The Seven Point Distributor Channel Tune-up
This recession has provided us with many lessons - the tuition for some higher than others. But for manufacturers who chose to use a distribution channel, uncertainty looms in the future. Not so much with what happens now, but instead with what happens when the economy breaks. Many manufacturers and their channel partners endured the first half of the recession hunkered down – trimming expenses and hanging on to any business they were able to capture.
For many of us, the pain started about in November 2008. It took us a month or two to realize this was the real deal – the worst recession since the early 80’s. That’s the bad news. Now the good news; the worst of the recession is behind us. Signs of eminent recovery are beginning to appear. Economists argue the rate of growth ahead but nearly all feel it his about to happen.
For just a moment, let me ask you a rhetorical question: Are you prepared?
Join me as I dash through seven points to plan and execute before full recovery arrives.
Establish a real distributor plan
Do you have a distributor plan? We aren’t talking about the contract you co-sign with your distributors. Nor are we referring to the procedures manual that lists rules for freight, terms, SPA’s and all the other operational issues associated with a distribution channel. Exactly what you need distributors to accomplish for you is the essence of this plan. Points like grow sales, provide market coverage and coast-to-coast coverage are on the right track – assuming they are backed up with specific details. Here are some questions you need to answer for yourself:
- What exactly do you need from your distributor channel?
- What does the ideal distributor partner looks like?
- What does the distributor do our own sales force can’t do?
- What business should go through distribution? What business goes direct? Why?
- Is there a sector of the market that should be served by an internet-based wholesaler? Catalog houses? How do you eliminate conflict with these channels?
- What local support will these distributors need from your sales force?
- What outside forces might change the answer to these questions?
Each of these questions plays a part in formulating a plan. Because the recovery will drive many of these issues to the forefront now is the best time to begin refining your thoughts. Identifying issues today allows you to maximize your piece of the recovery.
Identify your long term strategic partners
Not all distributors are created equal. Some are strategic partners; some are just “on the books”. The plan you developed in above allows bring clarity to your view. Know who your strategic partners are and make absolutely certain you share this information with your field sales team. You sales team needs to understand the plan and understand what they can do to push business to your partners.
Just think - more legends exist around the Robinson-Patman Act than Area 13 and alien abduction. Your sales force may be making decisions that cost you money because of some story they heard over a beer 12 years ago. By educating your sales leaders now, you increase the likelihood of good decisions in the early stages of the recovery – when resources are still scarce.
Clearly define territory coverage
Most companies practice a channel strategy with multiple distributors serving the same geographical market. This being said, a market “free-for-all” does little to drive effective knowledge-based distribution. On the contrary, it cheapens your line and provides a disincentive for distributors to actively create a demand for your product.
Your sales people in the field and your strategically important distributors need to fully understand the market coverage strategy. This needs to be spelled out in detail with a plan for solving future conflicts.
If potions of the country are not fully covered (by a strategic partner) these areas need to be identified and a list created. Typically, times following recessions bring waves of distributor mergers and acquisitions. A working list allows you to have meaningful conversations with your partners as they look to expand.
Build a plan to eliminate redundancy in the channel
Got distributors who are going nowhere? Now is a good time to think about getting rid of them. And this is a plan that has to be driven from the top and here’s why. Your local sales team fears loss of business.
Let me illustrate; there are three distributors of record serving the $1 Million South Overshoe market. Distributor One is your strategic partner – they lead with your product and create business for you. Distributor Two is in place because they serve the Governmental Institution market where One is not present. Finally, Distributor Three has been on the books for years and has a close relationship with one of your competitors. But, Three sells $50,000 dollars of your product to a couple of customers where they hold supply contracts. Your sales team fears firing Three could lead to a potential loss of revenue.
My advice – get rid of Distributor Three. They drag down your company in the eyes of the real strategic partners. And, I believe, they drag down the morale of you sales team. Think about it: any selling or service provided for your product comes from your own sales force. I have seen manufacturers sales teams who spend way too much of their time propping up distributors who aren’t going anywhere. Fire the bad guys and tell your real partners you are doing it – they will love you for it.
Indentify distributor with weak financial footing
It is quite possible that some of your strategic partners are having financial issues right now. It’s hard to maintain distributor profitability when business levels have dropped 30%. Tightened lending policies and over leveraging may have wounded some of your partners. Knowing who these people are allows you to provide assistance. From a purely self serving standpoint – knowing who these people are allows you to build a contingency plan. And knowing who these people are allows you to have candid conversations about potential buyers, extended terms or modified business processes.
Experts tell us cash strapped companies have a difficult time sustaining growth as the recovery kicks in. Indentify now in order to react quickly in the future.
Build a process for joint planning
Manufacturers and distributors who build a solid planning process outperform the market. While there are hundreds of planning forms filled out, there are darn few real planning processes. The result is simple: we still have duplication of effort. In my book, The Distributor Specialist: Customer Champion, Profit Generator! I described a playbook approach to the selling process. Develop the playbook now – outline distributor responsibilities and your own team’s responsibilities. Things will change when opportunities become more abundant. A strategy today means better execution then.
Take a look at your own sales team
Is it possible that you have sales people who don’t live up to your expectations? If you think a guy isn’t getting the job done, and you’re 500 miles away. Just think how it looks on the ground. A good distributor can produce results even when they have poor support, but put a sales person who gets it on their team and sales can put the ball over the fence.
And you need to look at whether your local sales team understands distribution. Comments like, “George is great customers but our distributors don’t trust him” spell trouble. If the purpose of distribution is to multiply the efforts of your field sales team and they don’t trust dear old George, you’ve got a problem.
Now is the time to think about making changes in your own staff. There are quality people available and your trusted distributor contacts can help you.
The economy is improving – recovery is just months away. Once we get moving forward, making these changes becomes more complicated. Act now and take a bigger slice out of the recovery pie.