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:
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.
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.
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.
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
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.
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| Credit: izquotes |
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.
Comments
Distributors are interested in the one-to-one ... essentially how to make things better for them to improve their sales / profitability whereas to affect change, a manufacturer needs to make supply chain improvements for themselves throughout their channel and that starts with suppliers understanding where they are not meeting customer expectations and what the channel's metrics are.