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Bridging the chasm

Sharing point-of-sale data can benefit the entire channel

by Frank Hurtte

Distributors and their supply partners stand on two sides of a Grand Canyon-sized emotional chasm. Amiable salespeople, who have the reputation for getting along with everybody, assume primordial postures more closely resembling the body language of angry primates in battle than the good guys they are. I’ve seen meetings go from wonderfully productive to nasty in nanoseconds based on a single topic — point-of-sale data.

For the next few moments, join me as I channel the energies of both sides of the divide and then provide a few ideas for bridging the gap and lowering your blood pressure.

The Distributor Side
First, allow me to don my distributor hat. It’s a bit old and tattered, but after nearly 35 years it remains one of the few pieces of clothing that still fits well.

Trust is a cornerstone of the distributor position on point-of-sale data. And in keeping with our cornerstone analogy, in many instances, it’s not cast of solid granite. Distributors reason that customer information is their single most precious business asset. Their memory banks overflow with stories of supply partners “doing them wrong.”

Classic tales of woe twang through their stories like the ghost of Hank Williams at the Opry Auditorium. Business gone direct, accounts mysteriously attacked by the supplier’s other distributor and smart-alecky sales guys insisting they lower the gross margin play through their minds.

The number one complaint centers on direct salespeople and agency reps going over to the dark side armed with the distributor’s customer list. The agency rep story is so prevalent it cannot be ignored. Further exploring the issue reveals two major points to think about:

The reps work for multiple manufacturers. They are charged with growing the business of several organizations simultaneously. This leads to conflict when the distributor does not handle all of the rep’s lines. It’s so bad, some distributors will not make joint calls with reps based on the issues laid out above. One distributor manager described a situation where he took a rep to a customer on one product (which the distributor sold) in the afternoon and learned the rep was back the next morning with a product not sold by the distributor.

The turnover of salespeople in these organizations creates issues because a typical career path involves moving to a distributor and bringing along the customer goodies.
But, trust isn’t the only issue for distributors. Time and cost weigh heavily.
Nearly every manufacturer wants the data in their own format. Placement, character strings and other data variables sometimes stretch the resources of the distributor’s IT department.

If you’re a manufacturer, don’t dismiss this issue. Customer data is often far more difficult to track than you imagine. Some customers have dozens of ship-to addresses, which further complicates things.

If the distributor sells any of your product in their “non-stock” categorization, additional sorts may be required to identify your products. This nearly always falls on a non-clerical person. There’s lots of manual sortation that distract from productive work.
The addition of SIC code data to the POS data is a bit of work which must be manually added to the reports. We have seen sales managers devoting half days to painstakingly typing this information in to reports.

Aside from all the trust and hassle factor issues, distributors often wonder how (or even if) the manufacturer really plans on using the data. Only a few manufacturers actually provide details on precisely what happens to the information once it comes into their possession. To illustrate, a VP of a Midwestern industrial products distributor related a story of diligently forwarding POS data to a supply partner for nearly two years. A couple of months into the third year, he received a call from his supply partner’s distribution team saying the data would not open properly. When he commented that the “zip file” he used was the same one employed for the previous two years, the factory person said, “We didn’t have the staffing to look at last year’s data and are just now starting up the program.” This was wasted effort with a capital W.

The Supply Partner Side
Let’s begin with a story which illustrates the core concerns of our vendor partners. Manufacturers that go to market through distribution lack critical information.

First, they don’t know who their customers are. “I am a distributor, I write their check and I am the customer…” is a statement I have heard from both my father and a great many of my contemporaries. But let’s think this through. Distributors are only part of the supply chain. When the “end customer” quits buying, the stream of distributor checks comes to a screeching halt. And, regardless of how we might like to think differently, distributors really are poor prognosticators of future market meanderings. Most distributors struggle to provide anything other than a slightly up, slightly down or flat type of sales forecast.

POS data gives the manufacturer a view of their “real” customer base. Given the right match of customer list and SIC code, they can spot national trends related to the use of their products. Armed with this data, national advertising campaigns become more than just an educated guess. The success of new products can be easily gauged not only by distributor but by geographic region and customer segment.

