As we all recognize, changes are coming faster, manufacturers are spreading out geographically, customers are expecting rapid response and technology continues to bypass the breakthrough visions of a just few years ago. Add to that the volatility in ownership patterns (mergers, private equity, public offerings, spin offs and more), and we often find that most distributors are living their strategic visions in real time. Under such circumstances, what is possible?
Most customers, when they encounter chaos, disruption, crazy results and unplanned volatility, push their unfulfilled problems in the direction of their best urgent-responding suppliers and critical market responders, who often are distributors. The good news is the growing need; the bad news is the expectations, chaos, volatility and urgency. Toss in global sourcing and Amazon-type operating models, and this new world becomes a massive challenge — but also a dramatic opportunity for each of us.
I humbly offer a few attitudes, tools and recommendations that may be of help. All have been tested through my observations and experiences as a distribution consultant, and each one brings back some of my favorite (and challenging) memories:
1) Remember that every customer is not created equal. A distributor of building products was proud of its philosophy of “every customer is treated equally.” Though that may sound kind and thoughtful, the simple fact is that if every customer is treated equally, then, according to most operating statistics, the most important customers often will get worse service than the smaller, less sophisticated ones.
Major customers tend to share demand plans and strategic rollout in their promotion information, and they have the structure and processes to supply timely and accurate documentation. For that reason, they are less likely to have a large proportion of orders that require urgency and special services.
Lesson learned: The service package that is provided to large customers rarely is appropriate for small ones, and being responsive uniquely to each customer often maximizes customer satisfaction, results — and success.
2) Measure and act according to profit, not simply sales. In a similar way, many distributors focus primarily on sales volume, with sales incentives designed to recognize the sheer size of each account’s purchases. Though volume is important, it can result in painful lessons that result from such a singular focus. For example, a distributor of furniture and household goods “bagged” one of the largest national internet retailers. In order to satisfy this demanding account, the distributor provided direct delivery services to the retailer’s customers. Within four months, sales volume to the retailer quadrupled (but not as much as costs), the distributor’s capabilities were stretched beyond its resources, and, with great embarrassment, the distributor had to back away from the relationship.
Lesson learned: a big opportunity doesn’t guarantee a big profit.
An alternative solution could have avoided the problem, and it can be applied to the analysis of each current and potential customer and SKU. Rather than simply estimating, measuring and focusing only on sales volume, the distributor transitioned to a straightforward, simple automated process that also measured fully-loaded profitability of each salesman, customer, product line, promotion and individual transaction. Using the new process for all strategic and operational decisions, as well as the support of new product lines, geographic and customer targets and promotional programs, the distributor was able to target on sales and profit growth simultaneously.
Lesson learned: it may be more difficult to measure profit of every transaction, but it keeps priorities and rewards on track.
3) Take the time to keep current. Being an effective distributor is an especially complex responsibility. Changes among products, suppliers and customers — to say nothing of the competition, economy, technology and government regulations — all assure that leading the company requires exceptional capabilities and sensitivity to the resources that are needed. Stated simply, last year’s resources may not match this year’s demands.
The best distributors recognize that they must build and adjust capabilities, as well as keeping promises that respond to coming priorities and competitors’ best offerings. If there is one place where a crystal ball should be a standard resource, it should be in the office of a distributor.
Lesson learned: We distributors are swamped by periodicals, salespeople, product promotions, informal discussions and questions. As easy as it is to toss out the printed material, erase the emails, and cut short the phone calls and conference visits, successful distributors religiously focus on absorbing every bit of product, process, competitive, customer and market material.
4) Communicate from your customers’ perspective and in your customers’ language. Working with truck parts distributors, I came to appreciate their customers’ demands: the unique people, the tight specifications and delivery schedules, and the gigantic number of SKUs. It was when I was working with a multi-location truck parts distributor that I learned the importance of a distributor that consistently defined messages and priorities in their customers’ vernacular.
