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We have received reports from distributors that suppliers are downsizing their staffs. This disrupts positive momentum and might cause even the best distributor to break stride. Many people perceive these staff reductions as a way for large electrical manufacturers to lower their operating costs. In certain cases, it may involve using a downturn in the economy as an opportunity to let go of underperforming employees. While some suppliers may announce reorganizations and some don’t communicate the reorgs and any resulting game plan, the outcome remains consistent -- fewer employees. Those that remain are spread thin.
River Heights Consulting put together some observations and actions items to take, either in preparation for such an event, or to enable a fast response to such an event. We don’t want you to be caught without a plan and lose valuable time scrambling.
Fewer people working for the supplier means two things. First, services provided to distributors by the supplier are going to be curtailed, minimized or moved to someone new, who potentially has existing responsibilities. Second, and perhaps more important, customer service will be impacted.
Since maintaining customer service is keenly important to the distributor, in most cases this means the distributor will either be required to take up the service slack or risk losing the customer. You have here an opportunity to start stepping up and demonstrating your value to the manufacturer, compared to the other distributors in your market. Better yet, start reviewing your business practices now to future-proof your position, before the next reduction in force from one of your suppliers. One of your competitor suppliers choosing to re-org or layoff could be an opportunity for you, too.
While our current situation is not as dim and dramatic as the “Big Recession” back in 2008-09, the scenario is similar. Many of the services provided by manufacturers before the downturn permanently disappeared. Economic disturbances accelerate shifts in the way business is done, and many believe the “re-justification” of distributor margin is one of those shifts.
To reinforce this point, let’s review a few changes from the past.
Distributor training. It was once a common practice for manufacturers to provide ongoing product training for distributor sales teams. Some still do this, but most have curtailed their efforts. Even the “factory schools” that require distributors to travel out of their territory for in-depth product skills training have been reduced. At a minimum, “training” will move to a self-service model more than ever.
Localized inside sales. When a distributor had a problem, they could call a local inside salesperson for advice, guidance and even product selection help. The distributor had a friendly person who knew a bit about their distributor, the customer dynamics and localized needs. Today, these inside salespeople at electrical manufacturers have often been replaced by national call centers. Those call centers, in the name of efficiency, often lack in-depth knowledge of the local market, customers, and even distributor business model.
First-line technical support. A customer with a technical issue could call the manufacturer for technical guidance. Try doing this today. The wait times just to speak to a person generally start at 30 minutes. Distributor sales teams put up with the time delays. Customers, on the other hand, hang up and call the distributor. Again, the “technical support” is self-service, aka (also known as) go to the manufacturer website and hope some kind soul put the time and effort into providing an FAQ or white paper.
Localized customer training. This type of training was once a standard sales tool for manufacturers and distributors alike. Vendor sales teams have since been forced to pull back from the activities. The burden falls onto the distributor, or a centralized manufacturer trainer who conducts webinars, rather than hands-on training.
Over the past few decades, distributors have stepped in to fill the gap, and I believe they are poised to do so again. Let us offer some suggestions. You can be proactive and differentiate yourself from your competitors.
#1. DOCUMENT SALES CALLS
Why? These suppliers are cutting people because business is poor. There may be a chance your performance will not live up to their expectations. At the same time, their leadership team is now lacking a direct conduit of information. Are sales down because of the economy or because of poor distributor performance? The best way to alleviate questions is with a solid flow of information. Documenting work done on their behalf can fill in some of the voids.
If the supplier falls into the common, but often idiotic syndrome of believing the addition of another distributor will solve their sales issue, your company’s leadership can easily prove the ongoing work being done by your company. This provides a level of protection against new competitors driving down your margins, especially if you are transparent about the end-users you are calling on. Document those sales calls and ask for protection. Better yet, ask for a Special Pricing Agreement (SPA), once you’ve gathered all the detail. This ensures you get what you ask for when you provide it. Read on for why this is important.
