Friday, August 28, 2015

Solution Selling means the Whole Solution – Distributor Evolution

Nearly 20 years ago a friend made this comment: “(Industrial) customers don’t want to buy electrical products, they want to buy solutions. If you only sell half of the solution, it’s not really a solution-- it’s a bag of parts.”

At the time, I was squarely in the center of the electrical automation business. And, like most salespeople, everything I didn’t sell was invisible. On a purely intellectual basis, I realized the PLCs, drives, sensors and motion control systems I sold were connected to something, but emotionally, I didn’t care. I had my bag of tricks and my team was better equipped to assist in project layout, troubleshooting and advanced support than any other electrical distributor and I was fat, dumb and happy. But my eyes were opened.

I lost an order.  After the fact, my customer was kind enough to explain the reason why. It seems he felt the mechanical portion of the order was more complex than my fancy sensors. The competitor sold both and during the discussion of the mechanics, he convinced the customer that sensor placement required knowledge of the limitations of the mechanics. He knew about both and would solve the whole problem. It was a déjà-vu moment. It ruined my day, and as I made the trip back to the office, my buddy’s comments banged around in my brain.

I was convinced. I immediately started scanning the horizon for products just outside my selling sphere of influence. I began to realize the need for an understanding of my product’s place in the solution. And, most importantly, I started to explore plans for expanding my percentage of the customer’s total solution.

Since founding River Heights Consulting, I have explored and written about the need for distributors to broaden their product scopes into the whole solution. A few progressive distributors have followed this path. From my point of view, Fluid Power distributors have made the greatest progress; perhaps they were scared into making the move.

Recalling back to the 1990s, fluid power distributors faced-off against massive technological gains in the electronic world. Many of the traditional applications for their motion-centric hydraulic products were being challenged by less costly and feature rich electronic offerings. Many pundits heralded the end of their industry. Scare tactics from experts and feedback from customers drove many of them to develop expertise in motion control outside of their normal portfolio of products. Distributors evolved.

Conjuring up the words of Theodore Levitt, “What business are you really in? The railroads let others take customers away from them because they assumed themselves to be in the railroad business instead of the transportation business.” As distributors we must ask ourselves what business are we in.

Most distributors claim to be in the business of providing customers with solutions. Yet, most limit their solutions to advice and services wrapped around a bundle of products. Progressive distributors view the solution as whatever it takes to really fix the problem.

What should you do? Here are six thoughts to explore:
1. What are the limits of your solutions?
2. What products are invisible to you and your sales team? Just because you don’t sell it doesn’t mean your customers don’t need it.
3. Are there technologies not found on your “linecard” which are commonly used to create the total solution?
4. Do you see competitors with broader based solution capabilities than your organization? Are you willing to eventually hand over your portion of that solution?
5. What technologies (and product sets) will be important to your customers in the future? Will these technologies absorb some of the applications you currently support?
6. Have you asked your customers where they need additional solution support?

Finally, here are a couple of pieces of news:
Cincinnati-based CBT was recently recognized as joining the Top 50 list of Industrial Distributors. CBT used to be called Cincinnati Belt and Transmission. The company now carries a complete line of electrical, automation, pneumatic and power transmission products as well as their old standby belts and conveyor offering.

A recent article in Fluid Power World highlighted the Flodraulic Group. A quote from Bill Tulloch summarizes my
whole point:
“A good industrial distributor now has to integrate multiple technologies. He may be bringing to that customer pneumatics and hydraulics of course, but you’re bringing mechanical, you’re bringing electrical and controls. You have to understand PLCs and how that will control his equipment.”

Read the article here

Space and time limitations keep us from exploring dozens of other examples. The point is, morphing to match customer needs makes sound business sense.

Thursday, August 20, 2015

Non-Competes and Non-Disclosures

Once again, the whole topic of non-competes, non-disclosures have raised their ugly legal heads. A well-known electrical distributor recently appealed a lower court decision and the case is being revisited. Based on estimates from legal experts, the attorney costs alone are most likely pushing $25-30,000 for both sides; and this doesn’t account lost time and wasted energy.

I would like to go on record as stating I believe every distributor needs to have and enforce their non-disclosure agreement. In distribution, we don’t have patents, top secret ingredients or other trade secrets. Instead, we have customer contacts, supplier relationships, market price data, a keen understanding of the competitive lay of the land and emerging employees. Some of us invest massively in product training, sales and other job related skills. And, when an employee leaves, we must make absolutely certain that minimal information goes out the door with that former employee.

