“A marketer can maximize success by identifying opportunities and developing network plans,” says Mitch Phillips, global director for network analysis at Urban Science, a Detroit-based international consulting firm. “Typically, today’s retail networks operate at only 60 percent to 80 percent efficiency, so a marketer that does retail network planning has room to gain a considerable advantage.”
Smart Business spoke with Phillips about how retail network analysis can result in marketplace success.
Achieving optimal performance within a retail network seems like a major undertaking. Where do you start?
The objective of a retail network is two-fold: to provide a competitive environment in which to shop and to provide convenient access for both sales and service. Through almost 30 years of experience in network analysis, we’ve learned to divide the process into three segments: network planning, network management and network intelligence. When all three work seamlessly together in an integrated management system, the network will perform at its peak potential and achieve critical competitive, cost and customer-relationship advantages.
How can a marketer be sure he has the right network plan?
The plan is a result of much research, analysis and evaluation, so a lot of care has gone into making it on-target.
The first step in developing the plan is to look at the number of retail outlets, the location of those outlets and the performance of each location. After all, the outlet might be in the right place, but if it isn’t run efficiently, it won’t succeed.
After analyzing these factors, the market is evaluated and a network plan is developed. It will determine the number, type, size and location of outlets necessary to achieve the manufacturer’s objectives. It also requires measuring the present performance of the network and its outlets to determine what to do next. It needs to be flexible enough to meet the needs of a rapidly changing global marketplace. A well-designed plan can increase customer satisfaction, can cut operational costs and reduce financial risk, and can fully demonstrate the product’s potential in the marketplace. Planning centered on these issues is essential for success.
Once the plan is in place, how do you ensure it stays on track?
There are two factors that influence manufacturers in the marketplace: consumer behavior and competition. Through network management, a marketer can continually monitor these factors and modify the network plan where necessary to take advantage of any substantial changes.
Secondly, it’s necessary to keep tabs on outlets and examine the ones that fall below expectations in attracting and retaining customers. Manufacturers should work consistently to boost the low-performing outlets above the expected sales level. By shaping up these locations, the entire network becomes healthier.
So how does network intelligence the third aspect of network analysis fit into the picture?
The foundation for all the planning work and for all the management decisions must be intelligence about the network not just data, but the right information gathered in the right method. Markets should be studied to determine any changes due to competitive action or consumer preferences. Then, the lessons learned from the market study should be applied to the continual network planning process.
Therefore, while gathering customer data and feedback are the first step in developing network intelligence, manufacturers must be certain they assemble the most useful information.
Information-gathering also includes constantly building knowledge of comparable experiences within the network’s customer base and within the manufacturer’s other networks as well. The information should be based on real-world experiences and carefully analyzed before being placed in the loop to provide knowledge to the next generation of planning.
Factors like best practices and stimulated competitive response should be fed into the system and adopted as part of managing the network as well.
Is network analysis the only pathway to achieving peak retail performance?
It’s key to have a solid network analysis process. In addition, there are two other elements that are equally important in reaching complete marketplace success. One is increasing sales performance across the network on an outlet-by-outlet basis. The other is to have a plan for acquiring, developing and retaining a customer base (through lead management and CRM programs).
With all three elements working together, a retail marketer will truly be able to maximize his brand’s performance.
MITCH PHILLIPS is global director for network analysis at Urban Science. Reach him at (313) 259-9900 or (800) 321-6900.
“Our analysis is a comprehensive review of all areas of the employee benefits package, including health, dental, disability, life, voluntary life, 401 (K), regulatory compliance, employee communications and benefits technology,” says Daniel Brooks, MHP and divisional vice president of Doeren Mayhew Risk Management in Troy. “It helps them determine whether they are currently getting the best and most affordable coverage for their employees.”
Smart Business sat down and spoke to Brooks about the importance of employee benefits.
What does employee benefit analysis and design entail?
Employee benefits make up 30 percent of the total employee compensation dollar, second only to salary/wages. Plus, carriers go through peaks and valleys in terms of their rating. We partner with our clients to gauge the competitiveness of all lines of coverage using historical data, industry benchmarking, marketing and forecasting in order to control the employer’s bottom line. In Michigan, we have additional budget demands such as rising raw material costs, single business tax, labor considerations and regulations such as the Small Group Reform Act of 2004 which have sweeping effects and require consideration as part to the review.
