Monday, November 13, 2017

Why are distributors more careful giving away a $40 Jacket than $400 in services?

I just finished reading a great article in The Electrical
Distributor online called “BOOSTING YOUR DISTRIBUTOR'S VALUE-ADDED PROPOSITION”. As I started to read, I was attracted to a distributor comment which stated, “(Our) company knows that it may not always be able to compete on price, so it focuses on helping customers run their businesses better.” I liked the message, step away from pricing and instead work on providing the kinds of services customers value. The article went forward with a number of great examples of the non-product services provided by distributors in the electrical segment.

Here’s the deal: Since Tom Reilly’s ground breaking book by the same title back in 1985, distributors have embraced the concept of Value-Added Selling. They have let their creative juices run wild with new and innovative ways to help customers. In the process they have further endeared their product offerings to customers throughout their territories. But we have a problem, Houston…

These cool “value-adds” cost money. For most knowledge-based distributors, these little extras are tied to people rather than some automated process. Also, the costs associated with even the simplest of people-centric services are escalating. Here’s an example.

In the electrical space, many distributors have added a person titled Switch Gear Specialist. For the distributor without an electrical background, switch gear consists of the very large circuit breakers used in factories and large commercial projects. It is a technical product. The folks filling
this position typically have a pedigree, most with engineering degrees. Many once worked for major switch gear manufacturers. They are highly compensated.



An electrical engineer straight out of college with little knowledge of practical applications expects to earn just north of $60,000 per year. A Switch Gear Specialist, on the other hand, typically carries seven plus years of experience and a demonstrated earning power. Not to talk purely about compensation, but it is part of our discussion, it is common for one of these guys to achieve six figure compensation levels. Here’s what that means.

The distributor’s total cost for a Switch Gear Specialist could be calculated this way:

Commission/Salary
$100,000
Benefits package
$  30,000
Company car
$   8,000
Ongoing training w/ travel
$   3,000
Total Cost (conservative)
$141,000

Subtracting out administrative non-selling and other typical time factors, it would be reasonable to assume this person costs their company well over $100 per hour.

This example of a specialist is only the tip of the iceberg. Virtually all the value-add services we provide for our customers come with a price tag. With just a few outliers, the front-line sellers of distribution have no clue as to the price of the value-added service. Extending further, appears no one truly monitors who receives the service or why. I have only seen a handful of distributors where management has a process or policy tied to the business justification of the freebie going to the customer.

Distribution compensation policies, where commissions are mostly the norm, are designed in ways which almost
encourage the freewheeling give away of service. Allow me to elaborate. Sellers can give services to customers who buy on price without taking a commission hit. The same thing goes for tiny customers whose gross margin dollars barely justify the transactional piece of their business. In both instances the distributorship may actually be both losing money and throwing costly services into the pot – thus accelerating a bottom line profitability drain.

The average distributor has more control over who receives a $40 jacket than they do on the giveaway of thousands of dollars’ worth of free service.

When speaking to distributor management teams, I always ask what they keep in their “trash and treasures room” (you know the locked closet full of koozies, golf balls, coolers and jackets). Most are quite proud to show off their pricey promotional items. The stories I hear are generally the same; the room is kept under lock and key and sellers are required to produce a story to get the goods. The distributors can identify exactly who gets the nice jacket down to the level of business potential and the occasion for the gifting.

The “gifting” of value-add services are not so well defined. Typically, the messaging seems to be the sales team is charged with growing the business and they will put them in the right spot. Yet on the flip side, we hear countless stories of customers taking advantage of the free stuff but buying from others when their price is lower. You can’t have it both ways.

Fixing the system
Think of value-added services as money not an adjunct selling resource. It remains management’s duty to insure money is spent on the right things, or at least in this case, spent on the right customers. How do we do that?

1) Segment customers by size and profitability to the company. Then specify which group of customers has earned the service.
2) Establish and regularly review your list of auditioning customers. These are folks who have the potential to earn your services. Perhaps their buying potential or an upcoming project justifies offering them services to prove your abilities. Put them on the list temporarily. If someone is on this list for more than a year or 18 months without swinging business your way, pull them off the list.
3) Review your free service list at least once a year. If a customer has downsized their purchases from you, perhaps you need to withhold your stream of freebies.
4) Put together a plan for charging some of your smaller customers for your service. If they need your service and are willing to offset some of your costs, sell them services. It’s a good idea because charging at least some of your customers for a service validates the value to your own team.

Shuffling down the road
Before we go, allow me to congratulate those who made the first step in understanding the value of their services. The
article had quotes from several distributors who seem to get it. Even greater kudos to the distributors who charge at least some of their customers for some of their services. To me, this is where distributors need to be. In fact, I feel so strongly about the topic, I wrote a manifesto on the subject. You can find it here.

