As we evaluate business opportunities in 2009, profitable growth is probably not going to come solely by market expansion in most of our markets. For some manufacturers dependent on resellers, the experience is that few companies undertake the proactive, systematic planning needed to achieve the sales and growth targets of their suppliers.

In other cases, we find business plans in place, but lacking real ownership, plans for execution or accountability.

Consider the following questions...

  • What can I do with channel partners that are not planning ahead?
  • How can we move them forward rather than have them hunker down?
  • How can we get channel partners that rely on product mark-up to think about more profitable service offerings?

Planning for the Near Term 2009

Step One—Identify Profitable Customers

Who should the sales force pay attention to? Too many companies do not know how their costs differ by customer account or segment, and lack any analytical processes to identify and track the profitability of its customers and/or segments.

The senior executive should gather his or her management team and take a hard look at how much of their customer base is contributing to the company's profit. For those that only look at customers as "big" and "small", the common desire to chase the "bigs" can often lead to a decline in profits especially in weak economic times.

If the management team lacks the processes and tools to assess the true cost of sales, or costs associated with managing inventory (assuming they do), etc. then some guidelines are needed.

Here is an idea that does not require an in-depth "cost to serve" analysis.

Set up a scorecard system. The system should include both quantitative and qualitative factors. A simple point system can be developed to create benchmarks for excellent, average or below average profit scores for customer accounts, e.g. 40 points is excellent, 25 is average.

  • Pays within 45 days.
  • Places orders electronically and accurately.
  • Order frequency is at or below average given the annual volume

Second, develop mid level criteria worth 5 points each. Examples may include:

  • Does not cherry pick your lines and buys across multiple product categories.
  • Minimal returned goods in last 12 months.
  • Participates in dealer's events and programs

Third, identify negative points.

For example, subtract 10 points if each presale/bid situation requires multiple rounds of visits/phone calls and price negotiations.

Utilizing this simple process, the sales force will ultimately be given a spread sheet with the top 150 of the channel partner's end-user customers that are actually contributing profitable results. This is the core focus of sales efforts in 2009.

Step Two—Planning for Action

For those customers that are marginal contributors and not significantly unprofitable, the sales or account manager needs to identify simple ways to help improve presale execution and possibly offer some incentives to improve account performance. But the account manager must take ownership of the problem. Repeat business should be profitable.

It is difficult to even think about walking away from any business in today's environment. If a manufacturer and its channel partner have put in reasonable programs to improve efficiency in the supply chain, focusing on sales effectiveness, then terminating relationships with customers that are continually draining profits is warranted.

  Planning for the Longer Term

(A Look Ahead for Channel Profit and Growth)

Many industry advisors have been talking about the development of business profitability models that offer more "paid-for" services. It is worth looking at the industrial distribution services model that has developed slowly over the last 25 years. It is often referred to as "integrated supply".

As the model migration changed, more than a third of the remaining industrial distributors adopted a new contracted supply services model.

What were the results?

Revenue and profit were driven from:

  • 75% electronic transactions
  • Consignment inventory offered
  • 3-5 year contract terms
  • Money made on service fees
  • See-through pricing to the customer
  • Onsite management of customer's inventory

Could your channels be offering outsourced procurement services, onsite inventory management, electronic information service, and ultimately—cost reductions for their customers that are not all about product price?

It all starts with business planning, understanding of the business processes and functions throughout the entire supply chain and the willingness to step out and lead.

Those who develop a solid business case for change will be around in the long term.

For a more detailed discussion about these issues in your industry, contact Jeanne Fec at 423-558-4820, email or go to the following link:

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.