Every business has its favorite terminologies, speaking styles, measurements and communication formats, and therefore it is up to every distributor to clearly and appropriately speak and understand its unique tone, texture, word selection and communications attitude in order to respond to the standards and expectations of the retailers, manufacturers, service people, customers, promoters, advertisers, competitors and just the highly curious.
Lesson learned: The proper language to speak is the language of the people you are serving. Using the right priorities, standards and slang often are important qualifications of the most successful distributors.
5) Pay special attention to the capabilities of your support staff. One of my favorite long-term distributor clients has a personal philosophy which clearly differentiates his organization from the competition. He believes (and clearly demonstrates) that the consistent success of his organization comes from doing all those things that their competitors do, plus carefully knowing and developing his support resources, which include software, maintenance, office staff, temporary staff, backup suppliers, field sales trainers, etc.
Each of these individuals is trained to respect customers and their problems and fully and thoroughly respond and help solve them. As their CEO says, “If the support staff communicates and demonstrates their respect for our customers, our customers always know that we give a darn about them at all times.”
Lesson learned: Respecting and training support staff makes their jobs more interesting, causes them to recognize their importance to the business and consistently improves their attitude to customers, to say nothing of their improved contribution to the distributor’s organization.
6) Add technology resources for what they will accomplish soon, not what they might also do in the long term. A multi-regional restaurant supply distributor was comparing candidates to upgrade its warehouse and inventory management systems. As is typically the case, each software competitor was anxious to differentiate itself and promise unique and exceptional results. Each one described its offering as part of a suite of “brilliantly designed” technology that could solve the full range of procurement, inventory planning, warehouse management, scheduling, picking/packing/shipping activities, sales and operations planning, scheduling, routing and much more. Each competitor emphasized the value of the entire suite and offered special discounts for the long-term implementation and service package that they were promoting.
Although the special discounts were tempting, our client appropriately decided simply to purchase and install a warehousing and inventory management package. There are four reasons why such a focused decision is almost always the best:
- When a company is selecting software to manage or optimize part of its processes, it rarely has sufficient information, capital resources, internal staff, or time to go well beyond that area of primary attention;
- Just because the technology supplier has a well-respected solution for the prospective client’s need doesn’t in any way assure that its other software is of equal or better quality;
- When a technology supplier offers a special discount for buying “the whole package,” they often will offer the same discount on a part of it;
- Installation of all the components that are being described contains significant uncertainty: Which parts will be used? What technologies may be developed in the future? Will this supplier’s products be as effective as they are currently described? Will our company’s needs in the future be compatible with today’s criteria?)
Lesson learned: Technology purchase and installation inevitably is better in small and individual doses.
7) Great distributors are run by great “orchestra conductors.” The difference between the best and the worst performing distributors in almost any market is the difference between the distributors’ abilities to get “all those resources” flying in the same direction, at the same pulse.
Being a distributor is one of the most complex and eccentric business functions in the entire supply chain. Its role is to provide perfect service (as defined uniquely by each of its customers), of the exact products (as defined uniquely by each supplier and customer), against demanding time requirements (often defined uniquely by customers as well as suppliers), and often responding to unplanned or urgent needs (often affected by planning deficiencies elsewhere in the supply chain).
Being an outstanding distributor requires the unique ability to balance all the eccentricities of every manufacturer, every supplier, every shipper, every customer and every weather forecaster, plus every employee of the distributor. The best distributors know how to communicate uniquely and appropriately with each customer, how to motivate employees, how to build trusting relationships with suppliers, which technologies to install and optimize, and how to lead all those instruments perfectly and simultaneously.
Lesson learned: the best distributors truly are orchestrators.
To all those orchestrators, I tip my hat and congratulate you for your focus, competence, patience and leadership. And to all the rest of us (a very large group) I tip my hat to you, as well, because you have chosen the path toward orchestration, and, though you recognize that it’s not an easy trip, you know how important the journey is.
If you think I am nuts, want to comment on any of my comments, or are curious about any of my observations, I am pleased to respond to your thoughts at firstname.lastname@example.org or (847) 983 8934.