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Stop dancing and start communicating

Distributors and suppliers can help each other be more profitable

by Frank Hurtte

Polite conversation costs this industry a fortune. As a group, we are social creatures. We enjoy the people aspect of our business. But sometimes all of this channel chitchat and partnership prattle stands in the way of important communication. The recession is over but the business climate continues to be tricky and mean. I wonder: Is it time to stop the dancing and start communicating?

Mentally check your calendar. It's meeting time again. As you peruse the contents of this story, distributors and their key suppliers are preparing for a new round of meetings. Some of these will take place at elaborately planned association meetings. Others will unceremoniously take place in the front conference room. And, a few might
happen over a divinely marbled hunk of Iowa Angus
down at your favorite steakhouse.

Think of past meetings. How much time is invested in meaningful dialogs that improve your position, strengthen your partnership and provide a worthwhile return? It's been my observation that many of these meetings feel warm and wonderful at the time, but weeks later we notice few results. This is opportunity gone awry. We want to make things happen but our genteel manners stand in the way. We end up "selling" instead of communicating.

In the 2002 best seller, Fierce Conversations, author Susan Scott labels the first goal of a great conversation the "ground truth." The ground truth is what's really happening in the trenches – not the party line. The communication that results is an accurate exchange
of reality cutting through hyperbole, speculation and mindless policy statements.

It's in everyone's best interest to dig just a little deeper into the most important topics. I base this statement on these four assumptions:

1) You are an honest person and so are your suppliers. You sometimes misunderstand one another. Sometimes you don't like the other guy's message or decision. But you have integrity and you believe the other person has integrity as well.

2) You are interested in surrounding yourself with strong healthy suppliers or distributors. The word partner is bantered around a lot these days – perhaps it's over-worn. However, if you subscribe to even the tiniest droplet of the partnership theory, you have to believe the financial health of your partners is important.

3) You are committed to the distribution model. For distributors this seems like a no-brainer but it also precludes "private labels" and "house brands." These concepts aren't inherently evil or even wrong. They just change the environment in which these
communications take place.

4) You understand that all parts of the channel are viewed as one by the customer. It doesn't matter whether the inefficiencies come from the manufacturer or the
distributor, the customer still sees them as extra unnecessary costs.

Armed with these assumptions, we could launch into hundreds of points capable of helping us improve the distributor / supplier relationship, some more important than others. However, I believe distributors and manufacturers must come to an understanding on these four topics to grow their profits.

How can we help each other be more profitable without swapping margin dollars?

This discussion comes couched in some new distributor programs – things like freight terms and new computer portals. But wouldn't it be great to have some powerful communication around this topic? Opportunities exist for big-time profit dollars to be split between the participants. Let's look at a few of the points that might be included under this topic.

Inventory is a good place to start
We should take a new look at the way we handle inventory. In the old days, commitment was measured in inventory dollars. Surprisingly, many people in our industry hold to this belief. New product launches and marketing programs still require a distributor stock commitment. Either the distributor is committed or not. It seems like a commitment to the product could be measured in some more effective way; the right stuff in place at the right time, not stock held hostage to prove loyalty and
commitment.

Vendor managed inventory was a buzz word a few years ago. How has the program really worked? Are there tweaks in the model that allow for a more customized and profitable application? By now our industry should be expert in replenishing normal flow items with minimum human intervention; for a modern computer system this should be almost a no brainer.

Obsolete and unsellable items are a pain for distributors. Processing inventory back into factory stock costs suppliers money, too. Distributors and suppliers must work on keeping inventory fresh and sellable – and the burden can't fall entirely on the supplier. Work together and we all make more money.

Explore employee training
Suppliers want distributor sales forces to promote new products. Distributors want improved sales efforts. Yet, we have a disconnect. I can still remember a conversation I had with the vice president of sales for a well-respected electrical distributor a few years ago. He complained that less than half of the training delivered to his people was effective. Think of the hours of valuable sales resources lost as salespeople sit in a training room being pounded with the wrong information. Let's get specific about
improving this expensive activity.

