Solution Selling means the Whole Solution – Distributor Evolution

Nearly 20 years ago a friend made this comment: “(Industrial) customers don’t want to buy electrical products, they want to buy solutions. If you only sell half of the solution, it’s not really a solution-- it’s a bag of parts.”

At the time, I was squarely in the center of the electrical automation business. And, like most salespeople, everything I didn’t sell was invisible. On a purely intellectual basis, I realized the PLCs, drives, sensors and motion control systems I sold were connected to something, but emotionally, I didn’t care. I had my bag of tricks and my team was better equipped to assist in project layout, troubleshooting and advanced support than any other electrical distributor and I was fat, dumb and happy. But my eyes were opened.

I lost an order.  After the fact, my customer was kind enough to explain the reason why. It seems he felt the mechanical portion of the order was more complex than my fancy sensors. The competitor sold both and during the discussion of the mechanics, he convinced the customer that sensor placement required knowledge of the limitations of the mechanics. He knew about both and would solve the whole problem. It was a déjà-vu moment. It ruined my day, and as I made the trip back to the office, my buddy’s comments banged around in my brain.

I was convinced. I immediately started scanning the horizon for products just outside my selling sphere of influence. I began to realize the need for an understanding of my product’s place in the solution. And, most importantly, I started to explore plans for expanding my percentage of the customer’s total solution.

Since founding River Heights Consulting, I have explored and written about the need for distributors to broaden their product scopes into the whole solution. A few progressive distributors have followed this path. From my point of view, Fluid Power distributors have made the greatest progress; perhaps they were scared into making the move.

Recalling back to the 1990s, fluid power distributors faced-off against massive technological gains in the electronic world. Many of the traditional applications for their motion-centric hydraulic products were being challenged by less costly and feature rich electronic offerings. Many pundits heralded the end of their industry. Scare tactics from experts and feedback from customers drove many of them to develop expertise in motion control outside of their normal portfolio of products. Distributors evolved.


Conjuring up the words of Theodore Levitt, “What business are you really in? The railroads let others take customers away from them because they assumed themselves to be in the railroad business instead of the transportation business.” As distributors we must ask ourselves what business are we in.

Most distributors claim to be in the business of providing customers with solutions. Yet, most limit their solutions to advice and services wrapped around a bundle of products. Progressive distributors view the solution as whatever it takes to really fix the problem.

What should you do? Here are six thoughts to explore:
1. What are the limits of your solutions?
2. What products are invisible to you and your sales team? Just because you don’t sell it doesn’t mean your customers don’t need it.
3. Are there technologies not found on your “linecard” which are commonly used to create the total solution?
4. Do you see competitors with broader based solution capabilities than your organization? Are you willing to eventually hand over your portion of that solution?
5. What technologies (and product sets) will be important to your customers in the future? Will these technologies absorb some of the applications you currently support?
6. Have you asked your customers where they need additional solution support?

Finally, here are a couple of pieces of news:
Cincinnati-based CBT was recently recognized as joining the Top 50 list of Industrial Distributors. CBT used to be called Cincinnati Belt and Transmission. The company now carries a complete line of electrical, automation, pneumatic and power transmission products as well as their old standby belts and conveyor offering.

A recent article in Fluid Power World highlighted the Flodraulic Group. A quote from Bill Tulloch summarizes my

whole point:
“A good industrial distributor now has to integrate multiple technologies. He may be bringing to that customer pneumatics and hydraulics of course, but you’re bringing mechanical, you’re bringing electrical and controls. You have to understand PLCs and how that will control his equipment.”

Read the article here: 

Space and time limitations keep us from exploring dozens of other examples. The point is, morphing to match customer needs makes sound business sense.

Strategic Account Planning Part 4

Prioritization of Accounts

Just to bring everyone up to speed on the process of building a strategic plan for our accounts: 
First, we talked about knowing where we stand with the account, things like our strengths, whether the customer sees us as a pipsqueak specialty vendor, one of the top suppliers or as their critically important partner in business.  Later, we covered what you need to know about the account.  By now I know many of you are thinking, “I just don’t have enough hours in the day to go through this exercise with everyone customer.”  And, that is precisely the point we want to address.  You don’t have enough time.

American Founding Father, Thomas Jefferson said, “All men are created equal.”  As smart as he was, Jefferson wasn’t a top flight salesperson.  Top sales guys learn, early on, that all accounts are not created equal.  Some will never contribute much to your commission plan.   Figuratively speaking, blowing up a high-octane customer puts more to your bottom line than a tiny account.  We have to focus our work on the accounts who have the ability to add to our bonus check.  Doubling the size of a $20,000/year customer doesn’t add near the results of a modest 10 percent growth at a $1M/year account. 

