Reinvent your Sales Model – Create Lean Distribution to prepare for the Industrial IoT Era

Industrial manufacturers seeking a market-share increase must become proactive and help distributors to evolve by reinventing into marketing and sales organizations. These organizations are part of a new order called lean distribution. They are highly focused on product selling, sales growth and adding new customers and less focused on inventory, delivery and transactions. Drastic reduction in distributor operating expenses and shifts in infrastructure are required. The lean distribution model offers realistic solutions to the growing challenges facing manufacturers today. The last blog covered issues with today's industrial automation sales channel; the purpose of this post is to provide ideas for growth.

If you are dissatisfied with your sales channel and sales results then consider a re-tool of your sales channel. The goal is sales growth. Eliminate any cost that will not add to the effort of attracting, getting and keeping new customers. Manufacturers should embrace these changes, sustaining all efforts that will help change the customer’s mind. The changes that follow may seem simple, but a “back to basics” approach is required.

  • Eliminate distributor inventory
  • Invigorate inside sales
  • Create rainmakers from outside sales
  • Teamwork
  • Get the Customer to Raise His Hand
  • Automate for Productivity

To be truly lean, a distributor must be able to reduce inventory and all associated costs.

Eliminate Distributor Inventory

The manufacturer should use all resources to eliminate inventory as a distributor requirement to reduce distributor cost. They should develop their inventory and ship direct to customers. This saves an immense amount of distributor cost and reduces cash requirements significantly.
Use modern logistic capabilities. Make sure you define your customer’s requirements. Visit them and find out exactly what their business requires. To make inventory changes:

  • Reduce all distributor inventories—manufacturer should stock
  • Never ask for spec inventory orders
  • Once you have reduced inventory, reduce warehouse space.

Loss of inventory is a loss to distributor cash and profit. Every dollar lost may require at least $5 in sales to make up. The manufacturer has a much better view of his product life cycle and because of his customer knowledge, predicts inventory stock levels accurately. Other distributor costs that can be reduced in inventory reduction are warehouse space and employee costs, shipping/receiving errors and make-up, as well as incoming freight expense. The manufacturer’s costs will also be reduced by eliminating the inventory return program. The write-downs from inventory returns alone could pay for a stupendous marketing program.

Invigorate Inside Sales

Customers are attracted to great customer service and quick technical support. Manufacturers must enable this through comprehensive and frequent product training to create a highly skilled inside sales force. Inside sales will talk to customers more than any other salesperson. They are a force multiplier in sales growth endeavor. This staff should be enhanced to do the following in support of the customer and outside sales:

  • Take sole responsibility for sales growth of small customers
  • Be proactive! Call customers.
  • Provide pre-sale technical support
  • Prospect

To become Lean, the first move should be a campaign to improve sales’ productivity. The first staff to be expanded is inside sales. Ironically, inside sales are ignored by most manufacturers. Lean distributors will learn the importance of lowering the cost of customer contact.

Create Rainmakers

Manufacturers can help themselves most by creating a distributor salesperson improvement program since to unseat a competitor at a large prospect a high quality outside salesperson, a rainmaker, is required. They must be focused on new business and add new customers, not just taking care of the old customers. At least 50% of the sales time should be spent on new opportunities. Lean Distributors work on hiring or creating “rainmakers,” whose only goal is adding new customers of large sales potential. They are taught to change minds. Great outside sales staffs are:

  • Evangelists of product info through frequent training.
  • Seeking the big sales potential through customer discovery.
  • Prepared for every sales visit
  • Credible and quick to build relationships.
  • Working to “own” the customer he is seeking.
  • Working for appointments every day.
  • Achieving 15-20 hours of face time per week with customers.

Lean Distributors do not depend on outside sales people who live on existing customer relationships. Inside sales should be tasked with most customer maintenance responsibility—they do a better job at half the cost. For the same income, the Lean Distributor has fewer, but high quality outside sales staff and more inside sales. Rainmakers are paid on growth.

Teamwork Work

The nature of the relationship between distributor and manufacturer is important to sales growth. Eliminate all the frustration by creating sales teams consisting of inside and outside sales, distributor, and manufacturer. Each should know what the other is doing at all times. Build trust. Each should know how to handle problems, what to say to a customer, and be empowered to take action. Create successful teams through the following strategies:

  • Establish the common goal of growth
  • Culture includes inside sales in team success
  • Team communication is flawless.
  • Encourage transparency between distributor and manufacturer.
  • Facilitate exchange of samples and demo equipment
  • Send team members to training together.

The relationship between the channel and the manufacturer has to be positive. The customer will sense anything less. Rockwell and Square D have continuously focused on teamwork with their channel. High market share maintenance has been achieved by both companies.

Get the New Customer to Raise his Hand

Attracting new customers is the most important part of the sales process. The industrial manufacturer has significantly underperformed in providing leads to the sales staff, especially in the past six years. Lean Distribution can attract customers through local promotional marketing.

Effective marketing will attract prospects. Without leads, the sales staff must “hunt” large prospects. Customers find out about new products and trends from the Internet, trade publications, mailings, and outside salespeople; use all of these resources. Lean Distributors are continuously trying to effectively get the attention of new customers. Here are a few ideas to use when phone calls from sales staff are just not getting through:

  • Establish a budget of at least 2% plus annual sales for advertising and marketing, increased yearly, with a long-term goal of 5% for each distributor.
  • Plan monthly events, such as mailings, Internet newsletters, lunch and learns, breakfast shows or seminars. Execute these so well that the distributor cannot resist.
  • Use software to collect and perfect your mailing list. Care for this data through weekly maintenance. Send information to customers quarterly.
  • Purchase new mailing lists to expand your reach
  • Set up a terrific marketing co-op plan.
  • Outsource.
  • Reduce the frequency of “courtesy sales calls” and replace with regular customer touches using the Internet or mail.
  • Don’t quit. If you don’t like the results, try something different. Interact with your customer on a regular basis.