Tuesday, October 31, 2017

Lead from the Middle: Strengthen the Supply Chain

Ah, the joys of being the “middleman.” For decades,
distributors have been responsible for efficiently passing products from manufacturer-based suppliers to customers. During the 1990s, we were good at removing costs from our system. Into the 2000s, our customers tasked us with assisting them in removing extra expenses from their interactions as well. Without really being aware of the situation, we have improved the “supply chain,” whatever that is.

In a quest to discover a workable meaning, I spoke to a young friend who had just earned a master’s degree in supply chain management. I asked her about the meaning of supply chain management. Her answers centered on order entry, shipping times, price points and several statements which sounded like she was spewing straight from the mouth of a big corporation purchasing agent. After telling her I was writing an article on supply chain improvement for distributors, she replied:

“Distributors can improve the supply chain by reducing the amount they charge for products flowing through their organizations. I know you aren’t going to like hearing this, Frank, but many of our class discussions question whether wholesalers should even be part of the equation.”

This comment sent me reeling. I wanted to take the time to sharpen my understanding of the phrase “supply chain.” To better understand precisely what we mean by supply chain, let’s look at a basic definition.

One look at the omnipotent Wikipedia shows this is not just a simple definition. Instead, “supply chain” has a multipage explanation. The first sentence does the best job of defining the term: “A supply chain is a system of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer.” Obviously, the good supply chain minimizes mistakes, eliminates waste and works to reduce costs. Jumping back to our first paragraph, distributors get more than a passing grade on everything happening downstream from their operations. But what about upstream on the manufacturer side and beyond?

Since the beginning of the distribution model, distributors have measured the manufacturing suppliers on gross margins generated. At the same time, manufacturers made decisions based more on their own operational efficiencies. Rarely did the two partners take time to understand how their own actions impacted operations in the ultimate chain to the customer. I believe the conversation is warranted and capable of producing significant ROI. The vehicle is a supply chain scorecard.

Introducing the Supply Chain Scorecard
As stated previously, distributors have historically measured suppliers on just two points: the objective data of the gross
margin produced and the gut-based and highly subjective topic of how easy a product was to sell. What would happen if distributors measured suppliers against an objective list of performance metrics and then spent some time looking for ways to streamline interactions, find ways to make each process more efficient and remove duplicate activities? Consider the effects of removing barriers to good business and partnerships. The supply chain scorecard is the first step in breaking down barriers.

What would we measure?
To better understand the concept, let’s look at some of the parts of our unique partnership. In each case thinking about some of the issues which might be addressed.

Supplier Culture and Communications
Many distributors fail to understand the actions of their partners. This leads to misunderstandings which can hinder efforts to mutually grow business and enhance the partnership. We’ve seen times where questions about commitment to distribution in general result in hesitancy to invest in programs which could drive business forward. Why not bring these to the forefront?

Personnel and Field Sales Teams
Are the actions of a few holding back progress? Does the local team understand the strategic opportunities offered by the distributor? Are there issues where the local team needs training on specific products to better align with the market?

Product Offerings
Insuring both parties understand the target market for new products is critical to success. Further understanding which products are considered strategic and which are viewed as simple line extensions helps distributors develop a plan for the best growth.

Inventory and Administration Procedures
Today most supply-partners have plans in place to assist distributors in maintaining the right stock. Plans to manage obsolete inventory are important. Further, fine tuning invoices for ease of receiving and putting away at the distributor take cost out of the supply chain. With vendor managed inventory programs developing across the industry, why not take time to adjust some of the details?

Purchase Order Entry
If the supplier has on-line order entry, there may be issues with training, speed of use or other factors. Discussions of EDI operations and ease of entering larger orders automatically pay dividends.

Delivery Scheduling and Expediting
Experience dictates breakdowns occur with ship dates and understanding precisely when materials might flow. With the cost of expedited delivery rapidly escalating, time spent looking at how products flow from vendor to distributor and on to the final customer can improve profitability for the distributor and ultimately improve customer service.

Training (Distributors and Customers)
For distributors, people represent nearly 60 percent of their operating expenses. Supply-partners have a responsibility to assist with product related training. The best suppliers provide training which covers not just product minutia but help in selling the product. In today’s environment, we have discovered customer training is the new marketing. Does the manufacturer offer courses, or course material, which allow you to offer independent training?

Sales and Process Planning
Is there a meaningful sales plan in place? Does this plan include action items and target customers which can be attacked together? Is this plan reviewed on a regular basis? Do distributor and manufacturer sales teams review this plan and share important information?

Marketing Support
When the supplier and distributor overlay their marketing plans, good things happen. Conversely, when a supplier uses a one-size-fits-all approach for downtown Miami and rural Minnesota, either nothing happens or the distributor has to carry the entire load for market growth.

Are customer events part of your overall market plan? If so, do both parties understand the purpose and targets for the events? Does the manufacturer provide copy ready information which can be inserted into email blasts? Are co-op programs designed to really move sales forward? Product launches are critically important in a down market. With that in mind, have both sides discussed the most effective way to reach customers with a coordinated attack?