Furthermore, new products are being brought to the market of which companies may not be aware. We bring our expertise to the table to determine the feasibility of these new products and riders so that we make the most of our client’s time and premium dollar.
Finally, we make sure that they are not exposed to audit in terms of regulatory compliance.
Is this a new concept used by companies to recruit new talent?
Reviewing employee benefits is not a new concept in recruitment. However, an employer used to be able to afford paying 100 percent of the premium and offer first dollar health coverage with a $5 co-pay for prescriptions 10 years ago.
Today, employers have been forced to adopt cost sharing measures such as employee contribution to monthly premium and higher out-of-pocket expense through co-pays, deductibles and coinsurance. They need to balance these cost-sharing measures based on what their competition is doing, the companies own financial needs and what the candidates are expecting/demanding. We have clients who know exactly what their competition is offering and set their benefits accordingly. Other clients realize that the Michigan job market is tough right now so they have been able to modify their plans without serious concern to the recruitment issue. It’s different for every company.
Is the health insurance landscape still rocky or are rates coming back down to Earth?
We have seen rates stabilize somewhat but most clients are still seeing increases. If you look back at the year 2000, Blue Cross Blue Shield of Michigan was averaging health increases of 25 percent. In 2005, that average had moderated to 10 percent.
We’ve seen Small Group Reform enacted here in Michigan in 2004 requires new rating methodology which has been good for some groups but bad for others. In addition to the rating issues, we are seeing some interesting moves by insurance carriers who commit to Michigan and others who may not stay around (at least not as we know them now).
What are some of the health care industry trends?
The introduction of consumer-driven health plans such as health savings accounts (or HSA’s) has been a hot topic for discussion with most of our clients. These programs introduce a high-deductible health plan with a tax-favored savings account from which to draw needed health care funds. Introduced to stem the tide of medical costs, these programs are not the standard coverage to which most employers and their employees are accustomed. They force members to be better consumers of our health care dollars. In changing habits, the intent is to drive down the costs for all and, thus moderate the annual costs in the long term. However, recent health plan survey projects high deductible PPO rate trends at 12.8 percent which is right about the same trend for the traditional PPO plans.
Modeling is another recent trend. This technology allows employees to go on-line in order to determine which plan fits their needs the best before they sign up. With these programs, employers pre-determine the plans offered and the amount they will spend on the premium so it allows the employee to choose the plan based on their own needs and the needs of their family.
Another trend is closer review of legacy/retiree costs. As we are seeing with the Big Three, companies didn’t anticipate the high cost of maintaining benefits for life when they offered it. We are living longer and the costs of health care continue to mount.
Daniel Brooks, MHP and divisional vice president of Doeren Mayhew Risk Management in Troy. He can be reached at (248) 244-3023.
First job: I was an insurance defense attorney at a Detroit law firm. Meadowbrook was one of my clients, and I got to know them. I joined the company in 1987 as the general counsel. I was their 85th employee.
Whom do you admire most in business and why?
I admire people who start their own businesses and put their blood, sweat and tears into them, grow them and involve their employees in the equity and ownership. Merton Segal (Meadowbrook’s founder and chairman) is an example of that. He had a vision and the dedication to continue to put money back into the business.
What has been your toughest business challenge?
Making sure we maintained a culture of discipline as we returned to profitability.
What is your greatest lesson learned?
You don’t want to see people sinking back into the mindset of, ‘Now that we are making money, maybe we can delve into things outside our specialties.’ Stick to what you know and don’t take unreasonable risks.
Describe your leadership philosophy.
I listen a lot and I make sure that I hear what people have to say. You don’t shoot the messenger if he brings you bad news. You work with him to create a solution.
We have a very open communication structure here open-door is putting it mildly. We interact on a daily basis, and I try to keep things light. Humor plays a large role in how you release stress and keep things from getting to overwhelmingly serious.
For Lesley Delgado, founder and president of StaffPro America, the staffing industry is about people.
It may seem like an obvious statement, but before she founded her own firm, Delgado worked for a large national staffing company and a small regional operation, and she saw that workers were often treated as commodities. So she decided to put the human element back into the staffing business, and went into business herself. “When you think about it, the product we supply is human capital,” Delgado explains. “Having a love for people and a heart of service are essential keys to success.”
And it is Delgado’s passion for people, and her keen insight into finding the right people, that has led her and her 75-employee, $2-million-per-year company to success.
