Analysis

Driving enterprise value in wholesale distribution: Part II

The need to balance SG&A efficiency and effectiveness

Deloitte’s second article in the series on “Driving Enterprise Value in Wholesale Distribution” takes a detailed look at the industry’s selling, general and administrative (SG&A) practices and offers new insights into how companies can manage SG&A costs more effectively to support their business strategies and improve their return on operating capital.

A contrarian finding on capital efficiency and SG&A

Companies should strive to leverage selling, general and administrative (SG&A) spend to effectively execute their business strategies, while controlling SG&A cost, which in case of wholesale distributors includes distribution operations as well. In many cases, this means spending more than the bare minimum on SG&A.

The key is to strike a balance between efficiency and effectiveness: spending as little as possible on SG&A to effectively support a winning business strategy. Wild spending on SG&A in single-minded pursuit of growth can be recipe for poor performance. But so can single-mindedly focusing on SG&A cost reduction at the expense of strategy.

This paper investigates a contrarian finding where top performers in wholesale distribution have higher SG&A levels, thereby requiring companies to take a strategic view to SG&A management – one that is not just focused on SG&A cost reduction.

Deloitte conducted an in-depth SG&A survey to better understand what top performers are doing differently than the rest of the pack and has developed a simple SG&A Framework to help companies balance efficiency and effectiveness through a SG&A service delivery model.

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