How do we start the process?
Using a Vendor Scorecard form, which breaks each of the major distributor-supplier interactions into objective bite-size nuggets, analyze individual suppliers based each category of the distributor/manufacture interchange (see my suggested list above.) Observing other industries, which have been carrying out the scorecard process for many years, these are some of the best practices:
1. Someone with leadership clout (at the distributor and supply-partner) must champion the cause. This is not a job for a purchasing clerk. The champion must be able to maneuver in the sales, purchasing, warehouse, marketing and accounting departments.

2. Distributors must involve all departments within the company. It’s not uncommon for the sales folks to be sheltered from the impact of unfavorable payment terms, difficult invoice processing and slow attention to credits and rebates.

3. Schedule a formal meeting with as high of management as possible at key supply-partners. Breaking down barriers with tiny suppliers drives less value than meetings with the distributor’s top 10 suppliers. Any strategic or emerging vendors also present a great opportunity for improvement.

4. Maintain an open mind throughout the meeting. Realize that the way you have been doing things has likely evolved over the past decade or longer. Considering how technology has changed over the past five years, one could conclude some systems are worthy of a fresh look. It might be time to bid adieu to obsolete systems.

5. Whenever duplication of effort exists, ask who might be able to handle the task more efficiently.

6. Set review meetings for the future. Supplier Scorecards are not a one and done process. When possible, utilize IMARK and other association meetings to review open items.

Credit: izquotes
7. Track your progress. The process isn’t about “change for change sake.” I suggest tracking new efficiencies gained in a quantitatively. Understanding how the process stripped three hours a week in the receiving department or improved efficiency in purchasing by eliminating a 20 minute daily task encourages everyone to strive for additional improvement.

A final note
Hopefully, thinking about this topic has launched you towards understanding the level of detail and depth of conversations possible with a working scorecard. Providing objective feedback to key suppliers is an emerging portion of the progressive distributor’s responsibility in the post-recession world. As the Electrical Wholesaling industry moves forward, distributors who develop the practice will hold the keys to a new set of strategic advantages.

Finally, I offer a time proven supply chain scorecard. Typically, the form costs $40, but if you send me an email with “Supply Chain” in the subject line, I will send you one free of charge.

Straight talk, common sense and powerful interactions all describe Frank Hurtte. Frank speaks and consults on the new reality facing distribution. Contact Frank at River Heights Consulting via email at frank@riverheightsconsulting.com.

Sunday, October 8, 2017

Part Two – Deep Dive on People – The Right Kind of Management

source: Linkedin
In our last post, we discussed people; hiring the right people, building a solid distributor-centric onboarding process and the advantages of retaining experienced workers. Today, let’s turn the tables a bit and look at coaching and managing the very life blood of distributors – the people.

Front-line managers make a difference
According to work done by the Gallup organization first detailed in First, Break all the Rules, employees join companies but quit because of bad managers. Realizing the management structure of many distributors appears flat on paper with everyone reporting to just a few people, many of
these front-line managers may not even have a managerial title. We might call them something like warehouse lead, inside sales supervisor, senior buyer, or perhaps they carry no real title but direct the work of others. To a lot of your workers, they are the “go to” person and reflect the day-to-day voice of the company. Oftentimes, they have no training.

What kind of training might be required for these front-line positions?
First and foremost, they should have a keen awareness that their words and actions reflect on the company. An off-the-cuff remark from them carries more weight than they imagine because other employees believe them to have an inside track on information. For example, the front-line guy may quip that business is down, and pay increases will be impossible. Even though the high-performing employee
overhearing the comment was destined for a promotion and a raise, the offhand mention opens the door for an untimely exit.

Front-line managers need to understand how to handle conflict. Emotional outbursts, bullying and relatively common employee disputes create havoc with morale. In the typical situation, job satisfaction drives downward, opening the doors to loss of productivity and potentially the loss of an experienced worker. In some catastrophic cases, an unhealthy or hostile work environment creates an expensive legal situation where the company shells out tens of thousands of dollars and tarnishes its reputation.

With proper coaching, the front-line manager assists in developing employee reviews. They understand when and how to add information to personnel records. Issues with tardiness, work-space cleanup and other matters are properly routed to high authorities along with properly documented updates on overall progress.

Managing the managers
A quick Google search reveals thousands of posts on providing better management of employees, but sadly there are darn few on managing the managers. I believe managers can be the hardest group to manage. Here’s why…

Distributor managers are ultra-busy. Very few are full time managers. Instead, they are involved with dozens of day-to-day activities. They face urgent issues tied to their groups – things like making sales, getting orders out the door and having important suppliers dropping by with new programs. The truth is many of these people see their “real job” as more important than developing people. Developing people, however, has a profound impact on the future and strategic success of the organization.