We must target to be effective.  The question is where to start.

Looking over the results of hundreds of distributor sellers indicates to me the power generally lies with the top 10-12 accounts.  If we focus our research and strategic thinking on the big guys, we maximize the use of our time. 

Not only does focusing efforts on the top of our customer printout help us build business, the effort strengthens our existing relationships.  It both an offensive (as in sale growth) and a defensive (as in fending off competitors) play.   

Further, I worry we don’t have time to spend with many more than 20 accounts anyway.  Here is an excerpt from an article I wrote:

A stroll through the account assignments of dozens of electrical wholesalers reveals sales guys with 100, 150 or even more accounts to their name.   I believe this is a sham. 

First let’s look at the math. 

Number of selling days		160
Calls per day		4
Total number of calls available per year		640
Calls to top 10 accounts	Let’s assume the following: ·        We have multiple contacts ·        Ongoing business requires 1 call of some kind per week	500
Calls to next 10 accounts	Let’s assume the following: ·        Ongoing business and development of new opportunities requires 1 call per month	120
Total calls remaining		20

Based on experience, after subtracting vacation, holidays, training, office and meetings days, the average seller has around 160 days of selling time per year.  If we credit salespeople with 4 real calls per day, this equates to something like 640 calls per year.  If we assume a few of the top 10 accounts require a call every week, the salesperson is left with just 140 calls for the rest of the list.   I suspect the next 10 on their list require at least one call every month, this leaves us with a whopping 20 calls left for the year.  

Now back to “Targeting” our planning efforts.  I sincerely doubt if extra calls will be required to gather much of the information we have talked about.  However, gathering the information does take time and if we really buy into this strategy, we do have 20 calls to invest in the process.

Starting something like this requires a schedule, a strategy and a plan.  Why not start with your top five accounts?  Hopefully, you know them best.  Much of the information may already be floating somewhere in the deep recesses of your mind.  Thinking about precisely what you know and, more importantly, what you don’t know, will open your mind to the topic.  We do recommend you create a space for storing the information either in writing or electronically.

Why store the information?  First, most distributors today operate in a team selling fashion.  Specialists, Customer Service and Inside Sales groups from your own company regularly touch the customer; quite possibly it’s the case with supply partners and other allies.   Periodically reviewing information with others often provides valuable insights.  "Second, and more importantly, developing a document enables you to start/continue refining your strategic account plan.  Many of our long term plans for positioning require ongoing inventory of our current situation. 

I encourage you to create a list that looks like this:

Account: Frank’s Widget Warriors
Our Situation	We sell FWW all of their flex tubing, a most of their automation needs, some of the gasses used in their process. We are viewed as an important supplier in our category but certainly do not dominate the whole of their available business.
Competitors	·   7Dee Distributing sells more of the process gas than we do they are viewed as expert and provide low prices when contracts can tie up the business for a long time. ·   MMark provides a portion of their automation needs.  Most of these were specified into the plant by their parent company.  ·   WWG Distribution sells some of the fittings used with our tubing.  They rarely call on Frank’s WW.  We have crossed over their parts and are ready for the next bidding cycle. ·   Haven’t had time to research other suppliers
What do we know	·   The biggest source of revenue comes sale of complete systems ·   Considering moving spare parts to more of a profit center -We are looking for metrics and figures ·   They have rejects – don’t know numbers? ·   Burdened Labor on Shop floor - $38.00 ·   Burdened cost of Engineering - ??? ·   Sales team need assistance explaining some technical issues to customers -Working to understand how we can help ·   The energy cost to build full sized widgets is going up rapidly

Going way back to the second of this series, we quoted the words of a long forgotten song, “If you want to get to Hollywood son, you better know where on earth here is.”  I believe the second verse has to be, “It’s long, long way to Hollywood…”  Creating a document similar to the one provided above will keep you up to date on your progress.   The document will allow you to pull out a map and check your progress along the way.

Could You Put You Out Of Business?

A couple of weeks ago Forbes ran an article that got me thinking. The title was, “How Would You Put You Out of Business?” You can read it HERE. 

This short article has five questions every business needs to consider and certainly pertains to the distributor community. But, I believe there are more business threatening “what ifs” to consider.

Business Model Attacks:
1) What if technology somehow sneaks up on you? By the end of this year 50% of all distributors will have some kind of mobile app for their customers. While I believe a lot of these will not provide an immediate threat, I wonder what will happen over the long haul.

2) What if somebody else has better analytics than you? Case in point, the last recession caught quite a few distributors by surprise. Oh, they might have known something was coming, but most did not understand the depth or duration of the recession. Most lacked the analytics needed to predict the drop and equally damaging, most lagged behind on the upswing in business at the end of the recession. Distributors with the best analytics came out ahead of the game.