Marketing and advertising can attract new customers at a low cost. Lean Distributors know that employing multiple methods with targeted customer messages will help to make the phone ring. Productivity is increased when the sales force receives leads from their organization.

Automate Transactions for Productivity

Take the initiative and invest in Internet-based computer tools for ordering, invoicing, quoting and repairs. Develop systems that allow your channel to share customer data, mailing lists, and contact history. Implement a system to streamline the ordering and shipping process. Consider the cost of your channel maintaining a computer system that talks to yours. Consider the costs in the customer to distributor to manufacturer process. Make quoting automatic. Essentially:

  • Develop a system for ordering, quoting and invoicing using the Internet.
  • Use CRM software to track your customer names, sales progress, and forecasts.
  • Centralize the data! Put it on the Internet.
  • Communicate and service your customer through your functional web site.
  • Allow your channel to share your IT system

If you elect to hold most of the inventory, take the next step and ship to the customer direct. The efficiencies will reduce costs and improve service. Productivity gains from Internet use are very large.

Testing for Lean

So you think your sales channel is already Lean? Make some calculations from the most recent annual financials for your distributors. If you don’t have them, you are already behind the curve. Calculate the total selling costs. Add up the salaries, commissions, bonuses, taxes, health care costs, travel, e

If a distributor spends 10% of sales on personal selling and only 1% on marketing, they are not lean. A lack of new customers will prevail.

Entertainment, cars, and gas of outside sales, sales management, and technical support people. Now calculate this cost as a percentage of total sales. If this number is greater than 10%, you are too FAT. In a good year, it should be no greater than 8%.

Now calculate the $ GROWTH that you had in gross profit last year. Assume for a moment that all your growth was solely the responsibility of the outside sales force. Compare the total selling cost to the gross profit growth. Did you calculate a frightening figure? What? The sales force spent more than you brought in? The cost structure of industrial selling is out of whack.

Other Changes to Lean

Reduce sales management by assigning sales managers a full-time territory. Everybody sells! Due to modern communications, the span of control should be 12 to 15 employees. In a Lean-Channel, the more self-management, the better!

Reduce the product lines in your channel. Provide the incentive, and you will get focus and mind share. Poor results will prevail if you choose a distributor with 60 product lines all larger than you.
Create semi-exclusive territories. The market is just not big enough nor growing enough for multiple distributors in most market areas. You will never get the cooperation or trust that you need to gain share without it.

Distributor diversification is, in general, a bad thing. Combining a systems house with a sales organization at first seems synergistic, however, the effort to diversify into another business is distracting and detracts from the product selling effort.

Don’t give up, build your own

Every manufacturer of industrial products that is selling less than $50M domestically has said following about the channel:

  • I have a whole list of distributors.
  • I can’t get the attention of any of them.
  • They can’t sell my products.
  • I am product number 12 on their line card of 12 products.
  • I don’t have mind share.

Very few manufacturers have management staff from the ranks of distribution. Many of the benefits of distribution can be realized as others have in the past.

For the ultimate in getting it right, create your channel. This is not the first time such creative initiative was used. Consider the history of the following:

For the ultimate in getting it right, create your channel. Use creative initiative to seek those that will help you grow.

  • Banner Engineering combined with Turck to create a unique manufacturer’s rep based channel in the late 70’s. Despite an onslaught of competition, they are both still number one in market share.
  • Wonderware created a distributor network that took them from zero to $100M in sales in 8 years. Further, not one direct salesman and very few sales managers were ever used. For many years, Wonderware was the only product their channel sold. Wonderware is still a number one market share product (Source: ARCWeb).

These examples do not imply that sales strategy alone won the leadership position. It was, however, a necessary component. These companies also had great products and terrific customer support. It is, however, our contention, which in this crowded marketplace, creative approaches to low-cost selling are required to win.

Conclusion

Intense and increasing competition from dominant automation vendors has caused stress in the industrial sales channels. Growth can be still achieved, but changes are required. The mature market has generated a lethargic sales channel that must be re-invigorated for sales to increase.

The manufacturer who initiates such a strategy can reverse the weakness in Industrial Distribution. Emphasis should be placed on executing plans to improve the quality of the sales effort coupled with aggressive action to reduce costs by eliminating duplication. Such actions create lean, and the budget transition provides money for improved sales and marketing within the distributor.

These changes are simple and straightforward and will provide you with a sustainable competitive advantage in the marketplace. Innovate, and you will get noticed. Sales growth will come only to those who attract customers with high-quality efforts in sales and marketing. A variable cost channel remains a mandatory ingredient to selling in such a cyclical slow-growth business. The cultural traditions between manufacturer and distribution must change to survive.

 

Gary SimmerlyThe article was written by our contributing author, Gary Simmerly, President at Automation Pilot. Gary is an engineer by education and sales engineer by choice. He founded one of the first high-tech industrial distributors servicing and supporting industrial controls for plant floor use. Great Lakes Controls (GLC) was a start-up venture to a regional distributor with six branches in 4 states. Sales grew to $20 million in 20 years.

 

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