Fuel your partner's growth
Support your distributors with policies that keep inventory fresh
By Edward D "Jed" Bullard -- Industrial Distribution, 9/1/1998
Today's wholesale distributor faces a competitive environment more ferocious than at any time in history. Pressures on pricing, service level and operating expense continue to increase. Making a profit gets tougher every day.The business models that served us so well through the 1970s, 1980s and even through the first years of this decade have become outdated. The recent Arthur Andersen/DREF Report, "Facing the Forces of Change 2000," does an excellent job of identifying the main sources of change facing industrial distribution today. Among these are customer expectations for product and applications expertise, knowledge of regulatory environments, high-quality product, and customization, which all increasingly compete at the margin with tremendous price competition.
Our company, which is celebrating 100 years in business in 1998, is committed to reaching user-customers through distribution. A core belief is that as our distributors make more profit, our line becomes even more important to our distributors. Important lines are most apt to be properly serviced to buyers, so everyone can win!
Helping distribution become more profitable is more than lowering unit prices. Since the market is so competitive and because making a profit is so tough in today's business world, distributors must depend on suppliers for help in today's marketplace. Distributors should expect their suppliers to engage with them in preparing a foundation for the relationship built upon trust and mutual profitability.
It takes policies that are distribution-friendly, policies that allow distributors to run their businesses with lower total costs. It takes commitment -- commitment that allows each channel partner the chance to do its best work. It also takes commitment to focus scarce resources towards areas that fuel mutually profitable growth. This growth helps to build and retain strong organizational ties both now and into the future.
For the past three years, our company has focused on helping our distributors meet these changes through our "P3" distributor benefits program, which stands for premier, partner and participating. We have found it to be a highly effective tool for countering difficult competitive pressures. There are important drivers behind this program.
First, distributors can no longer assume that sales growth alone will generate the cash required to sustain the business. Second, effective inventory management, improved cash flow management and reduced administrative burden are just three of the ways distributors can fine-tune their business to create new profits.
Manufacturers must support these initiatives. Following are some examples, based on our experience, of how suppliers do this.
While the top-performing distributors may receive the deepest discounts from the list price, a number of other valuable non-price features may help all of a manufacturer's distributors operate more efficiently, effectively and profitably.
For instance, distributors may buy, at their best price, only the amount of inventory needed at a given time, down to a single carton. Gone are the days when only an order for hundreds of units would yield the best price. Smarter buying allows for more effective inventory management, freeing up important cash for other users.
Manufacturers may also provide important support to their distributors in ensuring that the inventory they have is fresh and viable. Stale inventory does not help business grow nor does it service the needs of user-customers. To avoid this, manufacturers may liberalize return policies to allow distributors to keep the best inventory mix possible on their shelves.
The channel will no longer tolerate redundancies. To maximize earnings for both distributors and suppliers, the elimination of work duplication is critical. Each channel partner must focus on their strengths, avoiding distractions that provide little added value. Reacting to change, even quickly, will no longer protect market share. Knowledge about the competitive environment, best business practices and customer needs is widely available.
Like us, the competition has been refining its ability to react quickly to change and opportunities. Reacting and moving faster tomorrow cannot provide any of us with a sustainable competitive advantage. Sustainable advantages are built by redefining the rules of the game.
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