3) What if other distributors are more profitable than you? Distribution is becoming a game of resources. Distributors with fatter bottom lines, can afford to invest in people, systems, inventory and other areas which give them an advantage in the market. We regularly preach the merits of a pricing process like David Bauders’ Strategic Pricing Associates (SPA.) Our own research indicates distributors with the SPA process in place typically drive two points better in the gross margin game. What if you had that money to invest?

4) What if distributors from other lines of trade suddenly showed up in your market? Across most areas of distribution, we hear plans to expand into new technologies. Electrical distributors, Power Transmission distributors and Fluid Power guys are pushing their way into the Automation space. Safety products have become a battle ground for not only Safety Distributors but for nearly everyone calling on industrial, institutional or construction business. What happens if your market is suddenly overwhelmed by hungry hordes of new distributors?

Catastrophes:
1) What would happen if a major customer filed Chapter 11 with you holding $100,000 in receivables? Would this put you out of business? Probably not, but it would/could put you into a financial pinch.

2) What would happen if your top supplier decided to go with another distributor? This happens every day. Typically, we get something like 90-day notice. How long would it take you to build a contingency plan and introduce a new supply partner?

3) What would happen if your top salesperson has a change of heart? Do you have the proper agreements in place such as Nondisclosure, Non-Solicitation, and Non-Compete? Does your state honor such agreements?

4) What if your top seller meets a peach truck head on or is struck down by ill health? Do you know who they call on? Do you know the projects they are involved in today?

Succession:
1) What if you find yourself ready to retire and there is nobody in place to take over? Many of today’s entrepreneurial distributors are finding themselves pushing against retirement. Some are looking around and discovering nobody in their organization is poised to take over. Many times the second in command is the same age as the founder. What happens when we reach those “golden year” numbers?

2) What if your son or daughter wants to be in the business but lack some of the basic skills required to really take over? It’s not easy to be the boss’s kid. In many instances opportunities for coaching and mentoring turn into lectures from the parental unit; after all, we are human. At the same time, these young future leaders need help and guidance. How are you handling the situation?

3) What happens if you find yourself without a real plan for the future? Conversations with hundreds of distribution leaders indicates most don’t really have a well laid out plan for the future. The world around us is changing. Failure to position ourselves for the future, something like 2020 could turn into a catastrophic issue.

Why we aren’t thinking about these things?
Times are good. We’re up to our necks in activities. Stephen Covey in his 7 Habits book spoke of the four quadrants of activities. For those of you who haven’t seen them, Mr. Covey breaks activities into four basic groups:

• Urgent and Important
• Not Urgent and Important
• Urgent and Unimportant
• Not Urgent and Unimportant

Strategically worthwhile activities fall into the “Not Urgent and VERY Important” category. Let's think about this for just a moment.  Every time we walk into the office, we face a world of people pulling for our time. Urgent but strategically unimportant things like phone calls, emails and broken down delivery trucks stand in the way of very important tasks.  Think about it, are you putting out fires while somebody else is plotting your demise?  

Take heed, plan for a day without the urgent. Decide how you could put yourself out of business.

Saying NO to Recycling

Recycling down in the Purchasing Department

Say no to recycling old ideas.

Recycle, reuse, save the planet. I hate to see anything good or reusable tossed into the garbage heap. What’s more, everybody seems to be embracing the recycle concept. I love it. But, lately there seems to be a different kind of recycling coming out of the Purchasing Departments of major companies.

It seems as though they believe the time is right for recycling an old plan to drive our prices downwards. First rolled out back in the early 1990s, this plan starts off with a nicely worded statement, “You are a fabulous partner and we value the relationship our companies have built over the years. Because we both invested so heavily in making all this work, we want to help you grow your business with us.” Sounds pretty good so far, but then things take a nasty turn.

The purchasing guy is likely to word it something like this. “We are asking all of our good partners to help us be more competitive in the market. And to do this we need for you to accommodate us by helping to drive down our costs.”

If you are a knowledge-based distributor, you’ve already spent countless hours and company money driving down their costs. But the purchasing guy seated across the five thousand dollar conference table from you isn’t thinking about cost. He’s thinking about price. And, since you’ve most likely not done a great job of cataloging all the assistance you have provided over the years (90% of the distributors I talk to don’t), you struggle to come up with an answer.





You can begin to back-pedal or you can stop, stand your ground and offer to showcase the value your organization has provided over the years. Knowledge-based distributors leave a wake of real customer value wherever they go. It’s imperative you are prepared with some real examples.

Real is the key word. Here is a quick list of stuff that won’t work.