Smart Business spoke with Delgado about what she looks for in her work force, how she ensures they have the right skills and the role leadership plays within her organization.
How do you find the right employees?
One of the most important things we can do to secure a loyal customer base is to hire the right people. Integrity is a non-negotiable trait that we expect from our employees. It’s black and white you either have it or you don’t.
We also need employees who buy into our vision, which is to be a unique staffing provider. They need to be excited about what we offer our clients. We find the right employees through a rigorous behavioral-based interviewing process.
How do you train your staff?
Training is a hot topic in the staffing industry right now. We used to be able to hire for generic positions file clerks and data entry operators, for instance. Today, the market demands employees who can multitask and perform many functions. One-dimensional skill sets are like putting square pegs in round holes - they do not fit. This means we have to put more effort into providing opportunities for employees to expand their skill sets. That’s where training comes into play.
I engage staff when we make decisions on formal training. This should be a collaborative effort if you want maximum commitment from staff. Otherwise, you are wasting your training budget.
The requirement is that the training must be related to the business, however, we can get creative. Let’s say someone wants to be a polished public speaker. We will send him or her to classes to perfect this skill, because this could certainly benefit the business. An accomplished speaker would be a valuable asset to recruit candidates at schools and network at social events.
How does leadership influence an organization?
It is about respect, which trickles down from the top. The manner in which management treats customers, vendors and employees sets the tone for the organizational culture. Management’s actions tell the staff ‘this is how we act,’ and the example cannot be underestimated. Senior leaders should be constantly aware that their actions are being watched and evaluated by staff.
What advice would you pass on to a first-time entrepreneur?
StaffPro enjoyed good fortune from the day we opened our doors. In fact, it was almost too easy. This ended up being a double-edged sword, however, with the events of Sept. 11 and the subsequent recession. The staffing industry as a whole was affected very negatively. We felt the impact at StaffPro beginning in 2002.
Thankfully, we were never in the situation where we had to lay off employees but we did reduce in size significantly due to natural attrition. At our peak, we employed 135 people and we are building back up to that level now.
To use a clich, this experience taught me to save for a rainy day, live within a budget and persevere through difficult times. I read at a deeper level during this time to fortify myself. I drew on my inner resources and spent time focusing on my attitude in order to maintain a positive example to staff.
HOW TO REACH: StaffPro America, (248) 355-1900), www.staffpro-america.com
Craig Vanderburg is a true pioneer in the professional employer organization industry, and his latest success is the founding of Troy-based Presidion Corp. Vanderburg has grown the $100-million-plus company a provider of human resources management services to small and mid-sized companies at a rapid yet controlled pace, focusing on both organic growth and acquisitions. Vanderburg, president and CEO of the company, attributes his company’s rapid growth to great customer service. Today Presidion is the largest professional employer organization in Michigan, serving more than 2,500 companies and 30,000 worksite employees.
Smart Business spoke with Vanderburg about how he finds good employees and exceeds customers’ expectations.
Make it measurable.
I would absolutely tell anyone who is interested in being the CEO of their own company to make sure that you absolutely understand your goals and strategic vision for the company and then document that and put it into a strategic plan, so you have that measurable, regardless of whether your company is doing $1 in revenue or $100 million in revenue. Have that measurable strategic plan in place so that you can constantly be checking off the boxes of your own path as you go.
First and foremost, you need to understand what your clients’ needs and requirements are. Secondly, you must have a very strong vision for your business and be able to understand the measurables of the product that you serve.
Envision the future.
Our vision for the company is for the long term, to be the premier provider of outsourced human resource services to small businesses in America. We focus on that on a regular basis by trying to exceed our clients’ expectations.
We have a constant reinforcement of our values to our people to continue to focus on that vision. The best way that we’ve determined to get folks to buy into the vision of our company is we have to identify the right people upfront when we’re hiring talent. By trying to identify people upfront before we bring them into the organization who have values that are consistent with the company, that allows us to better prepare them to focus on the vision of the company going forward.
Find the right people.
We look for the right mold of an individual driven by strength of their background, their education and their performance in the past. Marrying those folks up and understanding what their values are as we bring them into our company, we think those combinations make a strong fit in identifying the right people.
We believe that we have a very solid offering that attracts strong, qualified people. We have very competitive wages, competitive benefit programs and try to have a conducive environment to understanding the different changes and demands in the workplace that offer up a competitive package overall to bring the right people into the organization.
Reward to retain.
