Max in conversation with Tom Gale, CEO Modern Distribution Management
On the occasion of a visit by Tom Gale, CEO MDM from Denver / Colorado, USA to Ludwig Meister, Max seized the opportunity to question this proven distribution expert in 3 consecutive interviews.
After the two podcasts already published here, in the first Tom asking Max about his assessments of the market and the development of Ludwig Meister and in the second Max asking Tom to current trends and developments in the US market around the technical trade and the supply chain, we are reaching interview No. 3 now.
This third part is about an analytic software developed by MDM – unfortunately only for the US market so far- but very interesting as it helps to highlight and leverage regional / local sales potential.
Enough said, enjoy listening to today’s podcast episode. Transcript and links can be found below. And as always: your opinion please. We welcome comments, suggestions, criticism at firstname.lastname@example.org
Max: Welcome to Max and the Supply Chain Heroes. Your entrepreneurial podcast about challenges and changes in procurement and distribution in the context of digitization. Thoughts, experiences and above all findings by experts in supply chain management. Completely free of any consultancy mission, easy understandable, just plained business prospected. I am Max Meister and I hope you enjoy this episode.
Welcome to a new episode of Max and the Supply Chain Heroes. My todays guest is Tom Gale, CEO of Modern Distribution Management. They serve all people that are interested in information about Wholesale Distribution in the US. And I think this episode is very interesting, because you can get many insights in the actual state of distribution in the US and also have some insights about the situation for distributors in Germany. I think mdm.com is very share-worthy and I think it would be good if you checked out their homepage. I will put it in the description below. The have a so called „Premium Part“ and I think it is very interesting to get some insights there. I also attended a convention last year in Denver and yeah, I think they do a good job. I wish you interesting 30 minutes and as always, when you have feedback, just write me an e-mail to email@example.com. Have fun.
Okay, welcome to the second episode with Tom Gale from MDM. For everybody who was not able to listen to the first episode, maybe you can introduce yourself and your company.
Tom Gale: Sure, thank you Max. Delighted to be back. We are a market research and media company. We publish a daily e-newsletter to about 15.000 wholesale distribution executives as well as their manufacturers, suppliers who also follow the industry through us. And I have owned the company for 46 years – The company has been around for 51 years and I have owned it for 26 years.
MAX: Okay. And in the first podcast we were talking about distribution and now this one we want to talk about your software MDM Analytics. Can you describe what is the advantage of the software or the main focus?
Tom Gale: Sure. So, this is a model to estimate market size and market potential for industrial products. So, we have a software, it is a software as a service offering. And what we do is, it is a model that actually my original partner in MDM, in Modern Distribution Management developed. He was a distributor, he developed this to try to help his sales team identify the best types of customers and where his sales people should go call. So, it was really about how to make his sales team more efficient in the market rather than just cold calling. So, an example of what our model does is we use a couple of different data sources. We bring them together and then create this model. The way it works is, we license the Dun & Bradstreet database. So, one database that we have is about 18 million records of individual business locations in North America, Canada, Mexico and the United States. For each of those, we have about 20 different fields of information and it includes the industrial classification code for them, the NAICS-Code. What used to be the standard in industrial classification code. And now is the North American industrial classification, this system I believe it is. That tells us the type of business that they are. We also have the number of employees at each location. So, the way the model works is we have built out our own algorithms in the model that says for a particular type of product, we know what the average consumption rate is at a particular type of manufacturing operation. So, there is about a thousand of these different industrial codes.
MAX: So, can you describe a little bit more what kind of data you need for your model?
Tom Gale: Sure. So, part of what we do is we have a national market size. The best way is to give an example of this. Let us say I want to identify what the market is for cutting tools in a particular state in the United States. We first start and there is government data that tells us, what the overall market size of cutting tools, let us say it is one billion dollars. And then, what our model does is we actually can say what, for a particular territory, what the demand is in that particular territory. Let us say for California it is 250 million. So, and then from there we can actually go down to a metropolitan area or even smaller geography. Because what we do is we actually use the types of businesses that are in that specific area to map what the market demand is for that.
MAX: So, it is mainly to calculate for example or to plan where to put up branches or where to go with outside sales people or where you should make special marketing plans.
Tom Gale: Yes. There is a couple primary uses. One is to do strategic planning about where do you want to focus your marketing and sales resources in a given area, based on what the market potential is. Another application is to actually calculate your market share. Because once you know what the overall market demand is, you know what you are doing, you can make some estimates about your competitors. And so, some of our customers use it to actually develop pretty strong models around what their market share is and trending either on a monthly or quarterly basis around that. The final piece is actually to … we can create lists of prospects or customers. And say, this is what we expect them to buy in a year. You can actually compare that with what you are selling and then identify the gap. And have your sales people go in and actually say: “Oh, you know what, we are selling this much to you, but do you also buy this?” So, it is giving them patterns that will help the sales people actually sell more to specific customers. But then for prospects it actually is giving them the list of the highest potential prospects to call on.
MAX: I will have a special question about the model later on. But first I have to tell you a short story. Because last year I visited the rock stars of potential calculating. It was a company, it is called PartSource in Cleveland. And they are a distributor for hospital equipment. What I think, very interesting, is they have no own logistics, they do everything with drop shipment. And what I have seen there was very interesting because they only have one segment, it is hospitals. And maybe five different kinds of hospitals. And they have special questionnaires for each hospital. And they were able to show the potential turnover even in single product lines for each hospital. And they were very good in it. And I always thought this would be nice, to have something similar for our company. But yeah, I was not very successful in doing that. So, my question is, if you look at the calculating model you make in the background, how specific is it for the product lines and for the customer segments?
