As the electrical industry wrestles with the need to accurately compile and communicate inventory-stock-transfer, point-of-sale (POS) and point-of-purchase (POP) reports, some independent reps are finding themselves in the dark shadow of large distributors' regional warehouses.
Sales-data reports go beyond manufacturers knowing exactly where their product is purchased; the reports also dictate reps' compensation for sales. In short, some reps aren't getting credit for their sales because of inaccurate reporting, breeding distrust between manufacturers and reps.
“Big distributors with central warehouses are a special challenge for manufacturers who want to provide fair compensation to their representatives,” said Charles Cohon, president of Prime Devices Corp., Morton Grove, Ill. “Consider the example of material brought into a distributor's central warehouse to be broken down into small lots and sold nationwide. The local rep for that manufacturer, working far from the distributor's central warehouse, has worked diligently to convince the local customer to use the manufacturer's products. That customer buys the product from the local branch of the national distributor, with stock drawn from the central warehouse.”
When parts are sold to the national distributor's central warehouse, the manufacturer pays commission to the rep covering the territory in which the central warehouse is located. “Because the local rep earned no commission on parts sold by the local branch of that distributor, he/she learned to direct customers away from that distributor, or just stopped promoting that manufacturer's product,” said Cohon. “Clearly, a system that drives a rep to shun a particular distributor or to stop promoting a manufacturer's product is a problem.”
It's a problem the National Electrical Manufacturers Representatives Association (NEMRA), Tarrytown, N.Y., will seek solutions for at its annual meeting, which runs March 6-10 in Dallas. The need for timely and accurate reporting of sales data will be the subject of a panel discussion sponsored by the NEMRA Manufacturers Group (NMG). Scheduled for Friday, March 8, the session will provide a forum for national distributor chains to explain their model for going to market with independent electrical manufacturers' representatives and their manufacturers. Executives from GE Supply, Sonepar, WESCO, Crescent Electric Supply, Graybar, Rexel and Hagemeyer are scheduled to participate in the session.
In addition to tackling the subjects of inventory stock transfer, POS and POP, the session will:
Explore how manufacturers and representatives can influence purchasing decisions among major/national distributors, and
Educate decision makers at major national distributors concerning the importance of manufacturers' and representatives' critical information and input relative to purchasing decisions.
“This is an issue of importance not only to independent manufacturers' representatives, but also to direct factory salespeople,” said Gene Biben, president of Joseph E. Biben Sales Corp., Philadelphia. “That's something that many people overlook.” Considering how such reporting, or the lack thereof, might impact him, Biben said, “Ultimately, I won't continue to work without compensation.”
Joe Huffman, vice president of distributor sales for Leviton Manufacturing Co., Little Neck, N.Y., echoes Biben's concerns. Huffman says he views the subject of point-of-sale reporting with mixed emotions.
“Certainly, if the reporting is done the way everyone says it should be, there's no problem. One hundred percent of the information will be captured and communicated to the manufacturer. But not everyone does it correctly,” said Huffman. “You may get it right for three or four months, then a month is missed or someone gets transferred, and problems occur.
“Ultimately, it's our goal at Leviton to always pay people accurately and on time. Thus far, however, point-of-sale reporting is not perfect and has resulted in a good deal of distrust between manufacturers and not only their independent manufacturers' representatives but also with direct factory salespeople.”
It seems that an industry standard would help. “Until such a standard is developed, the problem with the distribution centers is going to continue,” said Huffman. “What will happen in the meantime is that those customers that provide good point-of-sale reporting will provide us with the information we need, but … there are some distributors that will probably never supply the needed data.”
NEMRA President Henry P. Bergson has been party to many discussions on the subject of inventory stock transfer and point-of-sale reporting. The association executive said that although rep payment concerns are well founded, there are other far-reaching problems that must be considered. “While our first thought is that the rep won't get paid, you've got to realize that this same situation affects the manufacturer's factory direct salesman,” said Bergson. In addition, according to Bergson, there is a whole series of manifestations, actions and reactions that occur if the problem is not addressed. For instance:
“Since the rep isn't being compensated for his work, there's every chance he will move his efforts elsewhere, to a customer where he knows he'll be compensated.