Understanding customers isn’t the only advantage of POS data. Properly implemented, POS structure allows manufacturers to better understand the velocity of flow through the channel. Questions like average time product inventory spends in the distributor system, the frequency of orders from various customers and typical size of order all allow the manufacturer to operate more smoothly. Trends in order activity (both up and down) are recognized sooner and without the buffering effect of distributor inventories.

Manufacturers fear that poor market intelligence and lack of accurate prediction of end demand puts them at a major disadvantage. In a globally competitive market, small advantages can make a huge difference. Factory flow, utilization and the ability to leverage material costs in times of fluctuating commodity prices build substantial advantage.

POS has to be good for everyone
Manufacturers and distributors have squabbled over this topic for years. A few of the more powerful vendor partners have leveraged their position in the market to force fit POS requirements on their distributors. Lots of distributors confess to putting limited energy into the reports. Some out and out falsify parts of their information to avoid providing data on very sensitive accounts. I believe POS is a key component for the very survival of our industry at large. However, to make POS work, it has to be good for everyone.

Here are some thoughts on what the industry should be talking about into the future.

Data security and confidentiality
The area of trust and sensitivity to data ownership is a major distributor issue. Years ago this concern was address by a joint committee from three distributor associations (AHTD, FPDA and PTDA). The document outlines the ownership, confidentiality requirements and uses of the data. The document describes the purposes for use of POS as “internal, for commission assignment and marketing analysis.” The ownership is defined as being trade secrets belonging to the distributor and not for disclosure to other parties in the case of purchase or termination. In addition to the understanding outlined above, the document contains sample confidentiality agreements designed to be signed by employees and representatives of the manufacturer.

Strangely, a number of distributors reporting on the use of the document stated their supply partners found issue with the individual confidentiality agreements in the document. Distributors need a modicum of protection for their trade secrets (in this case customer and pricing information). The association-based document described above or some other document outlining protection and trust must be part of the future. Further, supply partners need to take the necessary step of describing how the information will be used within their organization.

How is the information used?
Not only must supply partners explain how the information will be used within their own organizations, but the advantages to the distributor must be explained in detail. A few progressive organizations have pushed the window forward by providing the distributor with information which can be used to build their own marketshare.

One company provides distributors with a tool which allows benchmarking of their own territory against national averages. Yet another organization extends the effort by providing the distributor with a list of potential customers in their territory matching the profile of national best prospects. Imagine the value of POS data served back with potentials and targets by industry type. This information could easily add some real meat to annual sales planning season.

How can the data transfer be done efficiently and with marginal cost?
Earlier we touched on the cost of preparing the transferring data. This historical problem could easily be addressed. While there are dozens of companies serving the wholesale distribution ERP market, a couple have a very large share (estimated to be over 60%) of the market. Supply partners should poll their channel and work with the ERP vendors to provide a standard portal for configuring and transmitting the data. Timely and accurate data is important to the supply partner. Making this happen efficiently is important to their channel. Automation is a critical step in the process.

What happens if we don’t get this worked out?
Manufacturing experts indicate that manufacturers gain an advantage when they understand and control their supply chain. Supply partners that develop efficient plans with their distributor channels will outperform their counterparts. POS data doesn’t work when not fully embraced by a very large percentage of the channel.

Implementing POS strategies costs the distributor side of the channel time and money. With this in mind, manufacturers need to consider compensating early adopters and providing useful tools to help their distributors gain a competitive edge.

This takes me back to a favorite quote from my father: “In business, if a deal isn’t good for both of us, it will turn out bad for both of us.” The whole POS thing has to benefit both distributor and supply partner alike.

Frank Hurtte speaks, writes and consults on the distribution in a post-recession world. He hosts a group called Target Driven Distributor Sales on LinkedIn.com. Contact Frank at River Heights Consulting via e-mail at frank@riverheightsconsulting.com or via phone at (563) 514-1104.

This article originally appeared in the Sept./Oct. 2013 issue of Industrial Supply magazine. Copyright 2013, Direct Business Media.

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