We try to compensate as we go forward such that they want to be part of the organization. They are valued and they are rewarded through their compensation programs to be consistent with the success of the company.
In order to keep retention at our highest levels, we constantly focus on the buy-in and daily practice of our core values within the work environment. Commitment to goals and redistribution of the rewards to all equates in high levels of retention. In addition, we constantly reinforce the need to properly balance work and family life. All employees are afforded significant work/life balance time.
Exceed customer expectations.
We are constantly on an annual basis surveying our clients and asking them, ‘What are the areas that we can improve upon in our offerings?’ We consistently focus on that feedback to try to improve the overall service offerings that we have in the first place.
Secondly, we have small focus groups in the company where we have folks who essentially are sample users of our products and services, and what we are doing is challenging ourselves internally to create a better mousetrap, if you will, on our current offerings and putting ourselves in the client’s position and asking ourselves, ‘What can we do better to meet a client’s expectations of what we offer today?’
The key to dealing with unhappy customers is to respond immediately, accurately and consistently. Upon any service failure, management is notified and follows the client account for the next 60 days to assure accuracy and service delivery.
HOW TO REACH: Presidion Corp., www.presidion.com
American Laser Centers is barely 5 years old, but already it’s hit 2005 revenue of $52 million. And its president, Rich Morgan, is aiming for 2006 revenue of $100 million.
Headquartered in Farmington Hills, American Laser Centers provides laser hair removal, skin rejuvenation and cellulite reduction therapy. The company employs 40 at its headquarters and 570 nationwide.
“It’s not just about building a company, it’s about building people,” Morgan says.
Smart Business spoke with Morgan about how he’s enhanced his company’s credibility and implemented proprietary technology while supporting his employees.
How did you establish your board of advisers?
It’s the medical directors that we use in all the different states that we operate. We looked for those high-end plastic surgeons and dermatologists who were the best in each market and those with whom we could affiliate. We lease space from them and operate out of their office. It’s important to affiliate yourself with people who have already been successful in the area that you’re doing business.
There was really nothing complicated about it. We had a business model, and it was a matter of setting up meetings, getting to know them and getting them to know us. It’s just been a process of continuing to build that relationship ever since.
It puts us in a position where it’s much easier for us to operate within the guidelines of the law in each state. It also gives our clients a feeling of assurance to have these procedures done in a medical facility.
In an industry where you can have anywhere from a 4 to 7 percent incident rate, our incident rate is less than one-half of 1 percent, so safety is a big concern for us. Safe and effective those are the mantras that we try to follow.
How do you manage your nationwide clinics from your Michigan headquarters?
We’ve put a lot into building a support infrastructure. We’ve got an automated system that measures exactly what’s happening in each clinic. It’s all in real time, so we can watch how many consults we have and how many people they’re treating. You can even watch the treatments in real time online.
The biggest key for us to be able to manage the staff and the fact that we’re spread out all over the country is that we’re able to see everything happening in real time. Automation was a big key for us.
We have a call center here in Michigan. All the incoming calls and scheduling for the clinics is done out of the central location. The system is completely interactive and Internet-based, so we can load somebody here at corporate, and one of the clinics can be working on the system simultaneously. We’re all seeing the same information and communicating in real time. All of that links into our accounting software, which allows us to monitor exactly what’s going on with our cash.
We built that system from scratch, so it was a matter of hiring some really good IT people and giving them the space and freedom to go out and be creative. It’s not something that’s for sale or anybody else could use it; it’s really proprietary to our company.
How do you support your staff?
We go to the expense of flying our entire staff in twice a year to the Ritz-Carlton here in Detroit, and we do a two-day training. We talk about technology and new advances in the industry. We do a portion on the medical training, and a lot of that training is in sales and management.
We also have regional managers who are out in the clinics on a regular basis ... so they’re able to work with the staff in a hands-on type manner.
Twice a year, we do a road show where we go to 14 different cities. We take our executive staff and visit managers and have lunch and dinner with them. We put a lot into spending a lot of personal time with our staff.
If you’re going to build a successful team, they’ve got to understand the goal and the vision of the company. It’s amazing what type of results people will achieve if you give them the encouragement and support to go out and do that.
HOW TO REACH: American Laser Centers, (888) 645-3312 or www.americanlaser.com
When a company understands the factors that influence this marketing and sales channel effectiveness, this understanding becomes a driver of sustainable competitive advantage.