“The rep may decide that it's in his best interest to spend more time on other products and, in effect, one manufacturer's product offering may move further down the rep's line card.
“The rep may have to take on more lines to make up for the income he's not receiving.
“He may say to the manufacturer or distributor with whom he's been working for a long time, ‘You're no longer my emotional favorite. I've got to spend my time where it does me more good.’
“Then there's the concern with the rep who is terminated or doesn't generate the numbers he needs to qualify for a bonus when, in fact, he's performed at the highest level but the reports haven't been generated accurately reflecting that performance.”
In the wake of comments such as those from Bergson and Biben, Edwards Signaling, Cheshire, Conn., is one manufacturer that has listened — and taken action.
Edwards Signaling has a number of large accounts that hold orders at their distribution centers and then ship throughout the sales territory — often overlapping reps' territories. “In order to accurately and properly pay commissions to our reps, we had to take some action,” said Laura Rich, an executive assistant with the company.
The company receives detailed reports either by e-mail or electronic download covering the products from the various distribution centers. The reports cover what was sold, when the sales were made, catalog numbers, etc. “We take all that information, import the data into our system, generate our reports and then pay the reps their commissions in an accurate and timely manner.”
Edwards' action was in direct response to comments from reps in the field. “Reps made their views known, we listened to them and took action,” said Rich. “We're here to help the rep as much as we can. After all, fair is fair and by helping them, we help ourselves.” Response to the manufacturer's action has been positive. “We're one of the companies they believe is making every effort to do things the right way,” said Rich.
“When problems occur, I'm not sure any one manufacturer or company is to blame. In fact, this is an industry problem and it's a problem that won't be solved until everyone — manufacturer, distributor and rep — decides to work together in finding a solution.”
NEMRA's Bergson concurs. “The failure to understand the seriousness of this problem and to make it a priority hurts not only the rep, but also the manufacturer and the distributor. Dealing with this problem should be a priority even if it means dealing with it outside a manufacturer's normal business system.”
Editor's Note: Electrical Wholesaling will explore this issue from the distributors' perspective in the April issue.
SALES DATA DEFINED
To begin clearing up confusion, it's important to agree on definitions when discussing inventory-stock-transfer, point-of-sale and point-of-purchase reporting. Often, the terms become interchanged and confused. According to NEMRA President Henry P. Bergson, the three terms can be differentiated as follows:
“Inventory-stock-transfer reporting occurs when material is moved from a central distribution center to the branch in a rep's territory. The material is on the shelf at the branch and we do not know if it has been sold to a customer or who, if anyone, purchased it. A rep can be compensated on this information but is subject to deductions if the material is returned or sent to another branch out of the territory.
“Point of purchase (POP) results when the material is in the distributor's branch — we don't know how it got there — and was sold to a customer (we don't know to whom). Reps can be compensated on this information. It is acceptable in that it minimizes deductions and allegedly provides an incentive for the rep to move material off the branch shelf, not just place it on the shelf. It also results in a delay as to when commissions are paid. But it leaves out a great deal of market intelligence that reps can use to make future sales.
“Point of sale (POS) results when material moves out of the branch (we don't know how it got there) to a customer/purchaser that is identified to us in some way (e.g., name, but most likely by zip and SIC code). As a result, we know which branch sold it and where it went. This allows commissions to be paid to the rep responsible for the branch but also to be split with another rep if the customer zip code is in a different territory. It also pays the rep only on the movement off the shelf so commissions lag. It does contain maximum market intelligence so reps can determine the needs of similar customers or find like customers in the territory.”
In summary, Bergson says understanding the definitions and knowing the differences between the terms is important, but “the absolute minimum that needs to be done now is for the industry to engage in accurate and on-time inventory stock transfer reporting.”