Tuesday, December 19, 2017

The New Seller Project and Frank’s New Book

Our industry adds another new seller to the ranks daily. Over the past year, we have had the opportunity to speak to dozens of them, but compared to the vast number out there this is but a thimble full of water in a sea of people. For the coming year, I am determined to change that percentage.


First, the demographics demand it. Every time we speak to a group of distributor sales types, it’s hard not to notice the number of folks who are pushing up against retirement. A few weeks ago, I took a quick poll and over 40 percent of my
audience qualified for AARP membership (50 plus). There is nothing wrong with being an experience salesperson. As a
matter of fact, it is probably a good thing. But, our industry will need to fill the ranks.

Second, I am convinced our industry must change and one of the big changes comes in how we find new people. The days of doing nothing till you need someone, then going out to “steal” an experienced person from the competition is getting harder. There isn’t a big enough pool of experienced hands and, for the most part, competitors are holding on to their promising talent with greater tenacity.

Finally, it’s about economics. Laws of supply and demand are driving up the cost of qualified people. Freshly minted engineers, green as the grass and straight from campus, are receiving compensation packages in $55-62,000 range (depending on location). So if you are selling technical products, the cost of talent is rising fast. The faster we can convert new salespeople to highly effective selling machines, the better for our bottom lines.

With these realities, you would expect new seller training would be planned, robust and well-focused. It is not. Or at least that’s my assumption based on the 20-some new sellers I’ve spoken with in the past several months. It’s hard to believe this important piece has slipped through the cracks and sent money and potential profits swirling down the drain.

Here’s a recap of new seller training.
After these interviews, a trend emerged. Here’s a recap in 85 words:
“My first two weeks were spent in the warehouse under the tutelage of the warehouse manager. I learned how to find products and helped unload a few trucks. The next two weeks I was assigned to inside sales. I did get a bit of a lesson on how to find stock, but mostly I watched others talk on the phone. After a month, I was given a list of account and an old list of contacts. I took my business cards and started visiting customers.”

What about sales meetings?
Sales meetings trend toward product-centric discussions. The new sellers appreciate the information and many attempt to connect with the factory people and/or local reps who conduct them for additional one-on-one training. However, the general report back is that without ideas on applications and selecting the best customers, most of the time they find the information interesting but not useful for growing their business or making additional sales.

One new seller took an approach similar to the one I used way back when. He takes new products to a friendly customer and asks the customer to give him a “real world” opinion on who might want to use/buy the product. The customer seems to enjoy providing him with useful commentary and sales mentoring. I asked what happened if the customer didn’t like the product and he candidly shared he simply quit mentioning it to any of his other customers. I believe this should be a red flag. Not knowing the customer, one might wonder about his feelings about new vs. time tested technologies, quality vs. price or a dozen other variables.

These new sellers aren’t lazy.
The ones we talked to are willing to work hard. A couple reported putting in extended hours to complete quotes and get information packaged for customers. However, in my opinion, they are not putting their time to the best use. Since they don’t have a lot of doors open to them, they are willing to zig-zag across their territory providing urgent care for some very small issues. I believe this comes because the small customer problems offer them the opportunity for some customer contact.

The group, as a whole, has some of the common misconceptions of when customers might be open to seeing a salesperson. As a group they shy from trying to set appointments before 9:00 AM. This doesn’t happen because they want to sleep in but rather because “somebody” told them customers don’t want to be disturbed until after they’ve completed their morning tasks.

Only one new seller has had sales training.
We asked the question every time and made it clear we weren’t talking about “formal” training. Quite frankly, we were looking for any kind of training. Out of 20 new sellers only one single soul had sales training. In this particular case, it was a Carnegie type course and they felt it didn’t reflect on the work of a distributor salesperson.

We also asked about books. Have you read any books on the selling profession? Three had. These were random selections made via Amazon or the local book store rather than books recommended by a sales manager.

No leadership guidance causes them to leave.
For one new seller, this was his second company. After graduation, he joined a company with a “management training program” only to find out the program was being dropped. He was making headway but had a remote manager with no time to discuss issues and unwilling to provide guidance. This very promising seller wisely jumped ship for a company with an accessible leadership team. I suspect there is a lesson there.