“We already field lead management solutions today that drive increased close rates and that help retailers focus on their highest priority prospects,” says Jack Bowen, chief marketing officer at Urban Science, a global software and consulting firm based in Detroit. “This end-to-end solution includes scoring leads, differentiating marketing treatment and auditing retail channel compliance in handling these valued leads.”
Smart Business spoke with Bowen about using the right methods to reach high potential consumers around the globe.
What is lead management?
Lead management is a key success factor in business and can be applied to most industries. Jupiter Research estimates that 22 percent of all automotive sales in 2004 were generated from the Web a number that is forecast to grow, according to Jupiter Research. Lead management solutions collect, enhance, process, score, recommend and facilitate follow-up and report upon the close rate of leads.
Leads originate from multiple sources such as Web sites, direct mail, third-party providers, events and call centers. Businesses implement sophisticated marketing strategies to attract potential customers, whether at the shopping mall, over the Internet or in person on the retail floor. It is important to identify, understand and take relevant action immediately, as soon as the consumer states an interest. It usually amazes our clients, but research has shown that 40 percent to 60 percent of Internet shoppers who submitted a lead to automobile brands were not followed up properly by the retailers.
How does scoring leads add value?
It allows for the consistent and reliable application of differentiated marketing treatments. It helps align customer service representative (CSR) behavior with customer expectations. For example, a “high priority” designation may indicate that the customer service staff provides VIP treatment, which is more in line with the expectations of these particular customers. Conversely, scaling back resources allocated to lower priority leads can result in increased profit or greater investment in higher priority prospects. [See close rate chart this page as an example of the ability of scoring to differentiate shoppers from buyers.]
How does differentiating marketing treatment make your marketing and sales activities more efficient?
In a word: targeting. Highly targeted marketing messages with relevant content are more effective than broadly distributed messages with generic content. This type of messaging strategy frequently demands special treatment from increased need for integration with the sales channel, while at the same time driving both effectiveness and efficiency.
What do you mean by “auditing retail channel compliance”?
An analysis of close rates reports will inevitably uncover wide variations across products, territories, lead-sources, retailers and CSR staff. This information forms the basis for understanding channel performance. Incentive and performance improvement programs should be part of a channel compliance process to assess overall performance.
Turning shoppers into buyers used to be the exclusive domain of the retail sales staff. However, as the Internet gains more and more significance in this area, data analysis and process-integration are taking center stage in the search for improved marketing return-on-investment.
JACK BOWEN is chief marketing officer for Urban Science in Detroit. Reach him at (800) 321-6900.
Karen Kage agrees wholeheartedly. The CEO of Realcomp II Ltd., Michigan’s largest Realtor-owned Multiple Listing Service, provides real estate and information technology solutions to 15,000 brokers, agents and appraiser members in more than 2,100 offices in Southeastern Michigan.
Kage got her start in real estate in 1979 when she worked at a local board of Realtors as a statistical typist and in 1998, became CEO of Realcomp II. The business, which employs 38 people and generates revenue of $6 million per year, has more than doubled its customer base since starting operations in 1994.
Smart Business spoke with Kage about how she maintains quality customer service and attracts and retains the best employees as her company grows.
How do you maintain strong customer service as you grow?
I empower my employees to do what it takes to serve the customer. I never want any staff member to be fearful of making a reasonable decision that will improve the customer’s experience.
Customers do not want to hear ‘I don’t know,’ or ‘I will need to ask someone else about this.’
We have weekly customer care meetings during which the entire customer service staff shares ideas. I put employees in the position of creating synergy and freely exchanging knowledge with one another. It takes more than just holding weekly staff meetings; it includes basic logistical issues such as arranging the office furniture in a way that invites communication among the employees.
In terms of our interactions with customers, you could say we go overboard, if that is possible. We supply a steady flow of information to our agents, virtually on a daily basis. We provide tips on how to search homes and ways they can use our products and services to their benefit in order to be more successful.
We want them to view us as a true business partner, and that comes by consistently adding value.
What qualities do you consider the most important in a leader?
Three essential qualities come to mind. Integrity. I always appreciate having a conversation with someone and walking away knowing what he or she meant. I have been called blunt at times, but I firmly believe that speaking honestly is an essential quality of a leader.
Passion. To lead others, you must believe in and be truly excited about what your organization offers. This is one quality that simply cannot be faked.
