The view ahead is looking brighter, but distributors need to be ready to compete in a market that's been reshaped by the recession.
Join me as I climb my personal Mt. Nebo. On the craggy summit, I cup my hand over my brow, strain my eyes and peer off into the not-so-distant promised land. Unlike the land viewed by Moses, the horizon I see isn't flowing with milk and honey. Instead, it is filled with a new kind of economic growth. There are others standing alongside me on the mountain top. The National Federation of Independent Business (NFIB), an organization of small and mid-sized businesses, shares my view. They report the highest confidence level among their members in 16 months.
Before we run down the opposite side of the mountain and disappear into the happy sunset, it's important to understand the effects recessions have on business trends. Strategies that emerge during recessions have a tendency to become the post-recessionary norm. Immediately following each recent economic downturn, a new set of business realities emerged. Each downturn accelerated the rate of change.
Right-sizing and re-engineered organizations climbed out of the recession of the 1980s. A decade later, integrated supply agreements sprung up after the downturn in the 1990s. And just a few years ago we saw off-shoring and outsourcing explode out of the ashes of our post 9-11 recession. And guess what? This recession is pushing along some major new trends of its own.
For those of us in electrical distribution, recognizing new trends and positioning ourselves for the future is a “must have” skill. With this in mind, let's see what may lie just over the horizon.
The Supply Chain is Tightening Up
The supply chain is the interconnection of all the organizations that interact in the manufacturing and delivery of a product. The most successful supply chains provide the lowest-cost supplies. Duplications in the supply chain lead to excess cost, and this recession put the squeeze on the whole system, including our suppliers and customers. One of the duplications in our world comes in the form of redundant sales teams. Think about your vendor partners and the supplier sales team you used to work with — where are they?
Across distributor-land, more and more folks are finding their suppliers' sales teams missing in action. If your key lines had five people supporting a territory in early 2008, today they have maybe three. The bigger the company, the greater are the chances that the local sales team was downsized. This impacts the distributor. Do you find yourself responsible for factory quality issues? How about expediting? Repeatedly distributors are telling me they are doing work once reserved for the vendor's sales team. Good or bad, it's a fact. The very best organizations will turn this into an advantage.
I believe competitive advantage will come to distributors who focus on three things:
- Technology and product-based training
- Value metrics
- Competitive positioning
Technology and Training
In years gone by, factory people carried much of the training burden. In a tightened supply chain, we can't expect that to continue. While there have been big advances in computerized and web-based training, an urgent need exists for a locally based “live person” trainer. Training may be the sweet spot where distributors, especially product specialists, can get the biggest impact coming out of the recession. In the post recession times, the distributor specialist will be the go-to guy for locally based training.
As the economy heats up, you need to have a plan for training. Not just customer training — nearly everyone will be thinking about that — but few will look at ways of bringing their own teams quickly up to speed.
Think of the new technologies hovering in that “not quite ready for prime time” state. LED lighting, green technology of every kind, next-generation automation controls, wireless sensors, new electrical safety regulations and a whole lot more are about to meet a newly reconfigured workforce. I suggest you begin creating a plan for internal training. The first step is to build a core competency plan. The chart above is a sample to get you started.
It's important to note that we have set the minimum standards for our sales team here. The competency list should be published and understood by everyone — management, sales, supplier and product specialist alike. This sets a metric by which each person can be measured. It builds a plan for focusing your training. Training without a goal is frustrating for both trainer and trainee.
Value Metrics and the Age of the CFO
It's the dawning of the age of the CFO. Across the country chief financial officers are inserting themselves into business decisions they left to others in the past — not just the big stuff. New financial realities created by tightening financial policies are driving major changes. One executive vice president of a major corporation said his signature buying authority has been cut from a half million dollars to ten thousand. New emphasis on detailed financial planning is leading everyone to value-based decisions. What does this mean for distributors? In the future our success is tied to how we help our customers understand the intrinsic value of the products and services we offer — in a detailed financial way.
Dollarizing your organization's value is a critical skill for the future. Product features — bells and whistles — take a backseat to financial impact. We must lead our sales teams in the creation of financial snapshots of the value built by our solutions. We need to gather financially oriented information from our accounts and incorporate it into our selling process. The customer's cost of downtime, parts inventory, shop space and inventory costs are critical to sales success. If you don't know and understand these points you may find yourself in the soup line.
Here are some questions your sales force must be able to answer for each customer:
What is dollar amount associated with downtime or work stoppage?
What is the burdened labor rate for labor?
Does the company provide training to its employees? What is the cost?
Does your company already have a corporate safety program?
What is the total number of products (or services) produced per hour/day/week/etc.?
What is the cost of waste/scrap/work lost?
What are the energy and electrical costs?
Does the company have a mandated and funded green policy?
But it's short sighted to only think about the value you provide to customers. Distributors must provide a whole new set of values to their suppliers as well.
Distributor product specialists often assist their factory counterparts with product quality. If they render assistance that avoids a single field visit, it saves the vendor partner hundreds of dollars. Is there a value here? You bet. But how many distributors take the time to document and measure this type of value? Similar values can and should be assigned to activities related to troubleshooting, discovering and developing new applications and assisting with product beta testing. Specialists who understand and measure this value will align their company for future competitive advantages.
Competitive Positioning and Pricing
Soon, we may face a perfect storm of margin squeeze. As the economy starts to come back to life, new emphasis will be placed on getting competitive prices. Newly rehired salespeople will be pitching products to recently re-added purchasing people. All these new hires will be gunning to make a name, and low-ball quotes will zing through the air. Without a bit of competitive positioning, you may find yourself competing with the lowest priced products on the planet.
Distributor specialists must play a pivotal role in this strategy. Specialist driven products demand higher margins. If you support a technology group or product line of support-intensive and application-specific products, the value you add justifies a better margin than commodity-like products your company may also sell.
Don't expect your customer service or quotations department to understand the difference. To illustrate, allow me to relate the story of Hobbs. Hobbs worked as an inside sales person for a medium-sized electrical distributor. Every day he priced dozens of invoices. And he knew a “reasonable” margin when he saw one — until his company took on a line of cutting-edge sensors. It was one-of-a-kind product with a margin double the norm for his company. When Hobbs noticed the “outrageously high” margins on the computer, he decided to set the margins back to a “reasonable” level. With a few quick flicks of his index fingers (he was a two-fingered typist) he managed to blow away thousands of well deserved margin dollars.
If you can't insure that your sales team prices your products properly, I suggest you begin working with your management team to establish checks and balances. Pricing isn't the only aspect of competitive positioning, but it's the one that pays the bills.
A Mountain of Opportunity
The view from the mountaintop may show a future that looks much different from what we've seen before. We may be looking at a distribution market where supply chains are compressed, training responsibilities are shifted to distribution, the accountants rule the day and margins are wafer-thin, but in those trends there are plenty of opportunities for specialty distributors to position themselves for a new era of growth.
Core Competency Plan: Green Tech Lighting Co.
|Understand basic applications of new technology lighting in customer applications||Ability to comment on lighting applications form|
|Knows the competitive landscape for new tech lighting in our territory and within companies||Manufacturers and local distributors|
|Present Green Tech product overview||Using color glossy tool|
|Set up Green Tech Lighting on location using special software tool||Demonstrated while on call with Specialist|
|Select a part number from Green Tech's catalog||Easy applications w/o modifications|
|Quote price and delivery on standard lighting system||Group A lighting products only|