I want to speak to new sellers. Here’s why.
I want to speak to sellers with less than two years in a position. I am researching for a new project to help guide them and their boss through the first two years of business. If you happen to be one of these folks, send me an email. We’ll schedule a time for a 20-30 minute phone call. I am not going to sell you anything. I will not embarrass you. I promise to ask a lot questions about your experience to date. My email is frank@riverheightsconsulting.com

If you know somebody in this category, please, pretty please, forward this blog to their attention with a note telling them Frank is a nice guy. Santa even says so.

Finally, buy my book.
Fresh off the presses and available at Amazon. Plan on Breaking Through: Customer-based Strategic Planning for Sellers. This book steps you through setting up a plan for your biggest and best customers. I recommend it as a training tool for new salespeople.


Sunday, December 3, 2017

Customer Surveys – A Strangely Interesting Phenomenon

We have done a lot of Voice of the Customer Surveys for our clients lately. Along the way we discovered something strangely interesting. And, it has nothing to do with the customer. Allow me to share.

After collecting several of these surveys, we observed a bit of reluctance, perhaps hesitance, of the front-line sales teams when asked to promote the surveys. Maybe it was caused by fear of the unknown, things like how management might use the survey, or wondering if customers might see the survey as an intrusion or perhaps the results would reflect poorly on the team. Some salespeople believed the process was redundant because after all, they represented “the eyes and ears of the company,” ever vigilant for changes in behavior and shifts in thought.

After receiving the final report, most view the survey information as a positive tool for better understanding what’s going on in the minds of their customers. However, during the early stages, the actions of the group are, at best, neutral to the implementation of the tool.

To alleviate anxiety over precisely what is on the survey, we started asking the sales team to anonymously complete a trial run of the survey. This process allowed them to:
See exactly what questions would be asked of their customers.

Understand the minimal the time required to complete the on-line portion of the survey.

Better understand the mechanics and see the very gracious wording used to ask customers for the gift of feedback.

Demonstrate that nobody in management can see answers.  Responses are truly anonymous, protecting the customer as well as the seller.

Learn of the nice gift awarded for participation in the survey (we generally recommend a $10 Amazon gift card, a cool tee-shirt or some other memento).

As part of the live trial, we ask the distributor staff to go through the survey and answer questions as they feel one of their best customers might. Here-in we have discovered some very interesting results.

The value of the anonymous report

Before we get to the interesting stuff we have discovered, let’s drill into the “anonymous” third party survey thing.  Both employees and customers are weary of providing brutally candid comments if they feel the remarks might be traced back to them.   While you probably enjoy great relationships with customers and your team, it is human nature to sugar coat negative information.  

If there is one point I have noticed after over four decades in sales, it’s this.  Customers would rather say, “Your price is too high…” than go into details about slow response time, erratic delivery schedule and lack of knowledgeable sales people.  It’s their way of being nice folks.  Adding a degree of separation to your survey gets better results. 

Further, in spite of all the online templates designed for gathering customer information, very few, if any, have been designed with our industry in mind.  The questions necessary to gather the right kind of information take time, effort and experience in developing.  Your customers are busy.  A poorly worded question can be all it takes for them to abandon the survey giving you zero feedback.

A good third party survey combines online surveying along with short (and opt in) phone interviews.  These one-on-one sessions allow the customer to elaborate and provide more detail on their specific experiences.  Plus, a good third party survey understands your business well enough to ask the right kind of follow-up questions.  With the right kind of follow-up, the answers to these questions become immediately actionable, providing quick fixes to urgent issues of the day.

Your staff knows some of the issues

Deep down inside, the staff knows many of the issues associated with customer relationships. Allow me to elaborate.

Speed of response time comes to the surface when inside sales and customer support is short staffed. The team knows customers are frustrated; they hear off handed comments about how hard it is to speak to a live person on the first call. Products missing from the portfolio are often defined to a tee.  So too are inadequacies in shipping times and paperwork flow.

One of the other issues we see are needs for training. The distributor staff often outlines product, technology and regulation training required by customers, but deeper exploration points to needs for internal training on the same topics.

Distributor teams indicate lack of internal skills through the eyes of their customers. While the distributor personnel tend to be harsher on themselves than customers, reviewing and interpreting the data is always an exercise in learning.

A few final thoughts

Here are some thoughts and observations on the topic of customer surveys:
Customer feedback is a gift.

Your best customers want to help you improve and they will provide valuable feedback.

