Monday, June 30, 2014

Amazon: Best Friend or Worst Enemy?

Bad advice disguised as a how to compete against Amazon article

Vultures circle high overhead.  Stumbling,
struggling, maybe even crawling way down below, we see the cadaverous body of the wholesale distributor.  The experts are once again predicting the demise of distribution.  Unless we heed their costly advice, our lifeless corpse of an industry will be served up as carrion caviar.  And the folks at Amazon will dance a merry jig around our tombstone.

It’s not too hard to imagine the advice these guys are tossing out.  Spend money on building your own e-commerce site.  Hire them or their company to assist you in growing your very own mini-Amazon. 

For our kind of distributor operation, this is a terrible recommendation. 

What is our kind of distribution?
A few years ago I coined the term “Knowledge-based distribution” to describe our type of business.  In this knowledge-based world, we sell a bit of our expertise with every brown box headed out the door.  Depending on the products on your line card, this could be engineering support, start-up assistance, internal logistics assistance, parts kitting or integrated solutions with parts from several manufacturers tied together to solve the customer issue.  We work hand-in-hand with our customers to establish production, maintenance or other long term strategies.  This is a far cry from logistics based wholesalers who basically toss product over the wall to their shipping departments.

If we play the Amazon game we will lose.
Think about this for a moment.  Amazon is investing hundreds of millions into their internet-based platform.  For the purposes of this discussion, we did a quick review of spending for online capabilities.  Amazon didn’t break out their budget, but their biggest competitor in this business, Grainger, reported spending $40 million for online spending in 2012 alone and industry analysts indicate this number for annual spending is going up each year.   If you happen to be a distributor with this kind of budget for e-commerce, you might want to skip the rest of this post.

We’re not saying that fighting an online guerilla war with Amazon, Grainger and the like isn’t a valiant cause.  Instead, I wonder if investing time and energy is a good use of our troops and treasure.  Why not use the effort to up our game in our real area of expertise?  Let’s focus on playing our own game so well that we take business from the giants.

Upping the ante in a game we can win.
Instead of fretting and fumbling with how to improve our online catalog, why not work to develop additional tools for your own unique knowledge-based value proposition?  No doubt your organization provides dozens of value-added services to customers.  Certainly, you provide on-site expertise which will not be delivered via the web (at least in the foreseeable future and my lifetime.)  Let’s invest in the stuff that really attracts our customers.  The list could be massive but here are a few to ponder:

1. Develop a process for measuring the value you provide to customers. 
Don’t count on technical customers to properly monetize the value of your product/service solutions.  Most technical folks lack the basic skills required to turn your last late night service call into dollars produced for their employer.  Develop and aggressively sell this customer advantage.

2. Create connections with your customer’s top brass.
These folks may be writing big checks to your company every month.  Very few of them understand precisely what you do and why you warrant the dollars they send your way.  They don’t understand the technology of your products and most don’t want to learn it.  Why they do want to understand is how you help them make money.  Learn to speak their language; talk about financial impact (see my previous comment.)

3. Build a process around your sales effort.
Good salespeople are hard to find.  Many of your top sellers may be pushing toward retirement years.  A process will help capture their expertise and allow your company to quickly and efficiently on-board the next generation.  And, the future will most likely involve some kind of team sales approach.  Done well, team selling requires a playbook.  A sales process keeps the team running in the same direction.

4. Start charging for some of your services.
A lot of what we do is so valuable, so uniquely positioned and required for customer success that we deserve to be compensated.  The Gross Margin for service model is starting to break down.  Why, because products are getting functionally cheaper and the cost of our expertise is rapidly rising.  Something has to give.  This is where I put in a shameless plug for my book, The Distributor’s Fee-based Service Manifesto.  It’s on… holy smokes, you may have guessed--

5. Sell your value to your Supply Partners.
Here’s my take on a lot of this Amazon stuff.  Some of our Supply Partners are reading the same articles I have been subjected to.  A good many of them are starting to wonder if they should be jumping aboard the midnight train to Amazon-land.  We need to stop them at the platform and before they buy the ticket.  The folks who actively sell vendor’s products into new applications aren’t hunched at a computer.  The knowledge-based advice we provide is not buried 300 pages down on some internet site.  We actively sell their products.  We create new demand for their stuff.  All of this effort costs money.  We need a much deeper margin than an online store.

