Friday, November 16, 2012

Planning Part V: Manufacturer/Supply Partner Relationships

Ever feel like you're wearing this t-shirt?
Manufacturer/Supply Partner Relationships

Stuck in the Middle with You

A quick blast from the past: its 1972, you’re tooling down the road in your dad’s Oldsmobile grooving on Casey Kasem’s American Top 40 Countdown.  As you navigate your way through the A&W parking lot, Casey spins the song soon to be the theme of distributors everywhere, “Stuck in the middle with you”.  And, just like the song says, we in the distributor world are stuck in the middle with our suppliers. This means supply partner planning is every bit as important as customer planning.  And keeping with the lyrics, you may find you're dealing with both clowns and jokers along the way.  Discovering and handling these will contribute to your success in the coming year.

Supplier Stratification

As with customers, the first step in building a plan (and a strategy) comes in understanding the positioning of your suppliers.  I call this supplier stratification.  Fundamentally all suppliers fall into one of 6 categories:

1.      Profit Partners – these are the suppliers who account for day to day profits.  They work closely with your team to grow business today and provide the revenue flow that supports your business.

2.      Strategic for immediate growth – these are suppliers that allow you to produce growth and revenue next year.  Often these are product lines on the periphery of your current sales.  For example, an electrical distributor might produce immediate growth by working with a vendor of electrical safety equipment.  Just a little attention today could produce growth without a great deal of training and positioning.  These will never make your top 10 suppliers, but adding a couple hundred thousand to the top line sale is not a bad thing.  (By the way, I recommend setting a minimum growth amount to make this list.  This varies from company to company but $100K in two years is a good starting point.)

3.      Strategic for long term growth – these are accounts which drive your company into the future.  They stand in place to be major producers sometime in the next 5 years.  As our world changes these manufactures are emerging technologies which position your company over the longer haul.

4.      Customers want them so we keep them around – suppliers that you would like to convert their sales to something else but customers keep asking for the brand.  Some manufacturers have strong brands but employee saturation distribution.  They bring little strategic value to your company, the margins may be low, and they do little to improve your place in the market. 

5.      Line fillers – we all have them.  We take orders for their products but don’t really proactively sell their products.

6.      Don’t know why we have them – do little for us and occupy a small place in our catalog and on our shelves.  We probably would have severed ties but just haven’t gotten around to it.

Understanding the profit picture involves more than just Gross Margin percentage…

Many distributors make the mistake of evaluating their suppliers on gross margin alone.  But the top performers have developed more comprehensive methods for scoring their vendors.  Things like ease of doing routine business, “pull through” of other products, ability to support your efforts and aggressive distributor friendly marketing plans must be taken into consideration.

If you have not already developed a supplier scorecard, you should make this a top priority.  Stay tuned, because we will soon be making our own scorecard available…

Supplier planning is critical

We don’t have time to plan with everyone.  But armed with your new stratified vendor list, it should be obvious who deserves your time and effort. Your plans should include joint marketing activities, focused training, and expanded product launches.  It should also include some very specific product targeting. 

Any plans should include dates, responsibilities, and desired measures of success.  Dates for some kind of formal plan review must be a part of a real working plan. 

If the vendor doesn’t want to join you in real action oriented planning, if they don’t want to carry the burden of their portion of the activities, or if their local team refuses to engage, now is the time to reevaluate their position in your stratified list of supply partners.

Does your sales team know the status of the suppliers?

Strange as it may see, many distributors struggle because their sales team doesn’t know the status of suppliers.  Sometimes they do know but refuse to follow management direction because of personality conflicts with the local team of your best suppliers. 

End of the year planning includes spending time explaining the importance of a unified push into the market.  Some of your “lone ranger” sales types may need more than a pep talk.  I recommend scheduling follow-up meetings on a quarterly basis to insure your market direction is followed. 

There a quite a few more points for the more advanced distributor (we will be publishing a more complete document soon), but armed with this short list you’re on your way to a great end of the year plan.

Distributor Planning Made Easy.  Check out our Distributors Annual Planning Workbook:

1 comment:

DanOB said...

Frank, another great article. I look forward to seeing your supplier scorecard. I often think when distributors talk it is like when grownups talk in the old Charlie Brown specials, our vendors hear noise and that's about it. Many times that is our fault, with no measurement system in place we never provide anything but emotional rants, which has to be frustrating for our vendors, and is unproductive for us.