Attitude toward adversity. All leaders have challenges. Those who really inspire the troops welcome those challenges rather than hide from them. Managers are watched most carefully when there is a problem. This is when the employees really count on the leaders to lead.
How do you attract and retain an A-team staff?
Attracting is not something we have to do often because we are able to retain our employees long-term. We’ve had three employees leave in the last five years, one of which wanted to start a singing career. Recently, we were recognized by a local magazine as one of the coolest places to work. We keep the lines of communication open. I encourage employees to talk about their concerns. Together, we are usually able to find resolutions.
Every year, we have a full staff meeting where management cooks breakfast for the employees. We renovated our office suite to include brighter colors, a caf where employees can relax and socialize, and a more open cubicle arrangement.
We recently treated employees to an on-site smoothie bar as a way to say thank you. My goal is simple when my employees wake up in the morning, I want them to feel happy about going to work that day.
What has been your greatest professional challenge?
Striking the proper balance between work and other aspects of life is a challenge to me, as with most success-minded business people. Although I have made great improvements in this area, I have not always hit the bulls-eye when it comes to knowing when to get away from the job.
I’ve learned that spending 20 hours a day at work is not something to brag about. Smart managers surround themselves with the right people and let them use their talents, rather than trying to do it all.
To survive long-term in a demanding position, you have to learn to switch gears when you leave the office instead of taking it home. It takes discipline, but the payoff is huge.
How to contact: Realcomp II Ltd., (866) 553-3003 or www.realcomp.com
But in an industry where every tenth of a cent counts and profits are hard to come by, no company can afford to be just another business.
Keith Albertie, vice president of Romulus-based RKA Petroleum, knows this all too well. So with the help of managers and family members including brother Kyle Albertie and sister Kari Elliott, the leadership team has laid a foundation to differentiate RKA in a competitive marketplace.
The strategy is paying off: Last year, RKA made a swift leap from mid-sized petroleum company to major market player, with annual revenue jumping from $150 million to $250 million. Its growth and market share increases are thanks to aggressive planning that focuses on carefully choosing customers to limit risks, expanding capabilities and market reach, and using technology to maximize efficiency.
Elliott, who manages retail branding, says the family has been tooling these initiatives for some time by re-evaluating the business and focusing on how to be a survivor in one of the nation’s toughest fuel markets. Last year, their efforts finally clicked.
“I don’t think there was anything in part that made it all happen for us,” Elliott says. “We had goals and ideas that we structured for our company, and new business has surfaced and finally come around in the last couple of years.”
Because energy is an essential element of most businesses, Keith Albertie knew RKA’s prospect base was large, but he didn’t want to market to everyone, particularly on the retail side.
“Everyone buys fuel from us at one point or another,” Albertie says. “For us, it’s just deciding who we want to market to.”
Ten years ago, the company owned and operated more than 10 retail gas stations in Michigan, and in the 1980s, it co-owned more than 40 locations. But these ventures were costly and time-consuming for RKA’s retail division because of operation expenses and the risk associated with co-owning gas stations.
Today, every one of RKA’s retail customers is independent, which alleviates liability. And in the last couple of years, the company has avoided collections problems by making conservative decisions on which retail customers it will serve.
“We have taken a hard look at our customers,” Elliott says. “RKA is being picky and choosy as far as who we do business with. We want quality customers that will be around.”
How does RKA separate sustainable retail customers from risky business?
“We watch their credit closely,” Elliott says, noting that RKA will not supply fuel to customers with credit scores that dip below 650.
And it no longer accepts personal guarantees; station owners must have collateral such as property or home mortgages to back up their credit.
Such prequalification is just a smart business, Keith Albertie says, recognizing that RKA could not continue with lax credit and retail contract policies. One load of fuel can cost $30,000, and customers must prove that they can back up the credit on that delivery before RKA will enter a supply agreement with the retailer. Daily, weekly and monthly evaluations determine whether the customer deserves more or less credit with RKA.
“We actually turn away business on the retail side,” Elliott says.
A tough Michigan economy calls for conservative decision-making, and one mistake can hurt cash flow.
“We don’t throw credit to just anyone,” Keith Albertie says. “With the economy, you have to watch that, or you’ll take a hit.”
The terminal difference
RKA’s terminal with its 20-million-gallon storage capacity is the hub that serves as the foundation for the company’s growth and its edge over the competition.
When RKA purchased it in 1998, it was considered a mild investment opportunity but has since become a major driver behind the company’s success.