Many will not share this information with your sales team directly. Why? Your people become defensive and often launch into a litany of excuses for less than adequate service. Other times, they simply don’t want the information to come from them or any potential recoil from negative feedback.

The Customers’ world is changing. Without feedback it is easy to misjudge current trends such as the real reason for internet purchases.

Feedback today has a short “shelf life.” In the old days, conducting a meaningful distributor “voice of the customer” exercise was massively expensive. Wholesalers only conducted one every 5-10 years, if ever.

Doing a customer survey with a third party, like River Heights Consulting, costs 80 percent less than just a decade ago.  (In a past life, I paid upwards of $30,000 for something similar!)

Feedback from RHC is compiled quantitatively and qualitatively, meaning you will receive hard numbers, how to read them and statements/comments backing them up.

~Self-serving, blatant and crass promotion~
River Heights Consulting does "voice of customer" surveys.


Wednesday, November 29, 2017

Guest Blog: Instrument Calibration

A Guest Blog…
In the past we have invited the readers of the distributor
channel to provide perspectives on their world and how distributors might benefit from technologies and processes. Over time we have received many requests to speak to our “family” here at The Distributor Channel. Many of these were crassly commercial and a lot had nothing to do with distribution.
We generally respond with these rules for creating a blog post:

1) The information has to be of interest to distributors.
2) The information can’t be overtly commercial for your business.
3) The information has to be moderately well written (The Good Lord Knows I am an Engineer by training who pretends to be a writer).
Allow me to introduce Edward Simpson – who shared his thoughts on how distributors might make money in the recalibration of customer equipment.

How Distributors Can Increase their Sales by Helping their Customers with Instrument Calibration

Have you ever truly wondered about the importance of the calibration process?
Calibration is a technique of setting a measuring device by adjusting it with a known accuracy, also known as a “standard.” This technique determines if an instrument is producing accurate and measurable results within the given limits as compared to those produced by a definite standard over a suitable series of measurements.
The Importance of Regular Instrument Calibration
Even though your instruments produce accurate results, they
are bound to slip up at some point, leading to a drift in the accuracy of the readings. Factors that affect this are daily wear and tear, external and environmental factors like mechanical and electrical shocks, which cause a gradual drift. Regular instrument calibration reduces these uncertainties and prevents the drift from occurring.
How Often Should Instruments be Calibrated?
The need for calibration varies from instrument to instrument. While calibrating infrequently is known to cause problems, calibrating too often is not ideal either. It is also expensive. Here are some factors to help determine how often you should calibrate your instruments:1. Critical measurement locations need to be more accurate.

2. Keep track of the operating conditions and workload of the instruments. Those operating in tough conditions need to be calibrated more frequently.
3. Check your instrument’s calibration history to see how often it has been calibrated in the past.
4. Make sure to calibrate your instruments before taking any important measurements.
5. Calibration can be affected due to certain unforeseen circumstances whereby you need to consult a lab calibration service immediately after to maintain accuracy.
6. If you feel that there is any inconsistency in the final product or if there is visible shift in measurements, then it is time for you to calibrate your instrument.
7. Make sure to stick to the timeline and frequencies suggested by the instrument manufacturer.

Why Using a Third-Party Calibration Company is better than Doing Calibration in House?
Using outside suppliers who comply with the updated FDA standards and guidelines ensures your instruments will always be properly calibrated using the most advanced technology.
Third party calibration companies make a better choice to calibrate your instruments than in-house lab calibration services:
● They have more experienced professionals with in-depth knowledge about calibration
● They are cheaper than setting up an in-house lab, resulting in better ROI for you
● They follow current FDA guidelines and standards
● Their staff is familiar with the latest technology and equipment that is needed to calibrate your instruments

Also, using outside suppliers who are aware of CGMP compliance ensures that customers are aware of the recent trends in the industry and avoids the “that’s how we have always done it” approach. A good third-party service should provide dedicated primary and secondary technicians who take the time to learn about your facility and your company procedures to ensure that you get compliance and possibly reduced training costs.

How You as a Distributor Can Approach Your Customers on Behalf of Third-Party Lab Calibration Services
Distributors should share professional opinions about using third-party calibration and its benefits. Your customers value and appreciate your knowledge.
Hiring a third-party calibration company can reduce costs for your customers and improve compliance associated with internal calibration programs by as much as 60%.
I hope this article helps you better understand about the calibration process and impart the same knowledge to your customers as well.