Reviewing a comment in our last post, exit interviews point to lack of meaningful reviews as a primary reason for employees leaving. Our workers need and want to know where they stand with the company. Further, they feel a strong need to understand management’s view of their potential with the company. At the same time, their managers often procrastinate or ignore the need for a formalized review.

When HR applies pressure on the managers, they often use their clout to push back. Some insist their team doesn’t really want reviews. Others make the case for their “own system” of ongoing informal assessments delivered as part of the normal work day. Either way, this is an example of an important management duty ignored.

Finally, top leadership sometimes sets a poor example. Distributor owners and Presidents rarely develop meaningful

reviews for their direct reports. Many of these “upper tier” employees feel perfectly comfortable without a formal evaluation. While the argument could be directed either for or against reviews at this level, I believe employees need to be evaluated. Further, one part of the review message might include this comment, “Your team needs to be reviewed.”

For discussion, we focused on reviews. However, the same argument could be made for job descriptions and enforcement of policy infractions. Not to dwell entirely on the negative side of employee issues, let’s think of some of the right things managers miss:
• Does the manager know the employee’s career goals?

• Has the manager ever talked about the potential for matching company needs with these goals?

• Is training generic and “one-size-fits-all” in the company or has it been tailored to best match the employees need for development?

• Has the manager provided the employee with a list of potential mentors who might provide low risk insight on career moves? (For situations where the employee has ultimate goals to move to another department in the company.)

• Has the manager ever provided recognition for work well done in a public manner?

• Does the manager nurture employees to the point they are recruited by other managers for other departments?

Some call these the soft skills of management, but experience dictates as long as compensation is in the right range, the people-centric skills are more important than money to most employees. However, there are a few hard skills every manager requires.

Every manager must have skills for the future
Distributors do well with product training. I am constantly amazed at how many product-centric technical details warehouse workers, accounting staff and other nonselling team members actually possess. As a group, however, we often stumble in other skills-based training topics. Sales training gets lots of ink, but today let’s focus on the managerial side of the equation.

Some management skills are general in nature. I believe everyone needs to be proficient in their use of the personal computer; and I’m not just talking about how to turn it on. Research shows that managers often struggle with simple tasks such how to organize files in their system for easy retrieval. Important documents are lost or temporarily misplaced, resulting in downtime while you search or recreate them. .

Email archives in our industry are often messy and hard to maneuver through. Billions of emails carry information that you sent and received throughout distributor land. Some of this is important stuff. Dealings with customers, suppliers and others within the organization rely on proper storage with the ability to find the information at a later date. You can’t do this with 11,000 items randomly hanging in your inbox.

Finally, I can’t conceive of any manager not being proficient at building and manipulating a spreadsheet. Analytics provides a powerful tool. Enterprise resource planning systems seldom easily serve up much of the data required to make better decisions. The ability to project and measure this information is critical for the future.

Putting a wrap on management
Training will pay a critical role in the future of distribution. As an industry, wholesalers have mostly relied on a slow growth mentality for developing people. The demographics of many distributors points to a major loss of talent over the next decade. As baby boomers exit the workforce, the next generation will need rapid acceleration to keep up. Training will become a mandatory skillset of progressive distributors. Next installment, we’ll benchmark a few points tied to training.

Wednesday, October 4, 2017

Deep Dive – It’s Time to Think About People

We will be posting a lot about people over the next couple of
weeks.  Why?  Without people distributors basically become an empty warehouse, a collection of well-used computers and an assortment of worn out office furniture.  Speaking with an assortment of folks (from inside and outside the industry) looking to purchase distribution businesses, the conversation typically revolves around three major points – profitability, solid customer relationships and stability of people.  Take away the latter two and the distributor is valued somewhere near zero.  Further, it might be argued, without the people there are no solid customer relationships.  So talking about people is doubly important.

Our brand of wholesale distribution is one of the most people-intensive business models in existence. Sure, we have warehouses, inventory, customer credit, computers and company fleets of cars, trucks and lord knows what else, but people are the driving force of our model. For every dollar of gross margin generated, about 58 cents goes toward paying our people. To put it into perspective, this is four-and-one-half times our occupancy expenses and three times our other operating costs. It’s a growing concern.

News pundits point to lower unemployment numbers, nearing those of pre-recession days. These numbers don’t tell the full story. I believe the pool of high-quality talent required to impact our business has been fully absorbed. It’s the law of supply and demand. Since midway through the year, salary
demands by new recruits have been on the rise. This is especially true for high-skill and technically qualified folks. For example, the starting wage for new engineers straight out of college (University of Iowa) has reached $60,000. 

The business model doesn’t allow a lot of leeway for raising the cost of employees. We can’t afford to raise our percentage spent on people above the 60 percent point and remain in business. There is little we can do about the escalation of salaries, benefits or health insurance. Productivity gains are no longer just nice to have, they are a necessity to survival.