Tom Gale: It is a statistical model. So, it really, the answer is, it depends. For that company that you mentioned, they are probably using number of beds in a facility.
Tom Gale: Because that is how you do the model and if you are selling to parking structures, you are probably using square foot or some other commercial buildings you will use square footage depending on what you are selling. So, there is lots of different ways to build these models to identify what the potential is, what you should be selling in there. We happen to use …because we focused on consumable items that are in our model and we have more than a hundred different products that we model. But we really focus on the number of employees at a specific site because that is the most accurate, we found. Because …. And some people use machines or things like that. But what we found is for our particular model and for consumable items, this gives a pretty good accuracy. But it really depends on the customer segment. Some are more reliable than others. What we are really producing for customers is a tool that we then work with them to customize based on their own product mix and customer segments. Once they do that, so we keep refining the model for them and we can customize that in the software. So, once we do that, it continually, it continually improves as you put more information in and change some things as you learn. So, right out of the box, it is going to give you a pretty good picture, but it is, honestly, it is going to take a year or more to really fine-tune. So, we always like to work with customers who have an internal, somebody who is a real analytics champion, who really understands how to take the data and adjust it. And we have our own experts on board who can help them with that. That is really where we find the most successful people who are able to take sort of our model out of the box. And then really refine it based on their, how much they can drive their own internal analytics.
MAX: For me it would be very interesting to understand a little bit more how the data of the NAICS-Code is working. So, if you talk about number of employees. Is it the specific amount of employees? Meaning 53? Or is it divided in ranges, one to ten employees, ten to 100 and above.
Tom Gale: So, we have ranges. So, it is one to nine, ten to 19, 20 to 49. 50. So, there are smaller bands in there. And that is important, because when you are doing this type of analysis, you know, the number of small companies that show up in this data from one to nine employees are, you know, it is extremely large. And it can really skew what the model does with it. Because, those are the most unreliable, the small companies have the least reliable data. As you get up into the larger companies, they tend to report more accurately both their-, just the numbers of employees that are there. So, what we typically do is we recommend that if you are trying to study a market and you are using these bands of employees’ size to take a look at, it is best to filter out the lowest part. It is best to take out the 1.000 plus employees or 500 or more employees. And those are very important because those are one of the biggest demand areas. But you need to study those differently because they have different characteristics. Some of them are going to be national accounts and multi-plants and all of this sort of thing. So, you have to be very-, a little bit more careful how you manage that data. What that model can really do though is identify sort of that middle sweet spot for mid-sized customers that are often very difficult for sales people to find on their own. They may drive by them every day and they do not know about them. But this gives a system where based on a type of industry and again, the size of the company and what we identify as their consumption patterns for specific products, it gives a mapping that then can be used to create this sort of ranked list of the highest potential customers.
MAX: Okay. If you look at the customers of MDM Analytics. Do you have more manufacturers or more distributors using this system?
Tom Gale: We have more distributors. Although, we do have some really good, strong manufacturers, who also use our modelling and our data. We find that the … and we have actually some of the largest distributors across power transmission, electrical and standard industrial type products who use our software and modelling. And they are using that to both identify where to, areas to focus their marketing and sales. But also, very specifically with individual sales teams in areas to target high potential accounts.
MAX: Okay. If you look at the development or maybe you can give us a view to the future. Do you plan to make the system also available in Europe?
Tom Gale: Yes. And we do have some discussions. We have some customers in the US who also have operations in Europe. And so, we have been asked to try to develop a similar type software and model over here. The challenge is really around data. And you know, Dun & Bradstreet there is data here, but to really build out across the broad range of EU companies, countries, it is difficult to get a common set of data that we can work with and so, you know, it is really a data quality issue is the challenge.
MAX: I think on one hand it is data quality and on the other hand it is customer adoption. Because what I experienced visiting distributors and manufacturers in the US. In the area of, or in the focus of customer segmentation and making special marketing plans for these customers in certain areas. They were quite ahead of the European distributors like we are. So, I think this is also a topic that you have to really sell the value here in Europe.
Tom Gale: And that is a great point, Max. Because it really comes down to what our tool really allows for is a much stronger segmentation of not only customers by industry segment but by geography, by territory. So, the way I like to describe what our model does is, we can show you what the DNA of a particular market territory looks like because what our model uses is the actual types of businesses and production operations taking place. So, the example that I give for the Unites States is, if you are taking a look at Detroit, which is a very strong automotive production area with all its supplier partners who are making engines and different types of parts. You are going to get a very heavy metal cutting profile. So, but if you take a look at Houston, Texas, which is one of the biggest refinery and petrochemical centers in the Unites States, the market for hoses, valves and all that is extremely large. So, what our model does and that is a general example but it gives you the idea that we actually can map the market potential by a specific product category based on the unique territory. That is really what the unique aspect of what our model does.
MAX: Okay, before I am coming to the last question, I will put some information about MDM Analytics in the show notes, so that our listeners can check your homepage.
Tom Gale: Great.
MAX: And when there are special questions, I am happy to connect you. So, I will just pass this information along, if you want.
Tom Gale: Fantastic.
MAX: And you were just mentioning Detroit and Houston. So, my question is if I give you the list of all 30 NBA teams, can you name me the city where I should make a branch to sell bearings?
Tom Gale: We cannot predict the future.
MAX: Okay. Now, so, but whenever you have a good idea of an NBA location where everybody needs bearings, then please give me a call.
Tom Gale: Yeah. If I were you, I would probably put it in Oakland.
MAX: Okay. This could work. This would be interesting. So, yeah, thank you very much Tom for your time. It was great having you. And see you next time.
Tom Gale: Thank you, Max.