Tuesday, February 2, 2016

Tough Economy May Call for Tough Love

For those of us selling into the industrial sector, the economy has turned tough.  One of the gauges of business levels comes from large manufacturers of industrial products.  Numerous end of quarter reports point to slumping sales.  We’ve seen everything from no growth to decreases from three to six percent being typical. 

At the same time, a few large industrial corporations have announced plans to “revisit, reevaluate and rethink” their supply chains.  Their strategy is simple:  The economy is slowing and they plan to squeeze a few points out of their suppliers to offset other slides in profitability.  In the past 45 days or so, distributors have shared feedback on margin squeezing moves by key customers.  Longer payment terms (How does 105 day payment sound?) and requests for across the board price reductions are common.  In the past month alone, at least a half dozen distributors report moves to “eliminate the middleman” with customers asking key vendors for a direct relationship.  We wrote about this phenomenon last year.  The future is uncertain, distributors are under pressure and now is the time to take action. 

Why now?  
First, we still have maneuvering room.  Business levels are nowhere near the doom and gloom days of the Great Recession of 2008-2009.  Our sellers have not fully bought into the theory of a down economy.  They are still open to direction and see the opportunity to grow their territories.  Secondly, we have some advanced notice.  We have time to position ourselves to grow business and take market share from the competition.

What should we be doing?
Target and focus our efforts  
Now is not the time to waste resources on customers who lack the potential to provide us with growth.  Most distributor salespeople have 150-200 accounts on their list, but the real potential lies with their top 25-30 accounts.  Quit wasting time servicing people who can only buy $1,000 bucks a year, even if they are nice guys, loyal and all that good stuff.

Broaden your contact list at targeted (Top 25) accounts  
If your business is dependent on a single point of contact, you are vulnerable.  During times of turmoil, companies often reassign, transfer or downsize people.  If a favorite customer contact goes, so goes your business. 

Take time to know the management team of your accounts  
When our customers feel the pinch, they often take measures to reduce costs.  National chains and integrated supply groups skip over our traditional contacts to deliver a financial message to customer management teams.  Most knowledge-based distributor teams don’t really understand the business objectives of their customers.  Understanding the customer’s real plans allows for better solutions and better customer service.
Understand the value of your solutions  
During times like this, many companies become more frugal with their investments.  Projects require better ROI to go forward.  Organizations move from a one year payback goal to something better.  Understanding the financial benefit delivered through your solutions improves your competitive position.  Further, we cannot assume our allies within the customer have a clear picture of the monetized value of our work.  Helping them understand enhances the relationship.

Sell backward to your suppliers 
Do your suppliers understand your strategy in the market?  More importantly, do they have firsthand knowledge of your efforts on their behalf?  Has this information been communicated to the upper management of your suppliers?  If the answer to these questions is not crystal clear and an astounding yes, you may be vulnerable to customer efforts to create a direct relationship (and eliminating the middleman.)  Our suppliers are under pressure to maintain profitability too.  If you don’t educate them, they may do something detrimental to your growth.

Improve communications within your organization  
Most distributors make use of product specialists, support desks, inside sales teams and other customer-facing groups.  Many times important information is not passed from department to department.  Yet, each of these groups has access to critical customer information.  If you use a CRM system, now is the time to review how you use this information and how the various groups can all access key data.

Follow-up and measure customer quotations and proposals  
Do you develop customer quotations then simply toss them over the wall without following up on their reception?  Research indicates that customers appreciate the effort and, what’s more important, the same research shows distributors who inquire about quotations are often rewarded with additional business.

Develop negotiation skills
Going back to one of the points we made earlier, major industrial firms have gone public with their plans to squeeze their supply chain.  Some have noticed, they can get additional discounts just by “asking” for them.  Customer purchasing types are going to negotiate with our sellers and we need to be prepared.  Based on my observations, most distributor salespeople have not received proper negotiations training in recent history.  And, if they attended any at all, the class was generic rather than distributor focused.  If you haven’t seen the cool videos provided by SPASigma, I recommend you click here.  The message is both entertaining and to the point.

Now for the Tough Love…

A lot of the points made will run into resistance from within the organization.  There will be pushback and foot dragging unless management insists they be done (and hopefully done quickly.)  Now is the time to improve your sales process.  Now is the time to add structure to your organization.  Waiting for the economy to improve is a poor decision.  


Priyanka Sekar said...

Thanks for sharing this Informative content. Well explained. Got to learn new things from your Blog on SAP SD

Lsg Industrial said...

Economy is like a roller coaster ride, sometimes its good and the other times bad. For whatever reason you should know your industry and make the most out of your resources to survive. Valuable products here LSG Philippines