With worldwide COVID-19 cases reaching 215,000 and climbing, dealing with all the supply chain, delivery and personnel issues stemming from the coronavirus’ impact over the next few weeks and months will be critical to helping your distribution company respond now and anticipate your customers’ future needs.
These are uncharted waters for all of us, but there are steps you can take now to be able to react to the future changes.
Quick Fixes You Can Implement Now
1. Talk to your manufacturer partners about the disruption and supply chain challenges you both are facing. Communicating with your key strategic suppliers about what they are doing now is critical to ensure you are positioned to respond to your customer needs today. They are talking about the same challenges and issues: demand planning, delivery issues and contingency planning, supply chain challenges, and more. Their field selling teams are on the sidelines, just like yours. It’s a key time to work with them to understand how they suggest you jointly respond to the challenges ahead.
2. Look at your inventory system re-order points and make manual adjustments. If you have system re-order points for key categories where you expect to have a demand reduction, you need to do a lot of manual intervention and not wait until tomorrow. The greater the number of SKUs you sell, the more system re-order points you will have set. It’s a key time for a daily line-by-line review of re-orders.
I recommend you look at re-orders you have set that factor in free freight allowed (e.g. the order you have set with XYZ manufacturer to reach a $5,000 free-freight minimum). I would communicate with your manufacturers on those orders to lower the amount of the order. Or, get from them an understanding of how they might work with you on your regular orders.
3. Anticipate product demand that will be changed for the foreseeable future. For example, personal protection equipment and cleaning supplies will probably never be the same. Those end customers who used to have what they considered a three-month back-up supply are probably never going to be comfortable without quadrupling their “safety” stock at that same level ever again. So, when the current issues improve the long-term back-up supplies, the need will create a consistent increase in demand. Today, ordering key safety supplies are most certainly a back-order issue but getting your orders in now can help you prepare for that future and ongoing demand opportunity.
4. Keep working on your contingency planning, such as near shoring (adjacent county, etc.) or re-shoring (domestic supply). The border closing issues are here and now, and you will need to plan for future supply issues. Your business is unique but having a clear strategy for the future on what supplies you consider bringing closer to your country is a process to consider getting started now.
5. Watch your sales team orders and help them with the pricing. Today, you have many outside salespeople on the sidelines wondering what to do. This may lead to “panic pricing” on manual orders, since the tendency is to get the margin dollars you can if you are paid on commission. Make sure you have the guardrails in place (no orders under X%, floor pricing at the SKU level, etc.)
It might be time to consider temporarily raising your floors and manual order GM% levels and communicate the change to your team quickly. Your associates already know the levels they can discount down to without management approval, and they may go down to those levels to make sure they secure future orders.
For example, if you have an associate who usually prices their bids/orders on a product class 3% or 4% above the floor (which is still probably an aggressive price) they may move to all their prices to 1% over the floor because of the current stressful situation.
If you change your pricing guardrails and floors, communicate the “why” quickly. This brings us to the final point.
6.Communicate with your associates relentlessly. When humans are under stress and concerned about an impending demand decrease, the back-up behavior is to go get the available orders at GM% levels that are lower than before.
It’s not that they aren’t working hard or great people, but human psychology is powerful in uncertain times like today. This is the time for leadership to communicate to your associates the ‘We will get through this together’ message, and if you build in new pricing safeguards, let them know why you are doing it.
It’s not a trust issue, it’s a safeguard for you and your team to slow down and think through the bid/order before you send that pricing to the customer.
Now is the time to be ready to serve your customers’ immediate needs, and to establish strong contingency planning for the future.
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John Gunderson is Vice President of Analytics & e-Business for Modern Distribution Management. Prior to joining MDM in 2018, John held senior management roles for 20 years leading sales, category management, marketing, pricing, analytics and e-business with leading North American electrical, industrial, construction and electronics distributors.