Thanks to the coronavirus, the stable foundation and balance of power between the manufacturer (and their reps), the distributor and the end customer is showing some major cracks. How can you be prepared as a distribution channel partner — manufacturer, manufacturer rep or distributor — to participate in potential channel disruption to come? In part one of this commentary, I discussed why manufacturers are going to look closely at their sales coverage and distribution plan, as well as how distributors may want to respond. Here, I will outline tips for the B2B manufacturer on how to reset plans with reps, key distributors and end customers.
Start Over with a New Annual Plan
For both the manufacturer rep and the manufacturer, the annual planning process meeting with distributors usually follows these three basics steps:
1) Review last year’s sales and projected sales for the upcoming year. All parties share projections and discuss what they’ve been hearing on annual sales percentage projections.
2) Discuss the largest shared end-user accounts. This often leads to setting up joint calls on key accounts to make throughout the year. (It rarely is executed properly.)
3) Negotiate terms and conditions, marketing, new products, return-goods privileges, and most importantly, the incentive rebate. The rebate is usually based on a lower percentage for sales to the goal, and a higher tiered rebate once the goal is reached. The second-level rebate almost always requires sales growth and, going into 2020, no one could have predicted where we are today.
Also see: “Why COVID-19 Has Manufacturers Rethinking Their Distribution Channel Strategy.”
It’s time to produce a revised go-forward plan for 2020 that can position you to take share in 2020. It’s probably time to set up new, virtual annual planning reset calls with your top strategic partners.
As a manufacturer, if you can come in with more data points it will help you make better decisions.
Some suggested key data to have for your new planning documents, by each distributor account, are as follows:
- 2019 annual sales
- 2020 Q1 sales
- 2019 Q1 sales
- 2020 current backlog of orders.
- Relationship commentary/notes. In the past, you may have had commentary on your account manager’s or your manufacturer rep’s relationship at the distributor level. Going forward, you are going to have to have relationship information at the end-customer level. If your distributor provides you POS at the customer level, I would have your analyst team working overtime to try to project business at the end-customer level for every major planning meeting.
Company Scorecard by Manufacturer
- Amount of sales by category for your line, and if possible, by customer if you get POS.
- Sales estimates of competing manufacturers in the same categories. You may choose not to share this in the meeting, but you should know what business could be moved to you, by category. It could be time to use ‘move business to me’ as key bargaining chip for your strategic distribution partners.
- Be prepared to discuss operational issues that you normally cover in these meetings, such as fill rates, disputed invoices, inventory values, stock and direct numbers, etc. However, I would concentrate on the sales and key operational issues first.
Other Items to Consider Asking For
- Distributor financial scorecard. DSO, AR, AP and their ability to withstand the downturn and extended shutdown periods may be a concern for you. This is very tricky and sensitive and may be detrimental to the relationship if you bring it up. If you decide you can’t discuss it, you still have to evaluate the distributor’s ability to be financially viable.
- Customer segment expansion plans. Ask what the distributor’s plans are to expand into new segments.
- Digital update status. The distributors who will be long-term leaders in general will have a digital advantage versus their competitors. It’s time to look at partnering with those distributors more aggressively.
- Sales realignment. Does the distributor plan on building an inside business-development team, changing their inside and outside sales mix, or their sales coverage plan? Buyer beware on partnering more aggressively with distributors who tell you they are going back to business as usual pre-COVID-19.
How Do You Maximize Manufacturer Reps?
Reps have traditionally filled three important roles in the value chain: distributor access, relationships with distributors and end customers, and product knowledge. The relationship value is diminished for everyone currently, and reps often have your lines and many others to manage. There will be some turmoil in the rep world, but you have to find ways to get more from them for the rest of 2020. It’s not a straight-line answer for anyone, but it is hard to argue that the distributor access and relationship-building aspect of what they bring to you is being changed and may be of less value.
A Manufacturer’s Ideal Post-COVID-19 Distributor Checklist
- Digital leader
- Has a plan and vision to pursue and grow in new customer segments
- Ability to move products from competing manufacturers to you
- Willing to make some stock inventory investments (or cut it less than the competition)
- Revamping their sales coverage plans (more inside/less outside, business development)
- Ability to get paid, and pay you accordingly
- Will share some level of end-customer data or intelligence
Don’t expect business to reset right back to where it was after we get through the economic setback. If you decide to take more business direct to the end customer, be prepared to deal with channel conflict. You have two extremes, you can eliminate some distribution and partner more with fewer distributors, or you can authorize any distributor with a heartbeat. What is best for you will land somewhere in between, but it’s the time to not just stand still and go back to your pre-COVID-19 plan.
How you sell and how customers buy have undergone significant change, and it won’t go back to the way it was three months ago. It won’t be easy and there will be channel conflict, but as they said in Game of Thrones, “I wish you good luck in the wars to come.”
We would love your feedback, so please comment below or reach out to me at email@example.com. And be sure to join us for Friday’s MDM Live webcast, which will kick off with a more detailed discussion of this topic.
John Gunderson is VP of analytics & e-business for Modern Distribution Management. Prior to joining MDM in 2018, he was a senior leader for 20 years in distribution sales, category management, marketing, pricing, analytics and e-business with companies such as Crescent Electric Supply Company, HD Supply Power Solutions, HD Supply C&I White Cap, Anixter, and EIS-INC a Genuine Parts company.