Let’s explore some of the best practices used by others to build productivity within your organization. 

Experienced people tend to be more productive
Research into hundreds of distributor organizations points to evidence that experienced people are more productive. They know the systems, short cuts and processes required to adequately carry out their jobs. In addition, experienced folks often have a deep industry background including customer contacts and those behind the scenes whom you can call upon in a pinch to resolve issues. 

Retaining experienced hands is critical to productivity with the following caveat; they must possess the right work ethic and professional skills and be in the right position. Hiring errors left to simmer within the organization don’t improve productivity. For the sake of discussion, we’ll assume the last big recession gave you the opportunity to purge them from your organization. Hopefully, other poorly performing employees are on solid improvement plans or on their way out the door. 

Whether they mention it or not, assume your team is under
scrutiny from headhunters. Other companies, armed with a handful of dollars, are probing your defenses. Fortunately, money isn’t the massive driver many of us believe it to be. Assuming your pay scales are reasonably sound and have kept up with the industry norms, the real drivers fall into issues of job satisfaction, proper tools for the job, room for growth and a feeling of appreciation.

Reviews are more important than you think
After conducting exit interviews with more than 100 employees, I am shocked to find the majority indicate they have not had an adequate review of their performance for years. Their managers point to ongoing informal conversations with the employee, but those leaving don’t see it that way. What’s missing?  A plan for the employee to grow within the company. A formal recognition of success with customers. A show of appreciation for years of service. Their managers use the excuse that putting together a proper review is time consuming and difficult, yet they overlook the issues of finding and training a new replacement. 

A few old-school distributor owners have even commented that reviews just open the door to higher employee salaries because after a good review, employees expect a raise. In today’s environment, I suspect a new hire with similar skills might demand greater compensation than the existing employee; not to mention associated costs of lost productivity. 

Hiring errors are expensive
The only thing worse than losing a solidly qualified employee is hiring the wrong person.  While most agree with the statement, the hiring process at many distributors is still abysmal.  Let me give you some examples:

  • Informal interviewing techniques used without a plan.  Exactly what are you looking for in the interview?  Distributors walk into the conference room with no plan and no idea of what they want to explore with the candidate.  Aside from a verbal walkthrough of resume details, a good interview looks for signs of work habits, communication style and willingness to be part of a team. 
  • Personality profiling is not performed.  Personality profiles are not perfect, but they do alert the interview team to potential areas to explore.  In reviewing hundreds of these profiles we have discovered a number of red flags which, once explored, saved our clients from disastrous new hires. 
  • Reference checks are done in a haphazard manner.  Some see this as tedious work.  When potential employees come from large companies, you get the standard “they worked here from 2011 to 2015 and that’s all I can tell you” answer.  Taking time to find mutual friends and/or customer contacts takes a little effort, so the process often goes by the wayside. 
  • Background checks are often amateurish.  I know of a distributor who hired a truck driver with two prior DWI convictions.  How did this happen?  Further, one company asked me to assist them in their background check.  Their search came up with a clean record, my paid search revealed two felony thefts in another part of the country.  Strangely, the potential employee forgot to mention he lived in North Carolina for two years.


Extending this hiring error discussion, best practices indicate new hires be reviewed at the 30, 60, 90 and 180-day mark.  An employee showing the wrong signs in these early days needs to be corrected. If no improvement is shown, he or she should be terminated before becoming a detriment to your organization.  

Onboarding process
Getting a new employee off on the right foot can speed the time from profit drag to profit generation.  An onboarding process is critical during this “need for speed.”  Distributors are terrible in their effort here.  If you don’t have an onboarding process, you need to read this article from Industrial Supply Magazine.

That’s not all
There are a number of other “people points” we need to discuss.  Next week, we will post part two of this where we discuss applying management and coaching points to the process.

Friday, September 8, 2017

Hurricanes and Helping Distributors

First Houston and the Gulf shores and now Florida is set to go under. Natural disasters are tough on distributors and even harder on our customers. I know from firsthand experience. I thought this might be a good time for distributors to share their knowledge of natural disasters and would like to invite everyone who has lived through one of these events to share their experience and provide tips and support. 

Without going into massive details, Iowa has had more than its share of flooding. I went through the great Des Moines flood of 1993, which put much of the downtown underwater and flooded countless industrial facilities. We went without running water for 29 days which meant no drinking water, no workable toilets and put the nearest shower at an army base nearly 20 miles away. For a week or so, every business deemed unnecessary for infrastructure rebuilding was ordered closed. Electrical distributors were viewed as important. We were told “not to close."

At that point in my career I was an electrical/automation distributor, so these thoughts come from that perspective. Conversations with distributors in other fields point to similar situations.

Expect a massive surge of business
From the electrical perspective, flooding creates a massive surge of business, but not immediately. From my experience, business will start as a trickle and reach a zenith about four weeks after the waters have subsided. The end of this rush of business happens around four or five months later. It generally falls off slowly, but by that time most customers are through their emergency situations.