Author Bio: Edward Simpson works for RS Calibration Services and has a knack for finding faults in machines and does not rest until they are rectified to perfection. He lives in Pleasanton, CA and loves to write about how machines work and about the importance of proper care and calibration of equipment. When he's not working or writing, he loves to run to stay fit.


Monday, November 27, 2017

Rebate Programs in Distribution

Many segments of the wholesale business use rebates as a plan to modify and reward distributor behavior. While the roots of these end of year rebates and similar programs are mostly lost to history, they have become an important part of the distributor financial sheet. For example, Electrical Distributors typically report around 40-60 percent of their bottom line comes by way of rebates. Other lines of trade indicate similar numbers. This information is not anecdotal. This is not beer talk, the Profit Reports published through groups like NAED and others back up the statement. Without rebates, the channel could be in serious trouble.

Marketing and Buying Groups help drive the rebate dollars
Many independent distributors receive their rebates through 
marketing groups. Organizations like IMARK and Affiliated Distributors (AD) in the electrical industry come to mind, as
do groups in other lines of trade. Here is a short list (mostly top of mind):

• Distributor Partners of America (DPA) in the Industrial Space
• Safety Marketing Group in the Safety Industry
• Evergreen Group in the Industrial and Contractor tools and supply group
• IBC in the Industrial and Bearing business
• The Embassy Group in plumbing and HVAC/R industry
• The Blue Hawk Group in the HVAC/R industry
• The Virtual Rain Group in Lawn, Turf and Irrigation
• IWDC in the Welding Industry.

Further, AD has expanded into the following industries: Power Transmission, Building Materials, HVAC, Industrial Products, Pipe Values and Fittings and Plumbing Supplies. What’s more, Industrial Supply Magazine has a page devoted to the groups here

These groups list their mission as helping independent distributors better compete with the much larger national chains. They do this in many ways, including benchmarking, networking and marketing assistance, but make no mistake, the rebate check drives the membership.

So why are we talking about this?
While rebates are important, they are seldom discussed in the rank and file of our industry. Sadly, many supplier salespeople have the attitude shared by a mid-level salesperson I recently interviewed. He said this, “My company writes some big rebate checks to the owners of the distributors I work with. And, for the most part, I don’t understand why. The distributor sales guys who work hard to sell my stuff don’t get commission, so it doesn’t incent them. From where I sit, these things are basically a slush fund for distributors to buy their next boat or vacation home.”

We have already hit on the financial importance of rebates. Without these incentives, distribution, which is already a low margin business, would become unsustainable. Typical bottom line numbers for many of these companies already stand in the low three percent range. Dropping that margin (not gross margin, but real bottom line margin) to a one or two percent mark would equate to distributor owners putting their money into low interest, no risk savings accounts.

This still leaves my young friend’s comments about commission payments not being tied to rebates. First, I believe commissions are obsolete for a number of reasons; mostly tied to a belief they no longer drive the type of behavior required in distribution. Since most distributors have yet to see the light and switch to a new system, let’s drill into some of the issues tied to rebates and commissions.
First, few companies calculate commissions on rebates. About the closest we can think of are those organizations who pay a slight commission premium to sales made of suppliers who are part of their buying group. In my opinion, these are mostly feel-good programs that rarely drive behaviors during the adrenaline rush of selling.

Second, most companies have built their compensation model around the gross margin number with little or no real concern for costs of doing business. Costs have been rising faster than gross margin production at many distributors. This is complicated more with the addition of new selling resources, which are rarely, if ever, factored into commission rates.

Finally, there is strong evidence that when special pricing is provided to distributors “the salespeople give it away” (not my words but I agree). Countless stories of special one of a kind into stock specials exist. Most of these end with the same story line, distributor receives 15 percent lower price than anyone in the market and within months the new sell price has followed the cost down by 15 percent. But, rebates are hard to give away.

We need to talk about rebates
What’s the moral of this long-winded story? We need to bring rebates and program dollars out of the shadows and into the open. Distributors who don’t discuss them are destined to have employees who question their fairness and ownership’s intentions. Distributors who don’t talk about them with their suppliers will always have vendor salespeople thinking, “These things are buying the owner’s dude ranch in Montana.”