I am not saying we should abandon new customer facing ideas.
Before we get back to the business of distribution, I want to make one final point.  I do believe we should constantly update our ability to interface with customers.  A dynamic website is a must have these days.  Distributors need to be able to handle electronic orders and provide logistical information to customers via e-commerce.  I like electronic invoices.  Mobile apps will play an important role in our near-term future.  Not keeping up is never good.  But….

I believe our game is solving customer problems not selling brown boxes on the internet.

Friday, June 20, 2014

People are our Biggest Asset

In the world of distribution, people really are our biggest asset. Depending on your line of trade, people costs can range from 60 to 70 percent of the operating spend. When I speak to Distributors involved in acquisitions, the first thing they examine is the list of people involved in the business and their likelihood of “coming along” with the new owners. So not only do people represent our biggest outlay of cash, they are seen by others as our biggest asset.

Think about it for a moment, a Distributor without people is really an empty warehouse, a stack of outdated office furniture and a customer list; all of which sell on the open market for much less than a well running distribution business. But there is a problem with the people as an investment picture. If people were our warehouse, the building would be surrounded by tall weeds, the sign would be missing letters and the whole thing would cry for a fresh coat of paint.

Think about this. According to the top economist covering the world of knowledge-based distribution, we have moved from recovery to growth mode. He recommends investing in our business.

The problem is most people interpret “investing in our business” as buying things. I wonder if we shouldn’t spend a little time thinking about investing in people.

As with any kind of investment, the wise business person thinks about and develops a prioritization around their investment strategy. We’re not advising to spread money like a thick layer of peanut butter over the top of every single employee on your list. Instead, let’s think about a couple of issues.

Distributors tend to underinvest in the right people.
Part old-school American management style and part human nature, leaders invest massive time and money trying to turn low performing employees into successes. But looking at the situation with a jaundiced eye, we may be making a poor investment. Often low performers are really not performing to expectations and all our time and treasure goes to getting them up to mediocre. Maybe even temporarily mediocre at best.

A better investment strategy might come via investment in top performers. Think about how your top salesperson might benefit from a high level negotiations class. Imagine giving the top two or three folks in every department additional training in distributor finances. Wonder what might happen if your warehouse managers were exposed to state of the art facilities in other parts of the country.

Anybody with direct reports would benefit from investment in fundamental management skills. Things like conflict resolution, employee reviews and setting appropriate goals could pay major league dividends.

What productivity tools would your top performers like to try? What do they see as the potential gains in productivity? Often we hesitate to put tools into the hands of our star players because we’re worried the rest of the team would expect the same. It’s high time we get over this “perceived fairness” issue. Top performers deserve more tools and greater investment.

Cutting losses with the wrong people
Do you have someone onboard who isn’t performing? How long until they will get to acceptable levels? If you don’t have an improvement schedule with measureable milestones, you may have an issue. Here’s why. Most poor performers are nice people. They have families. Some can give you a zillion excuses as to the slowness of their progress. It becomes very easy to get allow emotions to stand in the way of making the right business decision.

Not to harp on a sore subject, but I regularly see workers who have not performed to expectations for 3, 4 or even more years. Their management gives them a periodical “pep talk” but nothing substantial is accomplished. Frustration builds on both sides. What’s worse their continued presence assures coworkers there is no penalty for doing a shoddy job.

If you have someone like this on your staff, I suggest setting some improvement dates. Examples might be as follows:
• Creates 200 new invoices per month by August or terminated.
• Opens 5 new accounts per month for the second quarter or terminated.
• Drives gross margin percentage 1 percentage point higher by October or repositioned.
• Receives daily shipments without error for third quarter with less than 1% error or terminated.
Some tough language; you bet. But the point is, management is forced to move on deadwood now.

Invest at the top too…
Building skills at the top level is more difficult than with line employees. Even though a “Google Search” returns 71 Million “leadership” training resources, I wonder if class room training is the best answer. First, many of the folks who could benefit most are “up to their necks in alligators;” classroom training is often sabotaged by emergency issues in the office. More importantly, any kind of generic training is fraught with information which is either review or not pertinent to our business. A solid distributor sales manager probably isn’t going to benefit from war stories (case studies?) from the world of real estate or insurance.