Predicting what people will need is tricky. In the electrical world the first hit will be for the materials needed to create temporary services and other work arounds which allow construction and other trades to get into the job and do their
work. We asked a couple of our major suppliers to consign inventory of items to our location; many took us up on the offer. For instance, we had a semi-trailer full of transformers stationed outside of our warehouse which we used once our normal inventory was depleted. The same went for flexible conduit, breakers and load centers.

Some of the items you just can’t stock enough of are the following:

• Contact cleaner – Getting the mud and debris out of everything consumes mass quantities of this stuff. You can’t have enough as it will go out the door by the case. We discovered a few companies sell it in bulk in 5 gallon buckets. We sold a couple pallet loads in a week.

• Industrial fans – Everyplace is wet and once the water goes away it gets pretty steamy inside the buildings and electrical rooms. They will sell faster if already assembled.

• Portable Ground Fault connectors (GFCI) – Think about it, wet conditions and temporary connections make for a shock hazard deluxe. In normal conditions some workers will skip using the GFCI precaution, but when they are working in a half inch of water, they are quick to be safety conscious.

• Circuit Breakers - Every variety will fly out the door. In industrial settings, expect people to bring in older model breakers. Some of these are readily available while others require some digging. While I don’t normally advocate for gray-market stuff, we did help a few customers find “surplus” used breakers to get older parts of their plant running.

• Anything electronic – PLC’s, Drives and other equipment are often damaged even if the water level doesn’t reach them. A little bit of humidity plays havoc on printed circuit boards. We did a lot of spare part exchanges and for smaller units we recommended taking them out of service.

• Electric motors – Most agree it’s not cost effective to rewind anything under 50 horsepower. Smaller size motors will fly off the shelf in the fourth week.

Take care of existing customers first
If you have stock, they will come. Some, maybe even many, of the folks coming are not regular customers. While running contrary to the beliefs of many salespeople, all sales are not created equal. I believe it makes great sense to not sell the last part on your shelf to a complete stranger, especially if the product is in short supply. This is tough to monitor but the word needs to go out to your team.

Continuing with the premise of taking care of existing customers, you will encounter massive demand for products which are long lead time and often hard to get from the manufacturer. We discovered that it made sense to assign one person to the location for the expediting of “odd-ball” and long lead time items. Following this practice will speed the process and eliminate duplication of effort with your team. Trust me, after the first two weeks, your team will be busy.

Network with friends in other parts of the country
You probably have distributor friends outside of the storm damaged area. The first week or so after the storm many of them will no doubt give you a call to make sure you are ok. Be sure to take the time to ask them about the potential for selling you some of their inventory should your needs be more immediate than the supplier factories can accommodate.

On the topic of friends, in preparation for this piece we spoke to Mark Tomalonis the President of WarehouseTWO. His organization can help you find other distributors willing to sell a portion of their inventory. We asked him to give us a short overview of his company:
WarehouseTWO is an online “inventory-sharing” service available to manufacturers and their networks of authorized distributors. This is the tool most commonly used by fluid power, fluid conveyance and hose/fitting distributors in North America.

Access to inventory data is restricted to the brands your company can buy directly from the manufacturer. Hundreds of branded inventory-sharing communities are available. This service is free for those who wish only to browse. While there is a nominal monthly subscription fee to upload one’s inventories for sale to other distributors, there is no charge for the buying distributor.

Mark has offered to streamline your use of the service. For temporary access to its “inventory-sharing” system, send an email to info@warehousetwo.com and mention “Request for Temporary Access” in your email subject line. For more information visit https://www.warehousetwo.com.

A call to action
The Distributor Channel has grown, we have pushed over the 100,000 reader level. I am asking our readers to post any information or distributor-centric tips for operating post-hurricane or flood. You can post them here as a comment, or send us an email. We will see that the information gets to the right people.

On a personal note: I spent the first part of my childhood in a small town just across the bridge from Galveston, Texas. My family went through Hurricanes Debra and Carla. I was just a kid, but I still remember watching mighty trees topple and roofs blow off neighbors houses and skid through the vacant field behind our house. I remember poisonous snakes attempting to crawl up the porch and into our house. We were fortunate to have sustained minimal damage because we were on “higher ground."  In 2002, I was the President of AHTD when Hurricane (later reclassified) Isidore hit our meeting in New Orleans. Thank God the dikes held and the results looked nothing like Katrina disaster.

If River Heights Consulting can help anyone recently hit by the latest round of hurricanes, we are here.

Friday, September 1, 2017

R&D: Distributor Style

Based on a research published on strategyand.com, the average company in North America spends an average of five percent of revenue on Research & Development (R&D.)  Further study points out that more innovative companies are spending closer to 20 percent (Google spends 16.6 percent, Amazon was 27.7 percent and pharma companies go into the high 20s.)  While these companies are pushing for new and groundbreaking products, it makes sense that every company would want to invest a little in their future.  Should distribution be any different?

