Diversification in the office and workplace supplies market – Managed Services
Depending on who you listen to or what report you read the Office Supplies market is in decline, static or has minimal growth, but one thing is certain winning and maintaining profitable business is not getting any easier!
In Adam Noble’s first article on this crucial subject area, he looked at the need for a well-thought-out strategic plan and provided tips on how to do that.
The options for diversification are huge and varied and, to be fair, complicated. To try and focus this broad subject area down into bite-sized chunks for an article, there are two evident ways you can drive diversification change into your business and therefore for the benefit of your customers – in-house and outsourced.
To be accurate there is a third way, and that is a combination of both!
But that is for you to decide and will be influenced by factor such as your financial strength, your existing skillset in your business, how quickly you want or need to act, and, most importantly of all, your existing customers and your target customers.
Adam Noble will, in a future article, look at the ‘in-house’ option he embraced at The Irongate Group. For this article I will explore the model we decided to adopt at Anglo Office Group – outsourced.
A little context might be useful.
Anglo was an established and successful office supplies business. In London. And only servicing London clients. Lots and lots of potential customers in a small geographical area. And lots of lots of competitors too. All of them really good at supplying office supplies thanks to the evolution of the (mainly) wholesale-backed single source supply chain solution.
Differentiation had to be achieved in different ways in that area and in that market, so a strategy driven by energetic sales and marketing activity aimed at specific targeted customers was the mainstay of the business for many years. Along with that long-held traditional pricing model of core and non-core structures.
But change was coming. That differentiation that had served the business so well was becoming commonplace with inevitable differentiation being… price! The race to the bottom!
And then…..Amazon Business arrived in London. With a bang. Not only did this activity create lots of noise and disruption, it mainly and initially attacked the part of the business that was underpinning the previous positive margin of many customers - the tail (non-core) products.
It was time for a re-think. We looked at our business model and then talked to our customers.
At Anglo, like most other office products suppliers, clients would often ask us to ‘help them out’ with supplying one-off odd items they wanted to purchase, these items were treated as ‘specials’ (or ‘a bloody nuisance’ by purchasing)!
As a company that prided itself on its customer service approach, we would always do our upmost to source these products, even when the cost in time and effort would often result in supplying at a low margin
And, when taking a cold hard look at our sales make-up, ‘specials’ was around 15% of our business already! And growing.
Was that a legacy of bad or lazy business practice or an opportunity? Could we turn this into a sustainable and profitable service offering?
Time to ask some questions.
We supply tea and coffee to some customers. How much tea and coffee is drunk in an average office? What about milk to go with it? Why aren’t we supplying that too? (You can’t get that from a catalogue!). Would our customers prefer better quality brands/options? What other drinks are supplied for the staff? Water, Coke, squash, all the usual suspects? Do the more discerning employees want greater choice? If the client is supplying beverages for their staff, do they also provide any form of biscuits, snacks etc, would they like more choice? Are we offering enough non-standard catalogue lines?
Old fashioned ‘up-selling’ potential? What other product areas could we apply the same logic to?
We were suppling lots of paper, we could assume the client is using printers? Is there an opportunity to start selling hardware? Most clients have photo copiers, could we get involved with MPS? Could we do that in-house or would we need to partner with a specialist to enable us to provide good service at a competitive price?
The product association was obvious. Our research – we did a lot of research, meeting and speaking with all of our top 100 customers at least - told us that there was a market opportunity of almost 50% of our customers’ existing spend ‘out there’ from associated products that we could, IF we could find a way, start to provide.
Now ‘services’ were a consideration! We wanted to be considered and regarded as a ‘single source’ provider for EVERYTHING for the office, so if we were to truly provide a ‘single source’ solution we would need to offer a true single source solution for EVERYTHING!
For example, we were selling a reasonable amount of cleaning products to our clients; those that didn’t buy from us were using an outside cleaning company. (who ‘included’ the cleaning products). Could we provide this as a service too? We did not have the expertise to provide professional cleaning services, but what if we partnered with a cleaning business…?
There was clearly something in this. Time for a board meeting!
There was almost 100% agreement that an enhanced product offering would be valued by our bigger customers, but the smaller ones would have some needs that we could not currently service. In fact, the appetite for a true single source solution – one that includes the whole spectrum of products AND services – was more popular in SME’s. This was driven by the fact the SME’s simply do not have dedicated resource to manage it (it was often a bolt-on part of someone job), nor were they attractive enough (or big enough) to benefit from volume-related discounts from specialist suppliers to justify the internal management costs of split/multi-suppler solutions.
So, there was definitely a customer appetite for an extended single source solution.
All we needed to do was give them what they wanted!
However, legitimate concerns were raised; what product areas would sell, did we have access to appropriate suppliers, would there be stock implications, could we add these on without having a negative service impact and therefore undermining our reputation for great service.
