This article, part 1 in a series, examines the hurdles to a broader acceptance of customer data-sharing in independent distribution channels and how those hurdles may be holding channel partners back from higher profitability due to greater transparency.
Based on MDM surveys and interviews, just a small percentage of distributors and manufacturers across sectors are experiencing significant competitive advantage and market insight as a result of sharing point-of-sale data.
Two-thirds of distributors in a recent MDM survey said they share POS data with at least some of their suppliers. Of those that do share data, 60 percent do so with less than 10 percent of their suppliers, likely the largest manufacturers in their markets.
Most of these distributors said sharing the data was required and supported by financial incentives. Very few distributors said they perceive direct strategic benefit.
In those sectors such as electronics where sharing POS data – ranging from providing broad Cost of Goods Sold (COGS) by industry or ZIP to customer-specific data – is standard, the prevalence of customer data-sharing is typically driven by which part of the channel holds the most leverage.
The degree of consolidation and distribution market makeup – exclusive vs. non-exclusive lines, whether manufacturers sell direct, whether distributors have territories or compete globally – play a key role.
Broadly speaking, MDM found that in most sectors, regardless of whether sharing data from distributor to supplier is standard, the topic of POS data-sharing sparks tension in the channel.
“Requiring this data is a symptom of distrust in the channel, and it adds to the friction between partners,” one respondent to the MDM survey said, echoing many other distributors in the survey. At the core for many is the feeling that the customer is their own, and the customer list is one of their most valuable assets.
While the emotions surrounding the sharing of data in the channel can run high, the underlying potential for informed growth is not in dispute. Many distributor respondents to the MDM survey said they would see value in sharing POS if market information were returned by the manufacturer to help them plan and make better decisions. And many manufacturers noted the potential for using the data more strategically.
POS data can be used to align resources against opportunities for growth, benefiting both the distributor and manufacturer, says Mike Marks of Indian River Consulting Group, co-author of Working at Cross-Purposes: How Distributors and Manufacturers Can Manage Conflict Successfully. “Point of sale is going to be a giant game-changer for a lot of people.”
But there are many hurdles to jump to get to a place where the rule – not the exception –is a channel relationship that goes beyond just sharing POS data and instead views data as the foundation of a collaborative approach to the market.
Hurdles to broader acceptance of POS data-sharing and more strategic use of this data include a high level of distrust in the channel, a resource gap for both distributors and manufacturers, and distributor-manufacturer market misalignment.
The Trust Factor
With few exceptions, trust is the major reason distributors are reluctant to share customer data with their suppliers. And the level of data being requested can have a significant impact on the level of trust. When customer-specific POS data is requested by manufacturers, distributors are much more sensitive and trust becomes even more critical.
Distributors are concerned that manufacturers will use that information to bypass the distributor and go direct. Or that manufacturers will hand off the data or leads from the data to competing distributors – something that has happened to some of the distributors who responded to the MDM survey.
There is also concern that the manufacturers will not have tight controls surrounding who at the companies have access to the data. Because of this, some manufacturers have made it a point to limit access to customer-specific data before it is aggregated.
Even if distributors share POS data broadly, distrust caused by these concerns still muddies the waters.
“Every manufacturer and every distributor has dealt with salespeople who are less than the best representatives of the brand,” says Kevin Boyle of Industrial Distribution Consulting LLC and former vice president of channel management and distribution for adhesives manufacturer Loctite Industrial Group.
“That is what can make or break the trust factor very quickly. It’s a matter of the management of the manufacturer establishing the tone, and developing and maintaining a code of ethics and professionalism for their company that helps them develop trust. It isn’t something that happens overnight.”
In the MDM survey, one distributor outlined three requirements he needs to share data: a confidentiality agreement, an incentive commensurate with the value of the information, and proof that the supplier is using the information to build business with his company.
Some association guidelines for the sharing of end-user data include a “bill of rights.” Marks says that such a document is based on the premise that the distributor’s data is owned by that distributor. As part of the confidentiality agreement, the manufacturer must protect the information and agree not to use it against the distributor. If they violate that agreement, they agree to arbitration to determine the level of damage done to the distributor.