Many believe that R&D involves white-smocked scientists
Disclaimer: Frank was not
in Back to the Future
working in some secret skunkworks laboratory deep underground.  Arguably, distributors sell the products developed in this kind of product/technology-based research setting.  Research & Development involves more than just products.  Some research should also be focused on the customer.  Things like future direction, service needs, future buying habits and shifts within their process all come to mind.    Sadly, most distributors tend to skip over this important point.


Distributors like to brag about their customer intimacy.  Based on decades of back and forth discussions concerning Point of Sale (POS) data, many value their customer relationships above all else, even to the point of withholding POS data from their top supply partners.  In many cases, we distributors have intense familiarity with our regular customer contacts.  But questions about true customer understanding continue to come to the surface.  Let’s explore a few of these.




A few years ago, I received an emergency call from one of my clients.  One of his top customers had given a 30-day notice that all purchases would be channeled to a competitor based on the ability to participate in a “commodity supply contract.”  This teary-eyed distributor’s most important contact delivered the message, indicating the decision came from well above him and was irreversible.  Later, research specified the customer had been contemplating the move for nearly a year, but had not been mentioned during any of the weekly sales visits to maintenance, engineering or purchasing.  However, everyone in management knew it was coming as a process for driving down transaction costs.  

I had to ask, with the distributor bragging about customer intimacy, how was such a move missed?  Pushing further, wouldn’t this have been something worthy of exploration by R&D?  But this isn’t the only topic distributors should be thinking about.   Today, distributors need to understand how the following might impact their customer relationships:
Internet-based purchasing
Location and training of new employees
Changes in the way customers prefer to be contacted
Value of services provided
Importance of local inventory
Customer processes which might be automated in the future
Shifts in customer operations, i.e., outsourcing, expansion and other needs

Customer Surveys – R&D tool for distributors
Why not gather, review and benchmark information from your customers?  After assisting with dozens of customer-focused surveys, we have yet to see one that didn’t provide some valuable insights about overall and specific customer direction.  Reviewing the questionnaire details, it’s common for distributor managers and salespeople alike to have some eureka moments.  Many of these discoveries lead to instant process improvement while others become part of a strategic initiative to position for the future.


Let’s talk about best practices for customer surveys.
Surveys need to be well thought out and worded properly.  Customers willing to provide the gift of feedback should not be required to wade through poorly worded questions or information that doesn’t apply to their position in the company.

Surveys should require less than 10 minutes to complete.  Let’s face it, customers are bombarded with requests for their time.  A survey that runs longer than a few minutes rarely produces measurable results because the customer simply gives up part way through the effort.

Benchmarking is important.  We recommend distributors conduct a survey of their very best and most established customers first.  This creates a standard allowing for further comparison of some of the “lesser known” customers.   We can discover differences in perception, potential unmet needs and a wide variety of information.

Forward looking surveys provide the best information.  While getting a snapshot of the past is important, the real meat comes by way of the customer’s vision of the future.

Understanding how you measure up against competitors is a critical piece of the survey.  Unfortunately, many distributors dwell on the local competition versus the non-traditional competitors; i.e. Amazon, of the future.  

We recommend using a third party for conducting the survey.

While this may sound self-serving coming from an organization conducting surveys for clients, there are good reasons for insulating the customer from your organization:
 

Customers are more likely to share the good, bad and the UGLY with an outside party.  Being nice folks, they are hesitant to tell you if they think your service stinks.

A third party can do post-survey interviews to clarify points made during the initial survey.  Since the third party is not tied to your organization, they can engage in conversations without preconceived notions of the customer.  A third party can ask what someone within the organization might consider to be a “dumb question” without offending the customer.

The outside surveying organization gives the impression that your company is both scientific in their process and serious about gathering their customer’s thoughts.  

Is it time to make an investment?
Most of the time, investment equates to sales pitch, but not here.  I believe understanding customers is so important that I want you to do something, anything, to better understand your customers.   If not an outside survey, then via your own survey mechanism; companies like SurveyMonkey allow short, limited reach surveys for free.

The important thing is to begin the process of asking:
  • What do I want to know about my customers?  
  • What is our company’s R&D?  
  • Would I invest in a company that spends zero dollars on R&D?

This IS an advertisement
If you are a manufacturer, when was the last time you reached out to your distributors?  Our survey results always help companies build better relationships!  Let us know how we can help your organization!

Friday, August 25, 2017

An End of Year Exercise that Drives Sales

Here’s the challenge, with just over four months till year end, everyone is looking for a plan to eke out a few more sales dollars. I firmly believe there’s still time to make a difference. Further, if done correctly, the plan can impact the future as well.