And, more importantly, could we do this profitably?
Although the concept of a total single source product solution was enthusiastically received by our customers, complimentary services were not met with the same level of immediate enthusiasm. This would clearly be outside of ‘comfort zones’ and there were legitimate concerns about the lack of expertise within our business to not only be able to provide the services but also how to support them and, of course, sell them.
It was agreed that if this was going to be a thing for us to take to market, we did not have the funds to build from scratch in all the areas we wanted to offer, nor the time, nor the expertise…so working with experts in ‘partnership’ would be worth exploring.
But where do we start?
Research, research, research.
We had a lot of experience within the business so working through the list of potential product areas and potential services our clients might require was fairly straightforward; after all we had our own business and knew exactly what it was, we used/required. We cross referenced our ideas with about 100 regular clients to see which areas they would most likely embrace and developed the ‘list’ based on commonplace requirements rather than ‘one-offs’ or niche. We came up with the following:
Enhanced catering supplies, catering for events/meetings/conferences/parties, milk, fruit, newspapers/magazines, flowers, artificial planting, archiving, storage, couriers, MPS, printers and associated hardware, event planning, vending/coffee machines, maintenance services, cleaning, business gifts, health & safety equipment, and workwear, in no particular order!!
Next and extremely critical step was to find to find the right suppliers to allow for all the above to be brought to life. We had to be confident that any the suppliers could give us access to a good breadth of products so we could make our offering attractive and instil confidence that we were the ‘go to’/one shop supplier and make ordering from us easy and sustainable. Price, stock availability, acceptable lead times and a positive/trusting relationship were also key.
With service partners it was vital to ensure that any companies we were going to collaborate with had a demonstrable customer service ethic, as we would be ‘letting them lose’ on our most important assets, our clients.
It was also an opportunity to discuss reciprocal arrangements. Our potential new partners would have their own client base who would have office supplies needs? There would be opportunities to agree commercially sound arrangements based on referrals and successful conversions.
Using personal relationships acquired over collective decades in office supplies and other related industries, talking to our wholesaler, suppliers, and clients, looking for recommendations, we created a list of potential supplier/service partners and proceeded to arrange exploratory meetings.
Whilst formal working/commercial agreements would need to be drawn up (simple ones – not just for our benefit but to build trust and commitment in the suppliers’ minds too), trust and mutual respect were paramount in these relationships. In hindsight, there was a little trial and error, but I can honestly say we discovered some wonderful suppliers and developed some great professional relationships that last until today.
One of the most critical aspects we concentrated on was ‘selling’ the concept to potential 3rd party service providers. We shared a lot: The challenges we were facing – declining sales in our core business of office products, increased activity from Amazon and other on-line providers; but also, the opportunity we had in a mainly loyal customer base, and our ability to maintain regular customer contact, and therefore our ability to recognise possibly the most valuable aspect in any sales process…being there when an opportunity arose. Many of these partners would only get one stab at a sales opportunity every so many years when it was reviewed, so the ability we had to be their eyes and ears was obvious (think how much money and time is spent trying to get noticed…at the right time!!).
The 3rd party service suppliers were understandably cautious at first. After all, we were trying to convince them to give us some of the margin they would normally retain by selling direct, but the promise of a pro-active sales and marketing effort, awareness of when to pitch for that business and the ability for us to help lock in the customer (and therefore them) by providing a harder-to-break single source solution, were an obvious attraction. And that margin we wanted was more or less what they would spend on their own sales and marketing effort anyway!!
In the background we looked at how we would market/sell our new offerings. Our salespeople would need to be ‘trained’ to sell the concept (we will cover this in our 4th article), our online presence needed to be co-ordinated, and consideration given to sales collateral.
We were up and running.
Success was almost immediate, clients loved the idea of consolidating their ordering with the obvious time savings benefits, reducing deliveries and in turn impacting their carbon footprint. We offered consolidated monthly invoicing to cover products and services which was again welcomed by many clients.
The bigger clients welcomed our extended product offering with us stocking the catering products they used regularly and being able to have them delivered next day.
In some cases we also offered direct invoicing from service partners which some clients preferred as it enabled them to allocate costs directly to specific cost centres etc. In these instances, we invoiced the partner directly for our margin. For example, we ‘introduced’ our cleaning partner who, with our help, won annual- bi-annual contracts with our clients. We liaised with the client in our regular meetings to ensure they were happy and then invoiced the partner. Falling into the ‘nice work if you can get’ category.
Most importantly for our clients they knew we were managing this (and other supplier relationships )and that, in turn , made them more valuable to us (we wouldn’t risk a poor service in one area as it would potentially damage others – we never shied away from selling that as a client benefit).