Most think of key employees leaving with their briefcases and home computers stuffed with our information; and it happens. A decade’s worth of key pricing data can easily be loaded onto a memory stick. The sales history of our top customers can be pushed up to a “cloud-based” storage site. And, it often happens.

We know of a couple of distributors who ran computer forensics on the computers of team members leaving the organization. Guess what? They discovered records
mysteriously shifted around a couple of weeks before the announced departure/termination. Clearly, this is an unethical action and potentially an illegal move. When notified, the new boss of the ex-employee had a “stern” discussion with his new guy. But, in the case of salespeople, how does one tell the difference between lucky guesses and illegal use of ill-gotten information?

Catching an ex-employee with (what one distributor calls) “stolen” information is tricky. It often requires dragging a customer into the mix. And, most distributors worry efforts invested in speaking to customers reflects poorly on the company. Further, many customers don’t understand the business ramifications of this information leaving the company. Instead, they see it as a guy trying to better is life and make his family more comfortable.

Undoubtedly, something more may be required. I see more non-compete agreements being added to distributor HR packages; and with a few caveats, I recommend the process. I see the need to protect company trade secrets. Since the distribution industry operates on razor thin margins (typically 2-4 percent,) protection is needed.

At the same time, I believe in opportunity for growth and personal financial improvement. Not every boss is a wonderful guy. As a matter of fact, I have run into some who are downright tyrants. So employees need protection built into the non-compete agreements as well.

Here are the caveats I talked about earlier. A non-compete should be null and void if any of the following come to pass:

The company sells to another person or organization
If the company gets sold, employees are not furniture thrown in as part of the deal. The new organization might ask for employees to sign a fresh new non-compete. Employees might sign it, but for a split second, everybody is a free agent. The owner of the company negotiated his/her deal, now the employees can negotiate one of their own.

The company terminates the employee
It is only fair to assume, if the employee isn’t good enough to work for the company, going to work for a competitor should be a blessing.

If the employee’s average compensation (based on a couple of years) drops by over 25 percent
This protects the employee against a boss who tries to starve them out by rearranging compensation structure, reassigning important accounts or withholding bonus participation. It is common for some year-to-year fluctuation, especially with sales and branch managers, but 25 percent covers a lot of space.

If a non-sales employee’s job is relocated further than 50 miles from their current office facility
This protects the employee if for some reason the company the company changes their location to the point the employee must relocate to maintain their position. At the same time, the company is protected if they make a move across town.

Recommendations to the distributor
If you are a distributor, I recommend a review of your current on-boarding process:
1. Do you require employees to sign a non-disclosure agreement which states what information you believe to be covered as a trade secret?

2. Do you require that company business be conducted only on company approved equipment, so you can track the flow of information?

3. Do you regularly review the agreement with existing employees? Experience dictates that many falsely believe “their contacts” are their contacts and belong to them.

4. Can you locate the original signed documents (or a digital image of the agreement) from all employees?

If you use a non-compete…5. Have you updated the agreement or had an attorney review to insure it is enforceable? Many jurisdictions (typically state-by-state) have changed their approach to non-compete agreements.

6. Are you including a discussion of the non-compete in the annual reviews of employees? Strangely, many employees “forget” the agreement or hear they are unenforceable from friend and co-workers who are not legally competent on the matter.

7. Do you have a copy of the signed agreement?

8. Are you willing to enforce the agreement? Every exiting employee must be briefed on your policy to enforce the agreement.

If you are hiring someone…
9. Ask if they have a non-compete in place? If they do, ask for a copy of the agreement and seek legal counsel to determine the scope of the agreement. It can be both expensive and distracting to hire someone and find out later their work must be limited by the agreement.

Recommendations for employees:
1. Make sure any agreement contains the provisions mentioned above. Any reasonable company will accept them as reasonable protection for you, your future career and family.

2. If and when you sign an agreement, get a copy for your own records and store in a safe place. This document is every bit as important as your home mortgage, birth certificate and passport. Don’t just stash it in your bottom drawer.

3. Remember, the contacts you make during your employment belong to your company. Many of us consider customers as our friends. If you are doing things right, they are friends. However, their business information belongs to your employer. If you leave, you must reestablish connection without the aid of all your notes from previous calls, meetings and other contacts.