#2. ACQUIRE SPECIAL PRICING AGREEMENT FOR ACCOUNTS AND OPPORTUNITIES
Some distributors don’t like the administrative work required to get a Special Pricing Agreement from manufacturers. Others are just lax in their practices and don’t ask for an agreement until the order is imminent. This is a mistake. Quoting one of our clients, “SPAs are the new exclusive.” Lock in your sales now and in the future by securing an agreement as soon as possible. Make sure you’ve covered all potential product categories and projects.
On a related note, back in the ebbing months of the last “Great Recession” we surveyed manufacturers in the electrical and automation industry to better understand their views on SPAs. Universally, distributors who solicited pricing agreements from these organizations were viewed by the sales leadership as “more aggressive in their efforts to promote sales.” There is no evidence they feel differently now.
#3. DETERMINE ACCOUNTS WHERE THE LOCAL SUPPLIER SALESPERSON HAD STRONG RELATIONSHIPS
Although many distributors will tell you they “own the customer,” there are accounts where the supplier’s sales team has deep relationships. Some customers may assume the distributor had something to do with the release of their friend. Other times, distributor salespeople fall into the habit of assuming supply-side guys were taking care of issues, and then when they are terminated, things fall through the cracks.
These customers need to be identified and special care taken to preserve the account. Better yet, make sure you have multiple relationships within those key accounts — don’t just leave it to your supplier, or your outside salesperson. Bring in your warehouse manager, your inside sales team, your branch manager, maybe even your finance or receivables person to meet with your key customers. One best practice worth exploring is peer-to-peer mapping. For example, your biggest contractors should know your A/P person — that could be an asset when wrangling a lengthy project or a time and materials job, or some other challenging project.
"You should have multiple touch points to future proof your position. Marketing to marketing, Finance leader to finance leader, CEO to CEO, etc."
#4. PEER-TO-PEER MAPPING WITH YOUR MANUFACTURERS IS A MUST
That peer-to-peer mapping is mission critical with your top 10 manufacturers. You should have multiple touch points to future proof your position. Marketing to marketing, Finance leader to finance leader, CEO to CEO, etc. Do this now, and position yourself to have strong, enduring relationships, as well as a good cadence of communication, especially between business reviews. Strong relationships make it easier to solve problems, address challenges and to simply pick up the phone and get stuff done.
#5. EXPLORE ISSUES WITH UNFINISHED PAPERWORK
If the termination was unexpected, there is a good chance at least some administrative tasks may have fallen by the wayside. Referring to our comments on SPAs and other price agreements, are there any such agreements missing? The same applies to returns, spiffs, marketing plans and other items. These seemingly simple items could cost you big bucks in the long run. Review all prior commitments, ask for a meeting with the manufacturer, and make sure you have a commitment from them to follow-through.
#6. CONDUCT BUSINESS REVIEWS
Let’s face it — you should be proactively conducting business reviews with your top suppliers anyway. We recommend quarterly reviews with your top 10 and semi-annual reviews with your second 10. This is not only good business, but also good risk management. Have an agenda, gather your data, collect success stories and business opportunities you can win together. Make these meetings efficient and productive.
Follow the steps outlined above, quickly. Even if your manufacturers have decided self-serve is the way to go, they still have a few dedicated people allocated to provide better service to those distributors who have differentiated themselves. Even if they don’t, you want to be known as the best distributor in your area — the one with a plan, local market knowledge and the preferred partner for leads, promotions, planning and any new opportunities.
Move forward with confidence, since you have a plan.
Now, start humming along with “Ain’t nothin’ gonna break my stride.” A 1980’s one-hit wonder has a tune you can work with, just like your manufacturer re-org.
“Ain’t nothin gonna break my stride...
Nobody gonna slow me down...
Oh no, I got to keep on moving...
Ain’t nothin gonna break-a my stride...
I’m runnin’ and I won’t touch ground...
Oh no, I got to keep on moving”