“We are lucky to be well-positioned with our terminal facility,” says Kyle Albertie, who serves as the company’s transportation manager and oversees deliveries and terminal operations.
Not only is the terminal conveniently located with rail access, its size allowed RKA to build a 30,000-gallon tank for biodiesel, with room for another 1.68 million-gallon ethanol tank it will add in the next couple of years. It’s all part of a strategy to make sure the company is poised to take advantage of increased demand for alternative fuels.
Already, 90 percent of RKA’s retail customers supply alternative fuel, and many of its wholesale customers purchase blended products and alternative fuels. The challenge in banking on alternative fuels is the risk associated with any new concept and the investment in tanks. With a 30,000-gallon heated tank already installed, Keith Albertie is optimistic about seeing a return on the investment.
“We are gambling a bit because it is alternative fuel, but if you look at the price of diesel and our dependency on the Middle East, it makes sense to move toward biodiesel,” Keith Albertie says.
The terminal allowed RKA to pull all operations in-house. Now, rather than getting fuel from other distributors’ terminals and transporting it to customers, RKA can work directly with suppliers and store fuel in its own terminal, saving transportation time and costs of going to other terminals to fill trucks with product.
“We are just like a warehouse,” Keith Albertie says. “The terminal is another part of our business. We lock up deals with suppliers they own that product and issue the credit to us for that. But we house that product in the terminal.”
RKA also can sell its fuel product to other distributors, so in a sense, it never truly loses a sale. Even if it loses a wholesale or retail customer to the competition, that distributor may choose to pull fuel from RKA’s terminal to supply that customer, especially if its prices are attractive.
“If the diesel is cheaper in our terminal, why would our closest competition drive 20 miles down the road to another terminal to pay 20 cents more for fuel?” Keith Albertie says. “They are not necessarily buying the product from us, but they are pulling the product from our terminal.”
RKA has also assembled partnerships with some of the industry’s top suppliers, including Citgo, Marathon, BP, Mystik and Valero.
“We look for cutting-edge suppliers who will be competitive in our marketplace, and that is why our competition comes to our terminal,” says Elliott.
RKA competes with a half-dozen other fuel distributors in the immediate Detroit area, the most difficult area of the company’s six-state market. That is resulting in consolidation as companies struggle to compete.
RKA hasn’t ignored this trend; in fact, it acquired Wixom-based Chain Oil Co. last year, delivering new customers to RKA, along with trucks and tanks. But it primarily has focused on organic growth and solidifying its infrastructure so it can maintain its momentum.
“We store the product, we sell the product and then we freight the product,” Kyle Albertie says. “We have all three major parts of our industry locked into one company.”
Expanding market reach
With roots in Detroit, RKA concentrated on solidifying business there first. Two years ago, 90 percent of its customers were based in Michigan. But many were multistate operations, and Keith Albertie recognized an opportunity for RKA to stretch its market reach.
“We can do business in 50 states if we want to, it just comes down to getting the proper systems in place,” Albertie says.
So RKA designed a process for scouting and securing out-of-state business. It starts close to home.
“We find a few customers that we know branch out to other areas of the country,” Albertie says. “We lock them into a local contract, then we talk to them and find out how we can manage their fuel needs elsewhere. That gets us in to other states.”
Sounds simple enough, but what about terminals and trucking the infrastructure pieces RKA does not have in other states?
“The suppliers know us and give us credit lines in other states,” Keith Albertie says.
Supplier relationships formed in the Detroit market are important in building a business relationship so that RKA can access fuel outside of its home market. Instead of making expensive infrastructure investments, it contracts with trucking firms in other states to deliver the fuel, pulling it from partner suppliers’ terminals and delivering it to out-of-state customers.
Customer service is vital to maintaining those contracts, so Keith Albertie implemented a hands-on program for sales representatives that starts in the trucks and continues in the field.
“They need to understand what really happens in the field when a driver makes a delivery,” Keith Albertie says. “We provide many different products on-road, off-road, blended with ethanol. We want our customer service representatives to know how a driver makes sure he or she is delivering the right product.”
Technology has played a significant role in fine-tuning RKA’s delivery processes to make the company more efficient.
Jason Hittleman, information systems manager, leads software and alternative fuel initiatives two evolving and promising ventures for the company. First, communication technology allows sales representatives to service customers more efficiently.