Knowledgeable Salespeople
Do you think any company really sends someone out who says "Hi, I don't know anything?"
Credit
Who doesn't offer credit of some kind, or at least take Credit Cards?
Inside Support
Another one that's hard to measure. Nobody says, "We pick up our inside people down at the wino bar."

Now let’s talk about some of the good stuff; stuff you can sink your teeth into. All of these are areas an MRO purchasing manager would be foolish to ignore. All produce measurable dollars. Most of these are things you normally do, or could do with little or no extra cost to you.

Maximize Warranties
Each year our customers buy thousands of dollars of products that are covered by warranty, or could be covered by warranties. How does this happen? Busy maintenance people throw questionable parts and products away. The customer hasn’t studied the warranty policy. Or, the customer doesn't know how to determine the warranty. Here are some examples:
• Hand tools -- Many of these have a lifetime warranty
• Proximity switches – Lifetime warranties are the norm
• Electrical products -- 18 months (12 months in customer / 6 months grace period)
• Electronic lighting ballasts -- often covered under warranty

Each time a warranty is used a savings is generated. Compile a warranty list and use it to record the values of product replaced or repaired for under warranty. To begin the process, I suggest that you create a spreadsheet with companies and their respective warranty time for your personal reference.

Repair vs. Replace
Many items are routinely replaced that could just as easily be repaired. Electronic devices come to mind, but the list can include some other products where a skilled person could easily make an evaluation and determine the proper action.
• Extension cords -- are they repairable? (Also see above warranty info)
• Electronic cords of all kinds
• Solenoid valves -- moving parts can be replaced
• Electrical motor starters – contacts and coils are easily replaced

Position yourself to serve as the watchdog for repairable items. Log the value. How much can you eliminate from the “waste stream”? Each of these items represents not only a measurable savings in the repair vs. replace equation but often represent savings in landfill charges. Printed circuit boards and other electronic devices often require special handling in their handling and disposal.


Proper Inventory Levels
Is the plant keeping excess inventory in their crib? This is true in many instances. For example, does the plant have a stock of twenty 30 Amp Fuses? If so, in the case of an emergency how long would it take for an emergency delivery to be made? In many cases the plant is only minutes away from a large supply kept on your own shelf.

When evaluating inventory it is important to note multiple types of savings. I have listed some of these for you to discuss with your customer. Be sure to take credit for all of these savings.

• Cost of inventory - this is the product
• Cost of carrying the inventory - this is the interest charge
• Cost of shrinkage, inventory control, etc. - this is real stuff and can't be left out
• Cost of insurance - what happens if there's a fire?
• Cost of shelving/material handling - these cost money
• Cost of floor space in the plant - especially if the plant is running out of space

Again logging the total savings is the key to claiming this activity as a “real live and completely legit” savings.

Energy Related
The whole world has been struggling with the rapidly rising cost of energy. There are a number of things that you can do to make sure that the proper savings are realized. Here is a short list.
• Energy Efficient Lighting Walk-through
• Energy Efficient Motor Survey
• Energy saving fans re-circulates the heat
• Automatic Door Closers

With gas now pushing four dollars a gallon everyone is thinking energy. Provide recommendations, and more importantly, keep records of how much energy was saved, the cost of kilo-watt hour and the cost of any steam, diesel, or heavy oil saved.

Standardization
Is the customer using the right product? Or, are they using a "Cadillac Line" when a "Chevy" will do? Can we show the customer where there is little if any difference between two manufacturer's products? Another aspect of standardization is the trilateral negotiations we can guide the plant through to gain price or other concessions. Some ideas:
• NEMA vs. IEC designed electrical devices
• Fiberglass vs. Stainless Steel Enclosures
• Sensors

Most companies calculate annual savings. To do this, you need the annual number of parts used each year and the saving in per item. Log the difference.

What were you doing on January 23rd, 2013?
Log the savings you provide! You provide the greatest service in the universe. You have a team of savings specialists who comb the land looking for ways to save your customers money. You even understand the importance of measuring your service in most universal metric of human endeavor, money. But I ask again – what were you doing on January 23, 2013? If you don’t keep a detailed journal, chances are you don’t know. By the same token, if you don’t keep a detailed log of savings provided, you won’t remember. The log can be simple and easy. A MS Excel worksheet with a single spreadsheet for each customer will work. A full feature software package is available from several companies to assist in measuring and logging your value.

In Closing
Provide service. Measure the benefits of your service in dollars. Record value-add events for later reference. And, next time you hear the statement “I am being told by our corporate people that I have to cut costs by 5%.” You’ll be ready to Sell!

A note from Frank…
Much of this information came from work we did with an Electrical Distributor selling into the MRO world. Trust me; there are similar values created in your own organization. If you are struggling to identify your own, shoot me an email. I will help you get started.



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Don't forget to pick up Frank's latest book on Amazon.com