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Emerging Distributor Business Models

 

The Early Days

The distribution business in North America was simpler in the 1960’s.  Shear geography and lack of modern low cost freight systems required local inventory and most manufacturers found that a distributor could manage local inventory more cost effectively than they could internally.  Computers, email and even faxes were years away and distribution made the logical sense.

 

Only a few new products were released each year and the product launch could last for months or years.  The job of new product introduction fell squarely on the manufacturer of the product.  But, after the product was introduced, the distributor serviced the market out of his local inventory.  Make no mistake, the job of demand creation belonged to the manufacturer. 

 

The role of the distributor salesperson was focused on convincing the buyer his/her company provided better delivery, better local inventory, and more attractive credit terms than local competitors.  When the sales forces of distributor and manufacturer worked together, issues centered around five distinct areas.

  1. Accounts where the products were not performing as anticipated
  2. Accounts where competitive products were not performing properly
  3. Distributor inventory – was the proper stock in place to serve the local market?
  4. Training the Distributor to properly identify catalog numbers
  5. Training the Distributor to submit orders to the factory properly

 

The Great Change

Sometime in the mid-1980’s a change began to sweep across North America.  The newspaper headlines of the day read proclaimed, “Thousands laid off as Companies down size.”  Starting with North American Auto-makers and working its way through the manufacturing economy in general, price pressure was applied to every business model.   Distributors (and their vendor partners) were not exempt to this squeeze and the resulting margin pressure.  During the mid-1990’s computer technology, electronic commerce, and the internet put even greater pressure on the market place.

 

The distribution industry was caught up in a merger mania.  The larger regional players purchased smaller single location distributors and national chains actually put together acquisition teams whose full time job was to find companies to purchase.

 

Change Brings on New Kinds of Distributors

Changes in the market place, changes in technology, and changes the demographics of the distributor business created a slow migration to two business models for distributors in the Automation line of trade.  The Logistics Distributor and the Automation Solution Provider are the dominant names for the distributor types.  Other names also apply and are listed in part in the insert.

Logistics Distributor

Automation Solution Provider

Fulfillment House

Automation Appointment Distributor

Market Server

Market Creator

Full Line Wholesaler

Niche Distributor

Master Distributor

Boutique Distributor

 

Meridian Distributor

 

Regardless of the name, the descriptions below outline some of the specific differences found within the two organizations.

 

The Logistics Distributor

A typical distributor is primarily a provider of product.  Logistics and the ability to assist a customer in selection of the proper catalog number are core competencies.  The logistics side of the business consists of warehousing the part, arranging for timely delivery, credit and billing functions, and occasionally with the return of improperly ordered, or warranty oriented materials.  More advanced distributors may offer such services as: crib organization, store room bar-coding, custom inventory held in stock, and other financial related services.  Assisting the customer in the selection of the proper catalog number is a skill of an excellent distributor person.  This usually involves matching standard products to customer driven specifications which were influenced by others. 

 

Automation Solution Provider (ASP)

ASP's are focused on providing knowledge and expertise to the end customer (as contrasted by parts).  Many times products are involved but this is not always the case.  In fact, an ASP who does his/her job well may actually instruct the customer not to purchase new technology but rather to refine the manner in which existing product is applied.  An ASP works at solving customer problems: sometimes as instructor, sometimes as application engineer, and sometimes as troubleshooter. In the 1990's many manufacturing companies began to think in terms of core competency.  North American Auto-makers focused on how to design a better car rather than how to manage a stable of in-house experts on automation technology.  Many U.S. based companies went through "right sizing" where plant engineering departments were reduced from dozens of people each with his or her own specialty to a small handful of people trained in managing the activities of others.  In many ways the ASP is a natural product of this process. 

 

Hybrid Distributors

Nothing is life is completely black and white.  A few organizations have strived to combine the strengths of both the Logistics Distributor and Automation Solution Provider.  In many instances the Hybrid Distributor operates as a business within a business with Product Specialists serving many of the knowledge and expertise functions.  Often these companies will run the Automation Solution Provider side of the business as a separate division.

 

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