Exceeding Growth & Profit Goals for a Parts Distributor

The company bid short-run replacement parts from manufacturer-owned prints. Over time the designer/manufacturers of components and parts had changed their strategy and were providing repair parts services as part of their offering – thus reducing the volume of machine-to-print work.

Background:

The leaders of a distributor of specialty vehicle aftermarket parts were not meeting margins, or the business targets set by their current business model of “Growth through Acquisition”.

Challenge:

The company viewed itself as “the high-value distributor” in the market. However, the company’s EBITDA (TTM 8.2%) was no better than those reported in industry publications.

The organization members’ professional experience and the company culture encouraged a limited, traditional industry perspective centered on the old-school distribution business model.

Several “creative” ideas modeled on other industries had been attempted – including attempts at deploying new technologies – but had proven unsuccessful.

Solution:

ScaleWerks started the project by engaging with key leaders in monthly meetings where critical concepts and terminology were introduced, discussed, and applied. Examining the terminology – lexicon – used the organization is a critical part of the Scalewerks process, as the limits of a company language are clear expressions of the limit of the organization members’ knowledge. Changing this lexicon, therefore, is crucial to changing the way the people in the organization think.

As a result of these meetings the company launched a data collection and analysis process to define staff and customer perspectives. The process identified specific customer segments’ unmet aspirations and allowed the company to point out where they could win big by creating a strategy that focused on becoming a leader in a completely new category of service. In the SmartScale℠ process, strategising through a ‘category’ is key, and involves finding a new approach to a customer/process problem that had previously not had a solution. Creating this new category of service lead to new opportunities for income and long-term customer loyalty.

For this client, this strategy included a new business model – a platform vs. supplier model – that would open the door to SmartScale℠, i.e., adding revenue at a much greater rate than cost.

ScaleWerks then worked with leadership to rework their strategic plan, develop tactical operating programs that supported this new SmartScale℠ strategy, and worked with the company shoulder-to-shoulder to execute this plan. This included successfully conducting technology, category architecture, and organizational transformations.

Result:

The company created a new category and business model, supported by their new lexicon. The firm began regularly exceeding aggressive growth, profitability and enterprise value targets. An internally funded SmartScale℠ strategy replaced the old “Growth through Acquisition” strategy

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