Another little ‘trick’ we developed for our bigger clients was getting our drivers to do ‘put away/stock replenishment’. Where the client ordered regular catering, or indeed office products, our driver would put the drinks/food in designated fridges/cupboards and let the office at Anglo know when agreed stock levels were low. A top up order would then be placed for next day, allowing full availability of the products that were most important to the staff. Clients loved it, we took the responsibility (and the workload away – SME’s often have someone in the business who has this responsibility as ‘part’ of their job, not their actual job), and their staff were kept happy.
An obvious benefit of all the above was client retention. The more they became reliant on us the less likely they were to move, not forgetting the obvious, the more they spent the more profitable they became, the cost to sales ratio dropped with almost every account who used Managed Services.
Less obvious was the benefit we gained from close supplier relationships. You see, many of our service partners would be up against similar challenges. Quite often we would get leads from our service partners when they were up against a client wishing to ‘single source’ in their business – rather than lose the business they already had, they would introduce us and we would be able to satisfy everything else; and in some cases, the customer even switched the service to go via Anglo so they had consolidated billing and, as mentioned before, ‘one throat to choke!’.
Above all else our sales were growing in these areas (and replacing the decline in core office products) and the cash margin Managed Services generated was positive – more than our core business in fact!
Managed Services was still growing, and still our fastest growing areas, when Anglo was sold.
‘Best sellers’
Whilst we ‘sold well’ in all areas there were some astonishing triumphs.
Jointly with partners Anglo had ongoing cleaning, MPS, vending, hardware, planting, and storage contracts. Low-cost cash rich margin business.
We had weekly catering orders delivered going into clients direct from our supplies, as well as having the volume demand to stock well over 100 lines of catering in our warehouse. One client was taking seven different types of water on a weekly basis!
Our events catering partners were suppling food for breakfast, lunch and conference meetings, alcohol for office functions and parties.
We sold 250,000 bottles of milk in a year, through our partner dairy!!! Milk delivered daily before our clients were in work. Offering the milk in glass bottles was a simple massive win, another environmental success. The demand for milk and the service behind it, was so successful the salespeople started to lead with it!
The services were a such a success that we decided to set up a dedicated Managed Services team who liaised with our suppliers, service provider and salespeople, They also liaised directly with clients (who loved the idea they had someone on hand to deal with things immediately). The Managed Services team met monthly with the partners to ensure communication was consistent, customer reviews were managed, and any service needs were addressed. They also identified new opportunities - products or services - that might benefit our sales growth (and they were incentivised to do so too).
This may seem like a significant cost, but when you consider that Managed Services had grown to 50% of Anglo’s turnover at the point the business was sold, the diversification was not only off setting any market related sales deterioration, but it was also generating most of our operating profit. Yes, our GROSS margin % went down as a result of outsourcing of more services - our gross margins were always lower in these areas; but our cost-to-serve was much lower as a result, so net contribution went up.
Conclusion
Diversification was great for Anglo, a real game changer. Whilst we may have been considered pioneers, I am today aware of other forward-thinking Dealers who are currently experiencing excellent sales growth and healthy cost to sales ratio’s by going down this route.
I would encourage any Dealers to explore the possibilities, you don’t need to go ‘all in’, maybe just look at catering supplies for your bigger clients, work with a particular service provider that you already have a relationship with?
If you are considering selling into a ‘new’ sector as a way of growing your sales, its likely they will have other product/service requirements that you are not currently supplying, so you will need the agility/skill sets that diversifying brings to set you apart?
This isn’t a light undertaking by any means and will need a solid plan or strategy as Adam said in his previous article, and some investment in time and perhaps money. But if you are looking at replacing declining core sales, holding on to your customers, stopping your competitors taking your business, looking for new ways ‘in’ to new customers, and re-energising your sales and marketing efforts, you really should embrace the opportunities that exist.
And one of the key things to making all of this work as you need it to is well-managed supply chain and supplier partnerships.
I leave you with a quote from Gray Naphtali, the MD at Anglo when Managed Services was introduced:
“We have been calling ourselves a single source supplier for years. We are not. We are a selective single source supplier – we only single source supply products that suit us, not our customers. This has to change. If we are going to say we are a single source supplier, we have to become one. The risk to doing so and the commitments we need to make is obvious, but the risk to do not doing it is much higher”
This article first appeared in September's edition of Workplace360 magazine
Steve Gorham
Steve is a proven and experienced business leader and senior manager. With a 35-year track record in leadership roles, Steve has managed and led teams from small, project teams to national teams of over 200 people.
A specialist in operations, logistics and supply chain management, Steve’s wider commercial experience includes business ownership and business mergers, and includes personal leadership roles from single-site to multi-location businesses with sales in excess of £200m per annum.
Steve led the evolution of Anglo Office Group's diversification drive into providing multi-services solutions for London's leading companies and organisations, establishing the supply chain and service solution, and innovating zero emission logistics that underpinned Anglo's sales growth into new markets.
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