50 Questions for Distributors

Last week I wrote an article titled “Six Questions that Demand an Answer.”  Sharing the article with a few trusted advisers, I received one consistent bit of feedback best summarized by this response.

“Frank, I agree these are questions we must ask ourselves; they caused me to pause and ponder.  I used them as an exercise with my team to think about our overall strategy.  I believe taking the time to think about our business from an outside perspective to be justified and worthwhile.   Sometimes it’s hard to do this subjectively.  I would like to see more questions just like these.”

The following is my first round of questions.  I have put them into categories to make them easier to digest.  Some will apply to your position, some will not.  I suggest spending a moment visiting these topics with members of your own team.

A note:  The readers of this blog come from a variety of backgrounds, hold a diverse collection of positions within distribution and come from a number of lines of trade (Automation, Industrial, Safety, Power Transmission, Fluid Power, HVAC/R, Building Materials and a lot of others.)  Not all of the questions apply directly to you.  Skip over the questions that apply to other departments or forward them on to your colleagues, but do take a moment to think.

Do you believe your customers’ worlds are changing?

1.       Are customers experiencing new global competition?

2.       Are customers under new pressure to perform financially?

3.       What pressures are your customer’s customers putting on them?

4.       Are there governmental regulations which impact your customers?  

5.       Are all customers experiencing the same changes?

a.       In what ways are they the same and how are they different?

6.       Are some customers experiencing shortages in trained workers?

Do you believe your supply partners’ worlds are changing?

7.       Do they have new competition in the market place?

8.       Is there current product technology under attack by something new?

9.       Have they recently been acquired or have they acquired a new division?

10.   Have they lost market share because they have not expanded into big box stores or alternative channels?

11.   Have they had new leadership come into the company?

12.   Is their stock value under some kind of pressure?

Do you believe change at the customer or supplier level impacts your position?

13.   Which five things are most likely to impact you in the next year?

14.   What five things are likely to impact you in five years?

15.   Do you see major customers or customer segments with no long-term future?

How does your sales effort differ today than in 1990?

16.   How have technology tools changed the customer interaction?

17.   What new positions have been added to the sales team?

18.   Do you segment your customers by industry, size and buying patterns?

19.   How do you know which customers are profitable?

Do you have a sales process?

20.   Do you have a written on-boarding program for new sellers?

21.   Do you have well-written job descriptions which explain expectations, measures of success and critical skills?

22.   Have you developed a product knowledge checklist which describes the level of knowledge sales people should possess to meet management expectations?

23.   Do you have a written sales process which defines the following:

a.       Who should be called on at accounts, including customer management?

b.      Behavior on the call? (such as note taking, recapping of action items)

c.       Frequency of sales calls?

d.      Entry of data from the call into a CRM or other knowledge base?

e.      Etiquette on joint calls?

f.        Use of support staff and specialists?

g.       When to introduce management into accounts?

h.      Quotation follow-up?

i.         What you should know about the customer?

j.        When to deviate from standard price?

24.   Does your company have a pricing process?

a.       Do you believe sales people can truly understand the price point for the thousands of products in your portfolio of products?

b.      How are market price levels established and maintained within your business?

c.       What percentage of your business uses “system” pricing vs. salesperson driven manual overrides?

d.      Does your business have a magic number (ie 15, 20 or 25 percent) which is used as a “safe” margin with customers?

e.      Do you measure each sales person against the percentage of sales falling outside of the pricing process?

What tools are used in the sales process?

25.   Do you have the ability to quickly review customer purchases by product technology?

26.   Do you have the ability to provide your sales people with FOCUS Fraction of Catalog Utilized (sometimes called GAP) analysis?

27.   Do you have a working CRM system in place?

28.   Are you capable of receiving EDI orders without manual intervention?  

Do you offer more customer value than in 1990?

29.   What services do you provide that weren’t available in 1990?

30.   Do you measure the internal cost of these services to your organization?

31.   What new services will you be launching in the next five years?

a.       Have you measured your company’s cost for providing these new services?

b.      Will you be charging a fee (outside of gross margin) for these services?

Is your company’s technology current?

32.   Is your ERP system modern and updated with the latest revisions?

33.   Do you have the ability to track inventory which has not been sold for 180 days?

34.   Do you have the ability to accept orders electronically?

35.   Do you have a mechanism for eCommerce?

Can your warehouse/logistics operation keep pace with changes in the world?

36.   Are items placed by location in your warehouse?

37.   Do you use wave picks to make order processing more efficient?

38.   Are errors (shipping, receiving, lost inventory) tracked in your organization?

39.   Is cycle counting accomplished so that fast moving items are counted at least 4 times per year?

40.   Do you regularly write off dead stock and other unsellable inventory?

41.   Is there a plan for efficiently handling returns and defective materials?

42.   Do you know the cost of running your delivery truck?

43.   Do you use GPS tracking on delivery vehicles to expedite deliveries?

How progressive is your financial model?

44.   Do you do a financial projection based on sales forecast for each year?

45.   Do you provide managers with parameters for measuring their portion of the business against industry standards?

46.   Do you benchmark your financial performance against industry standards using an industry profit report or some other national model?

47.   Do you know the approximate cost of transacting business?

a.       What is the cost of placing an order with a supply-partner?

b.      What is the cost of processing an order?

c.       What is the approximate cost of shipping an order?

d.      How much gross margin is required to break even per month?

48.   Have you developed activity based costing number to determine your most profitable customers?

Do you have a succession plan in place?

49.   If you are the owner and you are at least 55 years old what is your plan for leaving the business?

50.   If you are a salesperson within five years of retiring, what is your plan for passing on your deep knowledge of your customers?

We welcome your comments

Truthfully, we settled on 50 questions because it’s a nice round number.  It could have been, and maybe should have been, 100 questions.  What do you think we left out?  Send us your ideas and well send you a postcard from Iowa. 

If you want to talk about any of these questions, we’d be happy to spend a few minutes talking about your situation. Shoot us an email or pick up the phone.  We can’t wait to hear your thoughts.

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.



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