Still not convinced all of this is worth your time?
For those of you who are like reading the details, this link will take you to an article in TED magazine

And if you crave legal jargon, this link will take you to the official court documents

Friday, August 7, 2015

How to Incentivize a Distributor Purchasing Professional

The Challenge – How to Incentivize a Distributor
Photo from
Purchasing Professional

After writing tons of articles on the sales process in distribution where I brutally vilify purchasing and procurement types, I received an email with the following:

“Frank, you often make sweeping generalizations about purchasing types. As a former sales guy, I tend to agree with most of what you say. However, my organization (a distributor) has a couple of purchasing people. And while I certainly don’t push them to lie, cheat or steal from our vendors, I would like for them to be more proactive in helping our business make money. Do you have any recommendations for points we should intensify them on? Is it possible for them to do more than just enter orders with our suppliers?”

This was a very good question and one I hadn’t thought about for quite some time. There are many purchasing folks working in distribution. These folks are critical to our organization. Most are hardworking, trustworthy and loyal. A good many are also not working at their full potential, vis a vis, generating revenue for their organization.

I decided to create a list of topics I believe should be included in discussions between distributor management and their purchasing groups. This is my first pass. I hope it generates some discussion here and more importantly, in the conference rooms of distributors.

Let’s start off with a few assumptions:
1. Outside of commodity products, most Distributor Purchasing folks do not decide the manufacturers of products which are going to be purchased.
2. Purchasing people are often responsible for setting inventory levels.
3. Purchasing people are responsible for returns to manufacturers.
4. Purchasing people are often charged with keeping dead stock under control.

Discussion Points
• What is the dollar amount of inventory which has not sold in 180/365 days? Are there ways this number can be improved via returns, inventory swaps or some other method?

• When we stock new product offerings from our supply-partners, do we insist on reviewing the quantities and amounts after 60 days? If so, does the review actually take place?

• How do we calculate a good deal when presented with a seasonal or special buy situation?

• How often do you process returns for warranty items and defective returns from customers? How do you handle suppliers who are slow to process these items?

• What is the inspection process for equipment returned from customers? Are the items in first class shape? Are boxes and packaging in “sale ready” condition?

• If we scrap dead stock, who oversees the process to ensure nothing sellable is lost?

• How do you manage purchasing of commodity products? Are there some products which are completely interchangeable in our market?

• Which manufacturers offer freight allowance (free shipping) with certain size orders? Are there times when we miss the freight allowance? Have we attempted to negotiate better shipping terms?

• Do we regularly use our own freight accounts for companies who do not allow freight to avoid hidden mark-ups in the freight cost?

• If we do not receive freight allowance for an item, is the cost of freight calculated into our pricing? (In one instance we discovered a line where freight would have added a full 9 percent to the cost of the item. Incidentally, the typical GM on the item hovered in the mid-20s. A big ouch.)

Special Pricing Agreements (SPAs):
• How do we ensure our company takes advantage of all SPAs available to us?

• If a manufacturer uses ship and debit procedures for customer specific SPAs, how do we track them and what safeguards exist to ensure we get our money in a timely fashion?

Don't let this be you or your team!
Networking with other distributors:
• Do you network with other distributors to cultivate sources for hard to find products?

• What do you consider to be a “reasonable” price over cost to buy products from another distributor?

Supplier Relations:
• Do we regularly review and “scorecard” our suppliers?

• Which of our suppliers provide us with back-side rebates on purchases? How do you manage this group to maximize the rebate?

• Which suppliers provide co-op advertising and promotional items as part of their package of value? How do you work with marketing and other departments to ensure we harvest all of the dollars available?

• Which suppliers are “notorious” for missed shipments, poor shipping documents, quantity errors or other actions which make them difficult or costly to deal with?

Non-stock items:
• How often do you review “non-stock special purchases” to determine if they should become “stock items?”

• Who enters the data for non-stock items into our ERP system? Is there a review process to ensure the proper catalog number and description was used in our ERP system?

Technology-based products:
• Do we have products which need to be rotated due to revision, software or other changes? How do we manage the process?

• When new technologies are added, how do you determine the proper part numbers and quantities to add to our stock?

In closing
This is merely a starter list. Your own list should be far more detailed; however, there are a number of folks without any list. If you are one without a list, feel free to use mine until you get yours fine-tuned.