Finally, for the enlightened suppliers who happen to be reading this. Here are four points:
1. Regardless of how they started or whether you like rebates or not, they are a part of our industry. You need to understand how your competitors use them. If you do and they don’t, pushing the conversation forward is in your best interest. Conversely, there need be a solid financial reason why you do not provide. Saying it is against your principles is not a good excuse.

2. Programs and rebates must be well thought-out and tested against future scenarios. No one complains when you begin providing a rebate. However, if you change the program after three years, you will create pain, suffering and disharmony.

3. If your rebates are based entirely on growth, think about this. Eventually, every distributor has a flat year. Rebate programs heavily skewed in the growth direction take revenue away from your channel when they need it most for driving your sales forward. Progressive distributors gain market share during periods of flat or negative growth in their territories.

4. The best rebate programs are built around distributor behavior. If you want distributors to provide quality Point of Sale (POS) data, tie it to rebates. If you want to displace niche competitors on the distributor’s shelf, link the rebate to being the only product line on their website. Want better visibility in their showroom, base the rebate on being the only product line displayed. We could list a dozen more points like this but, you get the picture.

A final note
My writing gets interrupted often. My parents trained me to answer the phone in three rings or less. I literally just hung up from a conversation with the regional manager of a manufacturer. Our conversation covered several topics. One of which was a distributor incentive program. His words for the program was “(distributor) owner kickback.” I hope he reads this…

Wednesday, November 22, 2017

Be alert in Distributor-land … “Lerts” are needed everywhere

A Distributor Community Service Announcement

Be alert…  For the past year, we have been tracking and trailing the scams used on distributors.  During this misadventure, we have heard stories, directly and indirectly, of something just shy of a million dollars’ worth of distributor product scammed using various internet-based schemes.   

Typically, here’s what happens:  the inside team receives an email from a well-known and respected end-user, contractor or institution asking for a quote on a short list of specialty products.  The email looks legit.  The company logo is in place.  The person signing the email is a real guy.  And, if no account currently exists, the person on the other end of the email offers to either fill out a credit application or send along a copy of the organization’s references.  

Be alert… The credit app forms they send you will be official.  Many of these scammers have gone to the trouble of acquiring the official credit reference form of the company fronts they are using.  It will include banking information, D&B information and the trade credit references of the organization they are pretending to represent.

Be alert… The phone numbers will often be from the same city and sometimes within a few digits of the proper phone number.  These are easy to set up with forwarding technologies used to send your call to the number used by the scammer.

Be alert… These guys want to get the transaction done, ASAP.  One of the points that has often stopped distributors from being hoodwinked was the time required for a credit application to be processed.  The day or so to get an account set up provided the pause needed for distributor’s people to realize something isn’t right.  

Be alert…  The latest scam involves a household name in distribution - Motion Industries.  Experience indicates, many distributors serve as second source vendors to Motion Industries through Motion’s many supply contracts.  This makes a scam working under Motion’s name doubly dangerous.

I spoke to Motion Industries directly to alert them to this latest attack on the distribution business.  They are aware of the situation and indicate purchase inquiries made through anything other than their local branches should be ignored.  

Be alert… For this email.  We set up a couple of email accounts designed to attract scammers.  Here is an example…

Be alert…  Here is are the messages received by our office (last week).  I have left the poor grammar and bad typing practices in them to make them easier to identify….

Apparently in his haste, Randy, whom I have met a few times, forgot to add a some of the items to the first email.  You know how busy the Sr. VP of a multi-billion dollar distributor gets when tasked with personally ordering small quantities like this.

How we can tell this is a scam:
1) Poor grammar and spacing.  Come on, even a scammer should pay some attention to detail.  I know Mr. Breaux to be quite articulate, so this is probably not his work.

2) Not the real email address.  I can assure you that Motion Industries can afford their own email server and does not rely on free mail via gmail.com.  But, the idea could be a cost saver.

3) Mr. Breaux goofed up his phone number.  Strangely, it rings through several switches and ends up with a message that you will be called back.  I promise you Motion uses something a little better in the way of telephony.

Avoid scams, never ship to unknown addresses without checking and never do business based entirely on an email and a phone number.  

Be alert… They are easy to fake.  If you happen to get a scam message of your own, send it to my own personal distribution company at:  W.E.CoyoteDistribution@gmail.com .  We have a staff of “Lerts” in training.

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:

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

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.