The 2020 Mid-Year Economic Update_long

Why COVID-19 Has Manufacturers Re-examining Their Distribution Channel Strategy

Coronavirus market upheaval has future-focused manufacturers stepping up communication with end customers and putting themselves in a position to make channel adjustments in the coming post-pandemic economy. MDMs John Gunderson shares how distribution channel partners can prepare for the change.
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Politicians are praising manufacturers like 3M, DuPont and others for their efforts to ramp up manufacturing of key safety and medical materials. At the same time, the same leaders are not shying away from scrutiny and criticism when they perceive manufacturers are not controlling price-gouging by distributors (authorized or not) during the coronavirus crisis.

Historically, channel shift has been slow and the balance of power and partnership between the distributor and manufacturer relationship has been very stable. However, brand power is critical to manufacturers’ future success. 3M, DuPont and all manufacturers will be examining their distribution channels to eliminate negative press and damage to their company brands. This, coupled with the digital shift in the channel caused by limited face-to-face selling and reduced business, sets up the potential for major channel shifts ahead.

How can you be prepared as a distribution channel partner — manufacturer, manufacturer rep, distributor — to participate in the potential channel disruption to come? In this two-part series, we will start with tips for the B2B distributor on how to reset plans with key manufacturers.

Build a New Annual Plan

For the manufacturer rep, manufacturer and distributor, the annual planning processes between each group traditionally consists of setting sales goals, discussing key end user accounts to pursue, and negotiating terms and rebates. COVID-19-induced changes have made this year’s strategic planning of limited use, and it’s time to revise and draw up new plans.

If you have a defined supplier strategy by category — preferred/strategic, approved, and all others — starting quickly with your largest suppliers by producing a revised go-forward plan for 2020 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.

Sales Goals

As a distributor, if you can come in with a detailed sales report on your top accounts in the current environment, it will help you to be a key part of the discussion.

Some suggested key data to have for your new planning documents, by account by manufacturer, are as follows:

  • 2019 annual sales
  • 2020 Q1 sales
  • 2019 Q1 sales
  • 2020 projected Q2- Q4 sales or current backlog of orders for the manufacturer. (This may be difficult to calculate but even an estimated number will be of great value for your discussions.)
  • Key value-adds that the customer utilizes. It’s a critical time to show your partners the key barriers to exit that you have in place for each end customer. For example:
    • inventory management services,
    • kitting,
    • percent of online sales,
    • automated services (e-billing, e-invoicing, electronic ordering, etc.),
    • engineered services,
    • project management services, etc.
  • Relationship commentary/notes. In the past, you may have had commentary on your account manager’s or team’s relationship with the client and how important they were to your success. That is still important, but I would also include detail from your credit team on the individual customer’s cash-flow payable status. This may not be data you want to share but understanding the customer’s ability to pay is going to be a top-of-mind question for all of your largest accounts.

Also see: “How Can COVID-19 Change Distribution for the Better?

In general, I recommend that you have as much of the above data for each of your top 10 accounts for the manufacturer, and if possible, go from the largest account down to have data by account on over 50% of your business for the manufacturer.

Company Scorecard by Manufacturer

  • Amount of sales by category for the manufacturer, and backlog/sales projections going forward.
  • Sales and projections going forward of the competing manufacturers in the same categories. You may choose not to share this in the meeting, but you should know what business you have with others, by category. A key bargaining chip may be moving sales from manufacturers to your strategic 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 Presenting or Tracking

  • Company financial scorecard. DSO, AR, AP and your ability to withstand the downturn and extended shutdown periods may be a concern for your manufacturer partners. How and if you present this may be required to put your manufacturer partners at ease with your liquidity.
  • Customer segment expansion plans. If you have a strategy to expand into new segments to grow the manufacturer’s business, it can be impactful to share it.
  • Digital updateIf you have a strong digital story that is better than your competitor’s, share it in detail. Partnering with distributors that have a digital advantage is going to be a focus for manufacturers into the future.
  • Sales realignment. If you are building an inside business-development team, changing your inside and outside sales mix, or changing your coverage plan, it can be a great time to present your vision.

Your manufacturer partners will be looking closely at their channel and having to make some tough partnership decisions. Who will they partner with, what business do they look at taking direct, and who will be their key reps and distributors? The COVID-19 crisis is bringing to the surface the tough decisions that have been put off for years.

Tomorrow, I will cover part two of this discussion with examples of how manufacturers and manufacturer reps can optimize their channel and go-to market strategy.

We’ve had a lot of unanticipated change with the COVID-19 shutdown. It would be foolhardy to expect business as usual to continue after we get through the economic setback. This is different from the 9/11 or 2008 contractions. 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 without channel conflict or change.

We would love your feedback, so please comment below or reach out to me at john@mdm.com. And be sure to join us for Friday’s MDM Live webcast, where we will discuss this topic in further detail.

John GundersonJohn 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.

 

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