Wednesday, September 21, 2011

Is competitive cooperation possible in the flooring industry?

David Wootton
The economy and the floor covering industry continue to struggle. One leading CEO of a large manufacturer stated “the industry is years away from a full recovery.”  If this is indeed the case, how many of you will survive without making more strategic and innovative changes in your operating structure? In this environment there is no room for complacency or unnecessary costs. Many companies achieve economies of scale through consolidation but for some that may not be an option. If consuming a competitor is not the answer for you, then consider competitive cooperation.   

Back in the late nineties I was president of a hardwood and vinyl flooring manufacturer that was assessing its distribution network - something manufacturers must do often. We tried an exercise and placed a dot on the map representing our distributors’  branch warehouses and headquarters. The result was a map that looked like it had measles which told us there was a lot of waste and duplication in our supply chain. We knew our distributor network would be more cost effective with fewer but larger distributors so we floated the idea of consolidation. Naturally, this idea went down like a lead balloon and never got off the ground; sunk by questions like “who would be the boss?” and how much would I get for my business?” Lost was any constructive discussion about potential benefits and shared synergies.

But perhaps now the time has come to consider what some may have thought incomprehensible in the past. What seems incomprehensible to me now is that small distributors continue to operate warehouses and administrative systems of their own when it would be prudent to cooperate with a competitor and form a service company to perform the function of warehousing, deliveries, invoicing and other non selling operations. This would immediately reduce costs and add value for each company while enabling them to compete with each other.

This is not a new concept.  A decade ago Jim Gould’s third-party logisticscompany, Distribution Services, Inc., provided shared administrative and logistics services for flooring manufacturers eliminating the need for them to have order desks and claims departments. DSI offered invoicing, accounting, logistics and fulfillment services.  Think about what your bottom line would look like if you could spread even some of these costs over a shared service center. These are the same kind of savings usually gained through consolidation  - which has helped J.J. Haines remain one of the largest, most successful flooring distributors in the country.

Whether manufacturer, distributor or retailer, I urge you to consider new and innovative ways to reduce costs and build value for your company.  Explore whether there is room for cooperation.  If you cannot even contemplate talking to your competitors then at least research whether outsourcing to a third-party provider is a good strategy for you. While shared services and outsourcing may seem unpalatable from a jobs point of view, through this kind of action many jobs may be saved.
  
What do you think of the concept of competitive cooperation? Can it be helpful or is it impossible?

David

David Wootton is President of The Wootton Group, an independent flooring consultancy, and a member of the Floor Covering Institute. He is past CEO of both Columbia Flooring and Harris-Tarkett.

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