So if leadership training for top management doesn’t come via classroom training, where does it come from? Here are a few thoughts:
• PriceWaterhouseCoopers and the Association Resource Center found the mean Return on Investment in coaching was 7 times the initial investment and over a quarter of the coaching clients report a stunning ROI of 10-49 times the cost. Even if a distributor can only squeeze out half the value as others, it’s a good investment.
• Networking with others in our industry is my personal favorite. Networking can be fun but when it comes with a planned agenda and preparation, it drives massive ROI. To this end, we hold several sessions called “Meetings of the Minds” where non-competing distributors share best practices in their business.
• Benchmarking with others drives value. This takes networking to a new level. We are big believers in the power of distributor association reports.

Let’s go back to the economists and their reports. Now is the time to invest in business process. Any efforts made today will pay off with smoother sailing when the next recession hits; and recession is a certainty. If you wait till the stormy winds are beating down the door, it’s too late.

Thursday, June 12, 2014

A Woman's Place is...

Women in Industry- the New Trailblazers

I squint my eyes and let my mind wander back to those days spent inside the ivy covered walls of the Illinois Engineering campus.  Drab colors, institutional sanitizer and well-worn army surplus furniture stood against the backdrop of overly caffeinated students hustling, bustling and shuffling off to the next class.  And, those students came from every continent, every culture; literally every walk of life.  Except one thing was missing: women. 

Actually, my own graduating class was small, around 50 students.  And, only two of them were female.  That’s a whopping 4 percent.  Now fast forward to interviews, job offers and graduation.  Based on my college experience, it didn’t shock me when I discovered zero female presence in the sales training program of my new employer.  Thinking about the whole thing in today’s terms is mind boggling.

A common misconception in the past of
women in male dominated fields.
Along the way, some of my contemporaries explained away the issue with, “Female students don’t want to waste their Engineering degree with a sales role.”  At least a couple of my bosses (great guys but from another generation) dismissed the whole idea of women in “our business” by saying, “Even if qualified women could be hired, our customers just aren’t ready for the women sellers, or managers or... anything else.”

A few years later, I was blessed with a wife who was breaking ground as a sales woman in a different male dominated industry.  I saw the issues she faced and admired the way she broke down barriers.  I noticed how her approach differed from my own.  I also couldn’t help but notice how she was forced to jump through higher hoops to meet her goals.  Yet she still managed to make it look easy.

Over the course of the past couple of decades, I have seen women break in to all levels of Distribution.  The best of these fine people demonstrated valuable traits like organization and ability to listen.  There also seemed to be bonus characteristics not shared by my male contemporaries: a gift for checking their egos at the door and working well with teams.

I am happy to say, I see breakthroughs across all areas of distribution (and supply-partners.)  Part of this could be tied to the ongoing difficulty companies in our industry face in finding qualified people of any kind.  Basically, it makes business sense to expand the field of candidates.  Secondly, a good many companies are seeing the results of women in adjoining fields of business.  Additionally, women are coming out of school with the technical backgrounds our organizations need.  For instance, Women graduating in science related fields has risen to nearly 50% in math and science areas, even stogie old Engineering degrees like mine now see women with about 20% of the jobs.

On an anecdotal note, I spoke at a distribution group where the ratio of males to females was about equal.  I couldn’t help but observe some of the new types of questions coming from the group.  Even though the topic under discussion was sales process, questions covering the interaction of sales, customer service and group interaction were deeper and more pronounced. 

One participant was keenly interested in how to best win over workers and managers who didn’t understand the importance of the process.  In most male dominated meetings, this topic is generally overlooked and an assumption made that change can be driven by sheer force of will at the leadership level.

The main point of all this is simple.  Women think and drive change differently than men.  Women do business differently than men.  And, women sell differently than men. 
Pulling from a recent opinion piece in Forbes Magazine
Credit: David Cutler
If you and the people around you see the world in exactly the same way, then the ideas you are going to come up with are going to be remarkably similar.

And that isn’t good.

What we need today is as many good DIFFERENT ideas as possible so we can pick the absolute best one. And that means coming up with different perspectives and different ways of approaching and solving market needs.

I believe it’s high time for our world to take advantage of a great source of diversity in approaching and solving market needs.  And with this in mind, I want to call attention to the work being done by the National Association of ElectricalDistributors and specifically the NAED Women in Industry Forum.

This group regularly honors a woman who has blazed the trail for others.  The award given is called the Industry Trailblazer Award.

This year’s honor went to Tammy Livers, Vice President of Sales with Eaton’s Residential and Wiring Device Division.  Tammy joins a host of women who are changing the face of our industry for the better.  Congratulations and our regards to Tammy.

For the rest of us, perhaps it’s time for some soul searching…