To be completely fair, we need to ask the question: Should manufacturers bear the training burden alone? Distributors with specialists probably have better
resources for an in-house training system. Experience dictates that many of these companies have assumed a greater percentage of the training burden. What are your long-term plans for the future? How will the cost savings be distributed?
Are there things I can do more efficiently than you (and vice versa)?

This topic could be part of the profit discussion but I believe it deserves a discussion of its own. Remember our fourth assumption: customers view the whole channel as one entity. Figure out how to eliminate cost and you have a competitive advantage and potential for added profits. Status quo assignment of channel activity is a barrier to success. Once again let's drive forward with a few examples.

Technical Support
Research for our book on Distributor Specialists revealed overlap in the job duties of the technical specialist and field-based supplier support teams. In many instances, the overlap created some confusion with customers and duplicated efforts. Inequalities were
created. Distributors with technical support groups operated autonomously while their counterparts (with no in-house support) exhausted the supplier support mechanism.
Market pressure will ultimately drive out duplication. But one can only wonder what might happen if distributor and supplier sat down together with the purpose of determining who could perform each of the essential activities with the least cost. Distributors might assume responsibility for product commissioning, warranty services and customer training based on a fairly negotiated fee.

The sales process
Are we operating with an obsolete sales process? If a well-developed playbook that describes specific interactions in the field doesn't exist, you may need to revisit future plans. Is it sacrilegious to ask whether factory reps play the same role in a world connected by Internet and high-speed communications? Might the distributor's role be expanded (with compensation) and the factory rep reassigned?

Am I your horse or just another animal in the barn?
Most suppliers build their channel strategy around multiple partners in a market space. A few believe in saturation distribution. You probably have a pretty good understanding of who does what. But many of us still don't know exactly where we fit in. And it's important
for supplier and distributor alike to know exactly where
we stand.

First, you can't expect to be everyone's horse in the market. Rarely does a distributor meet every criteria for every line they represent. The same is true for suppliers. But understanding your position allows for better
communications, less emotional heartache and ultimately a more profitable relationship.

If you are the horse, what does that mean? Interviews with supplier top management indicate that orders channeled through their top-performing distributors are more profitable. Things like order size, frequency, accuracy and sales involvement drive this metric. Yet all too often, this information isn't communicated to the field sales team. Comparison of management vision against actual behavior provides important topics for discussion and improvement.

If you aren't the horse, there is still much to talk about. Are you onboard to serve a specific market segment or account? Are you in danger of losing the line? If there is an opportunity to improve your position (from second place), define measures of success, time frames and what you might expect once you reach this lofty pinnacle.

What opportunities are most important?
Thomas Jefferson said, "All men are created equal." No more important words were ever stated in politics. We can't make the same assumption in business. Not all business opportunities share the same ground. Some product lines are strategically vital, others are extenders. A sale to a key OEM servicing the wind turbine industry may be more important than an equally sized order from a general contractor.

Distributors and their suppliers must understand the targets of their partners. Our research around the book Target Driven Sales Process revealed a number of breakdowns based on lack of a meaningful exchange of information around targeted opportunities. Perhaps one of the reasons companies with fully developed targeting processes are 47% more effective is their ability to share that strategy with selling partners.

A few more points to think about . . .
Unlike my favorite vacation spot in Cancun, this list wasn't all-inclusive. In early preparation for this article, we had to prioritize. That process was important. We have limited time and limited opportunity to dig really deep into these topics. In the world of digging for water, it's better to dig one hole to a depth of 100 feet than to dig 100 holes one-foot deep. For your conversation, select one or two important topics and be prepared to dig deep. One benefit of this list is many additional topics overlap.

Preparation is vital to meaningful conversation. Specifics, not generalizations, build better understanding. Real examples from real life mean more than the hypothetical. Data and metrics allow better understanding today and going forward.

If you are interested in the topics that didn't make this list, e-mail me and I will send you the complete list.

 

Frank Hurtte, founder of River Heights Consulting,
brings 28 years of distribution industry experience
and a lifetime in sales. Reach him at (563) 514-1104
or frankehurtte@riverheightsconsulting.com.

 

This article originally appeared in the Nov./Dec. 2010 issue of Industrial Supply magazine. Copyright 2010, Direct Business Media.

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