|Anniversary: Special Issue|
|Helping Manufacturers And Distributors Improve Sales Performance And Profitability 800-867-2778 Issue No. 54|
Channel Focus was first published by the Industrial Performance Group in 1994. The original purpose of this newsletter was to provide manufacturers and distributors with information that would help them improve their working relationships.
Twenty years later, this purpose has not changed.
Why are working relationships important?
According to Robert Kaplan and David Norton, recognized leaders in the field of business management, approximately 70% of a business's ability to create value and wealth stems from how well a business utilizes its human capital.
Our research, with well over 8,500 manufacturers and distributors, clearly shows that only a small number of manufacturers and distributors have successfully harnessed the true potential of their people, capabilities and in particular, their working relationships. We called this group, peak performers.
No matter which direction the economy is headed, these peak performers consistently deliver higher sales volumes and profit margins than their competitors.
During the past 20 years, we've been searching for answers to the following questions:
What's different about these peak performers?
But more importantly, what keeps the vast majority of manufacturers and distributors from becoming peak performers?
In this anniversary issue of Channel Focus, I'd like to share with you the answers to both of these questions.
This study also revealed that the majority of manufacturers and distributors were aware they could increase sales volume and reduce operating costs by addressing these deficiencies.
It was also during this first study that we identified the peak performers. That small number of manufacturers and distributors - about 10% - who were consistently outperforming their competitors in terms of sales volume and profit margins.
Apparently what made these peak performers different, was that both parties in the relationship had somehow come to the realization that if they focused their combined resources on a common goal, defined roles and responsibilities and collected and shared information, they could consistently deliver better results.
Seemed simple enough. But later, we would discover there was a bit more to it than this.
In 1997, we published our findings in a report titled: Report Card on Manufacturer Distributor Relationships. This report was printed and mailed to thousands of manufacturers and distributors throughout North America.
Our thinking was that if we made people aware of how these peak performers were being rewarded for harnessing the true potential of their people, capabilities and working relationships, others would follow.
Boy, were we wrong.
A follow-up study revealed that despite our best intentions, the majority of manufacturers and distributors had done little to improve their working relationships.
By this time we knew that the majority of manufacturers and distributors were aware they could increase sales and profits, if they would address the deficiencies in their working relationships.
What could possibly be keeping the majority of manufacturers and distributors from taking action that would result in more sales and profit?
Between 1998 and 2001, we went searching for an answer to this question.
During this four-year period, we surveyed and conducted in-depth interviews with 750 manufacturers and 500 distributors from a variety of industry segments.
As a result of this research, we were able to identify eight relationship attributes that are unique to peak performers.
We found that the presence of these attributes, in a working relationship, has a direct connection with higher levels of sales performance, better profit margins and increased customer loyalty.
Conversely, the absence of these attributes, in a working relationship, has a direct connection with lackluster sales performance, higher operating costs, increased levels of conflict and limited access to high-quality information, for both parties.
In 2001, we published the findings from this four-year study in a report titled: Report Card Update.
This report provided manufacturers and distributors with a detailed description of the eight attributes common to peak performers. But more importantly, it spelled out in great detail, what manufacturers and distributors could do to develop these attributes in their working relationships.
Once again our thinking was that if we made manufacturers and distributors aware of how they could increase sales and improve profitability by setting common goals, developing plans and defining roles and responsibilities, they would act on this information.
Despite our best intentions, we would once again find that the majority of manufacturers and distributors had done little to improve their working relationships.
The missing ingredient
We had repeatedly informed manufacturers and distributors about how they would benefit from addressing the deficiencies in their working relationships.
In addition, we had provided them with step-by-step instructions for addressing these deficiencies. But for some unknown reason, only a few were taking action to strengthen their relationships.
Aside from the eight attributes common to their working relationships, there had to be something different about these peak performers. But what could it be?
In an effort to find the answer to this question, we took a much closer look at the peak performers.
As we dug deeper, we discovered that peak performers came in all shapes and sizes, from a wide variety of industry segments.
We also discovered that these peak performing relationships didn't start out as peak performers. They had evolved, struggled and strengthened over time.
And we finally came to realize that developing a peak performing working relationship required more than just the eight attributes we'd identified years earlier, it required leadership.
It required people in roles who clearly understood - based on either natural ability or experience - that you can't manage a working relationship to peak performance, you must lead the relationship to peak performance.
While management and leadership may seem similar, they are worlds apart when it comes to the manufacturer / distributor working relationship.
The concept of management can be traced back to the early 1900s when an American engineer named Frederick Taylor introduced the Principles of Scientific Management. Taylor encouraged managers to think of their employees as specialized, replaceable components: cogs in the machine.
He believed that a business could achieve its goals more effectively by studying work methods and directing people more precisely.
While the practice of management has evolved over the last hundred plus years, its basic functions remain the same.
The four basic management functions are:
Management works best when you have some degree of control over the cogs in your machine. For example, when you're directing employees, they can either do what you tell them to do, or they can seek employment elsewhere.
However, when it comes to directing independent distributors, this approach is sorely lacking.
By their very nature, distributors are an independent lot. They've often taken great personal risk and invested a significant amount of time and effort in building their businesses. As a result, they tend to have a strong sense of pride and self-reliance. Needless to say, they don't respond well when a supplier attempts to tell them what to do.
The channel leader can be a manufacturer, a distributor and in many instances, both.
Channel leaders realize, and get those around them to realize, that business success comes from harnessing the full potential of people, capabilities and working relationships.
They communicate their vision of what the relationship can accomplished so others will follow willingly. They give the working relationship a sense of meaning and direction.
They frame challenges constructively with an emphasis on opportunities. They engage others and take the necessary risks to be successful.
Channel leaders know that the only way to develop a peak performing manufacturer/distributor working relationship is through trust, collaboration and honest communication.
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