new level of fixed costs.
What are the risks of under-investment in a distributor’s capacity?
It could lead to a competitive disadvantage and negative effects on customer experiences.
What can management teams learn from operating near full capacity?
- Identify high-performing team members
- Develop valuable innovations
- Streamline processes
What is the analogy used to describe the impact of changing systems while operating at full capacity?
Changing the engines on a 747 while in mid-flight.
What is a critical success factor in managing change in distribution?
Inculcating a solid understanding of the business model and planned changes among affected personnel.
What advantages does working capital management provide to larger distributors?
- Smaller buffer stocks
- Higher sales to inventory ratios
- Higher inventory turn ratios
What systems can help improve accounts receivable management?
Automated systems for credit control, credit management, and billing.
What is a common quick win in turnaround projects for distributors?
Eliminating the bottom 10% of products and vendors to release working capital.
What is a potential downside of having multiple inventory locations?
It multiplies buffer stocks required and can reduce overall efficiency.
What are diseconomies of scale?
Complexities related to coordination and control that arise from handling millions of transactions.
What can hide key issues in a distributor’s operations as they grow?
The complexity of data and information about customer and product performance.
What are diseconomies of scale?
Complexities related to coordination and control in large operations
Diseconomies of scale occur when growth leads to increased complexity, making it harder to manage operations effectively.
How can complexity hide issues in distribution?
By obscuring key questions about customer and product performance
Complexity in data can make it difficult to identify which customers and products yield the best returns.
What happens as a distributor adds more SKUs, products, and customers?
It increases complexity and requires more layers of management
Each additional SKU, product line, supplier, or customer adds a new dimension of complexity.
What is crucial for managers of successful distributors?
Maintaining focus on the basics of the business model
Successful managers ensure that their team understands how their actions impact the overall business performance.