From the distributor’s point of view, Marks says, the manufacturer should have no problem signing such a document if they are planning to use the data to help them. But while this seems straightforward, disputes over the use of this data by manufacturers has led to lawsuits in the past, underscoring how seriously these issues are taken.
Incentives to Share
End-user data provides value to manufacturers. Aside from more tactical uses – compensation or special pricing audits, for example – distributor POS data can provide the best view of the landscape for manufacturers, especially if distribution is their main channel to market.
As markets diversify, technology improves and manufacturers seek more visibility to improve efficiencies across the board, expect to see growing demand for more data from distributors.
“That POS data is critical to that vendor really being able to run and manage their business more effectively,” says Mark Geene, a founder of ChannelInsight, a third-party service that facilitates the collection of data from distributors for manufacturers.
Because of the value manufacturers get from the data, Adam Fein of Pembroke Consulting, author of the 2007 edition of the National Association of Wholesaler-Distributors’ Facing the Forces of Change, wrote that distributors should expect to be appropriately rewarded for sharing point-of-sale data.
In the MDM survey, many distributors said that information about their markets would be or is more valuable than financial incentives, which are usually centered on discounts, rebates or special pricing agreements. In fact, some say it may cost distributors more to provide the data than they get back in the form of financial incentives.
Distributors say they want to be able to compare market share and growth, as well as opportunities with the aggregated data manufacturers receive from distributors.
“We see a benefit when manufacturers aggregate the data they collect from around the country and come back to us with some kind of game plan,” says Evan Gilbert, sales manager for Quality Mill Supply Co., a four-branch industrial distributor in Indiana. For example, customer categories Quality Mill Supply is not reaching but could or information on cross-selling opportunities to existing customers.
Geene says that distributors need to embrace transparency in the supply chain. “The smart ones are embracing it as a business opportunity versus trying to protect it,” he says.
Unfortunately, the data does not always return in a meaningful form to the distributors. “The monumental waste of point-of-sale data is that there’s no feedback loop. It’s feeding insight into a black hole,” Marks says.
If manufacturers don’t put processes and objectives in place on what they want to accomplish when they collect the data from distributors, in the end the data is valueless, says Mike Strickland, principal of G. Michael Strickland and Associates LLC, a consulting firm focused on growth planning for manufacturers. Strickland previously was the vice president of professional sales at Danaher Tool Group and has worked for manufacturers including Black & Decker, Moen and Pentair.
“If you’re not willing to share that data you have collected with your [distributors] then you’re only doing half the job,” he says. “You’re getting the benefit but they’re not.”
Quality Mill Supply’s Gilbert says that once manufacturers show distributors how data can make both parties more profitable, distributors may approach the task of sharing data less like a chore and more like collaboration. “I’m hopeful because I’ve seen firsthand how powerful the data can be,” he says.
The Resource Gap
Why the data is often not processed at an aggregate level by many manufacturers and returned to the distributor in a useful form is for the most part a question of resources. It requires time, dedicated resources and money to be able to produce that kind of analysis and actionable intelligence.
What’s more, once analytics are returned to distributors, there is no guarantee they have the resources to do anything with it, both distributors and manufacturers say.
“It’s a challenge for manufacturers to get distributors to do the heavy lifting on new accounts,” says Larry White of Interlynx Systems, which serves as a third-party service that processes and standardizes POS and other data from distributors for manufacturers. “Just because I identify it, doesn’t mean it turns into new business.”
However it does start the conversation, he says. And for those distributors who have been the beneficiary of feedback from manufacturers based on the POS data provided, the barrier to trust has fallen and the willingness to share data increased. Why? Because it gives distributors a better idea of what the information is ultimately used for.
“At the end of the day, the more information they share, the more we’ll grow our business because we’ll learn,” says Eric Max, vice president of sales and marketing at The Genie Group, an electronics distribution marketing group with 96 members. The Genie Group also serves as a master distributor in the industry. “When they do share, we both benefit from that.”
Just providing some feedback can go a long way.
“You have to take the first steps,” says Robert Blair, former president of CARQUEST Auto Parts, who has also held leadership positions in other major automotive aftermarket distribution companies. “But too many don’t bother. They think it is Mt. Everest.”