One of the most tried and true methods for creating quick success comes via targeting. This process comes from the extensive research we have carried out in the preparation for a book on targeting at distributors. The beauty of the effort arises from three important points:
1) Current customers are the focus of your efforts, eliminating the need for time consuming prospecting, cold calls and the endless phone tag associated with it.
2) It can be combined with normal daily activities to drive the sale of new products.
3) Success comes quickly and is easily measured.

How to get started
Distributors are often noted for a few of their flagship product lines. Typically, these top five to ten product lines represent over 60 percent of your business. Your customers have been conditioned to automatically think about your organization for the products and technologies provided by these brands. The best targets come from the next tier of products, many of which even your best customers don’t realize you sell.





Identify one of these second level products with a relatively broad usage and determine which of your top 30 accounts are not presently purchasing it from you. For most distributor salespeople, this represents around 20 accounts to choose from.


Thinking about accounts
Of the accounts not buying from you, which five to ten have the best chance of success? Consider the following:
Applications within the account. Do they have the perfect place for this product? How could it make a difference in their business? Why is it better than what’s currently being used?
Knowledge of the people. Who at the account would be the ideal decision maker for your product? If you don’t know precisely, do you have the contacts required to find the right person with minimal effort.
The competitive situation. The competitive landscape makes a difference. If you enjoy a strong position, or maybe even have a supply contract with the customer, competition shouldn’t be an issue. If you are not the dominant supplier, does their main distributor actively sell the product? We have discovered some of these products are purchased “mail order” with almost no customer service.

Selecting just five opportunities
That’s right. Of those twenty accounts, I want you to discard all but the best five; think of it as stacking the deck in your favor. Keep the aces and toss the twos. We’re ignoring the hard ones and going after what Iowans call the “low hanging fruit.” While I would never want you to ignore a customer who has millions in potential for this product, for this exercise I would like for you to pick the easiest and fastest sale. We are applying the criteria from our thinking about account selection to purposefully load ourselves up for an easy win.

Measuring success
Sales are a measure of success, normally we go for the big numbers. This time, however, we want to measure our success in getting a reasonable order. For most products, we are talking about $500 dollars in purchases by the end of the year. In the case of a longer sales cycle situation, for instance an OEM, we may consider a concrete commitment for later purchase. Staying with the OEM example, let’s assume you can get your product specified on their next redesign of an existing machine or on the prints for a coming machine. This counts as a sale, too. You just won’t see the P.O. for several months.

The finish line
The point of all of this is to add sales in before January 1st, 2018. Your success will be incremental business which is laid over the top of existing business. I also have ulterior motives. Allow me to explain the value of this process.

My ulterior motive: The Power of Targeting
Back when I was a young sales guy, things were different – much different. Working for one of the leading manufacturers of electrical products, I saw new products introduced at the snail’s pace of five or six per year. The plan for all of these was the same, show them to everyone. It was a features and benefits world where we basically worked our way down the customer list. Customers seemed to appreciate the technology update whether they had a real live application or not.

Let me illustrate how the “real live application” thing worked. After a couple of years, I had a Eureka moment: Customers rarely remembered products unless then had an immediate need; a real live application. I looked to further assess this theory by tracking activity. Customers were shown a product and then reintroduced to it as a new product nine months later. After testing the theory at least 50 times, only one customer called me on it. He only remembered because just before our visit, he had reviewed a file of product brochures left during previous calls.

Today the situation is different. New products fly out of the design departments at unprecedented rates. Customer time is scarce. Just listening to a product demonstration to stay up on the technology is a luxury of the past. Customers report the internet is their primary and preferred initial product research vehicle. While they don’t have time for “old school” salespeople, they do have time for problem solvers and those ready to make solid recommendations.

I believe following this targeting method places the professional salesperson into the problem solving and expert recommendation category. Here is why:
• Targeting involves use of your in-depth knowledge of the issues faced by accounts you already know well (see my comments on the top 30 above.) You already know some of their problems.
• Targeting involves your ability to tie (perhaps lesser known) products to their specific applications. Rather than coming in with a five-pound catalog, you are selecting specific products for their needs.
• Targeting matches the person responsible for the customer issue with your solution to that problem. You aren’t wasting their time or yours.
• Sometimes you can suggest a solution to a problem the customer doesn’t even realize they have, or at least until you point it out. This demonstrates your true interest in and knowledge of the customer.

Now visualize the future
You’ve become good at this product targeting process. You think of every new product in terms of targeting the right application and the correct customer need. You are viewed differently than other salespeople. You expand your business by targeting dozens, maybe even hundreds of products per year.

My challenge to you
I challenge you to give this process a trial run. It has been time tested and proven in dozens of distributor territories. It works. Give this a try, share your beginning thoughts with us and River Heights Consulting will provide you with some pointers along the way.


**If you are a sales manager looking to accept this challenge and explore the options with your team, we would be happy to share the details of an award driven program.  Click HERE to receive more information.**