“Most of our salespeople are empowered with mobile devices so they can communicate from the field to the office,” Hittleman says. “We make sure they have the tools in the field that they need.”
Just as important is RKA’s remote monitoring system, a software system that reports the number of tanks in the field and the volume in each tank.
“We know exactly how many gallons need to go to each company,” Hittleman says. “That means we can (service) more customers with fewer trucks.”
For example, rather than scheduling regular fill-ups for retail customers, the remote monitoring device communicates to RKA’s in-house software system the fuel level of each tank in the field. When they run low, RKA sends a truck with a delivery.
It’s all part of RKA’s strategy to be the most efficient organization it can be so it can continue to grow in a crowded marketplace as it evolves.
Elliott says the fuel market will look drastically different 10 years from now, and RKA’s success will depend on conservative decisions but aggressive ideas. Keith Albertie agrees.
“We can’t just be an oil company,” says Keith Albertie. “We need to focus on being an energy company and continue to position ourselves for growth.”
How to reach: RKA Petroleum Cos., www.rkapetroleum.com or (734) 946-2199
Caraco’s President, CEO and Director Daniel Movens says the company has grown nearly 25 percent over the last year, bringing its 2005 revenue close to $80 million. And with the patents of several brand-name prescription drugs about to expire, Movens expects sales to increase 15.2 percent this year.
Smart Business spoke with Movens about how he grows his company through relationships with customers and its parent company, India-based Sun Pharmaceuticals.
How do you plan to grow 2006 sales?
We have products in the pipeline. We have estimations of what market share we’ll gain versus who we think we are going to compete against and try to balance market share and pricing as best we can. We expect to have generic Ambien in October 2006. We have a tentative approval, and the patent is supposed to expire October 2006.
The generic industry has an ever-eroding price once you come out to market because various people come out with the same product. You’re just replicating what the innovator had done, having a different delivery mechanism so you don’t infringe, or you come to market based on the patent expiring.
When you actually get to market, you could be competing with anywhere from two to 10 different manufacturers on the same product to get market share.
You really have to do your homework to understand who you’re going to compete against. Most of this information is available publicly. ... It’s really a matter of who hits the market first, and it’s based on relationships with chain drugstore wholesalers, distributors and managed care.
How do you create those relationships?
I’ve been in the industry for going on 11 years on the buy side, and many of the relationships are from peer groups that I was with early on. (We) have marketing people go out and visit the decision-makers in Walgreens, CVS, Rite Aid, McKesson corporate and tell them about being vertically integrated all the way back to raw material with Sun Pharmaceuticals and give them an idea of (our) product portfolio and what products may be coming up in the pipeline.
From that dialogue comes follow-up, and soon you have relationships. Relationships are extremely important, (as well as) being knowledgeable about the business and understanding the economics in the generic pharmaceutical space.
How do you stay on top of that?
We have people doing a lot of research in the company on the product basis and trade associations. There’s so much information available on what’s happening in the marketplace. It’s just a matter of how many people you have to focus on the various issues at hand.
You gain information from the market when you follow all the companies that are publicly traded. There are a lot of trade journals on the Web that allow various people on the team to investigate. You have the development team working on products, and they’re in tune to many of those same trade journals, so you get a lot of information that probably wasn’t available 10 years ago. It’s a lot of data-mining.
How do you nurture your relationship with Sun Pharmaceuticals?
Our chairman is the chairman of Sun. We talk on a regular basis and work on product development where we can. It’s a natural fit.
They are in the active product ingredient business or bulk supply business, and we obtain product from them. That helps us be vertically integrated and allows us to enjoy a longer economic lifecycle of each product, following that process all the way through to the marketing end.
They help transfer technology to us, in the sense of helping us get products to market, so it’s a win-win for us.
How will that relationship help you expand your company’s product line?
Today’s buyer wants to know what products you’re vertically integrated with because there is so much competition in the generic pharmaceutical space. If I compete against five people and they all want 25 percent market share, it’s impossible.
It’s important for the buyer to understand just how well we are integrated so (we) tell them about the relationship and how a lot of the science that’s behind some of our product is initially started out of India, which makes it less costly to Caraco. We replicate the science that was done in India and submit to the FDA to get our approvals.
Being vertically integrated, having the science from India and the economics that parallel that allows us to be a better supplier.
HOW TO REACH: Caraco Pharmaceutical Laboratories Ltd., (800) 818-4555 or www.caraco.com