Helping Manufacturers And Distributors
Improve Sales Performance And Profitability
Published by the Industrial
Performance Group, Inc.
800-867-2778
Issue
No. 31

Achieving Profitable Growth

Manufacturer/distributor working relationships remain a popular topic of research and conversation. When this topic surfaces at industry conferences and trade association meetings it often evolves into a discussion about the level of conflict, lack of trust, poor communication yada-yada-yada. So what's new?

Perhaps talking about their working relationships makes people feel better. However, talk rarely leads to the one outcome both parties strive to achieve — profitable growth. Profitable growth, the primary goal for any business, can only be achieved through action. Yet our research indicates that the collective actions of most manufacturers and distributors do little to help them accomplish this goal.

In a study titled The Bottom Line Impact of Working Relationship Problems we discovered that manufacturers and distributors are both keenly aware of the negative impact problems in their working relationships have on sales performance, customer satisfaction and profitability.

Based on these findings one must ask, what keeps manufacturers and distributors from taking action that would ultimately help them achieve profitable growth?

In this newsletter, we’ll discuss two barriers that prevent manufacturers and distributors from doing what they both know needs to be done.

The Changing Role of The Sales/Distribution Channel

Market conditions have changed dramatically over the past 20 years and so has the role of the sales/distribution channel. Despite this fact, the majority of existing channels have not kept pace with these changes. Some of you are probably thinking: "we’ve been successful doing business this way, why change?"

The answer to that question is simple — that was then, but this is now.

As we enter the new millennium most business sectors are experiencing the laws of limitation. This occurs when a finite or declining number of customers choose from highly saturated product categories. Profitable growth becomes harder to achieve because the purchasing frequency and volume habits of these customers are well established, known to all competitors and very difficult to influence. In other words, there is only so much "stuff" a customer can purchase and use during a given period of time no matter how much you hound them.

At the same time investor/owner pressure for growth and returns has increased. And if that's not enough, continued downward price pressure squeezes already thin margins at every point in the channel. Given these conditions and the fact that most channels have not kept pave with these changes, it's no wonder manufacturers and distributors alike struggle as they attempt to achieve profitable growth.

We've identified two barriers that keep manufacturers and distributors from achieving profitable growth — a lack of clearly defined plans and the inability to execute.

In a recently completed IPG study of 2,500 manufacturers and distributors from a variety of industry sectors titled Report Card Update, 79% of survey respondents indicated they do not have plans in place for accomplishing the goals of their working relationships.

In reality manufacturers have plans for accomplishing goals that are important to them and so do distributors. What they don't have are common plans for working together to achieve profitable growth. As a result, manufacturers continue to act in self interest and distributors do likewise. This helps explain why the level of conflict between manufacturers and distributors is so high and why the levels of commitment and communication are so low.

For the remaining 21% of manufacturers and distributors who do have plans for accomplishing the goals they have set for their working relationships, there's an 80% chance they will fail in their attempt to turn these plans into action, according to a 1999 Fortune Magazine survey.

If you do the math you'll see that only four out of every 100 manufacturers and distributors 4% are actually achieving profitable growth by turning their plans into action.

Execution: The Discipline of Action

Most organizations are good at talking about what needs to be done. However, talking is an activity that drives costs and does not lead directly to profitable growth. Profitable growth can only be achieved through the combined actions of the manufacturer and distributor.

Action is the result of execution.

Execution is about getting things done. It's what separates the doers from the talkers. Execution drives business success and should be the primary focus of every working relationship. There are two primary components of execution: Focus and Alignment.

Focus

Focus is about getting everyone headed in one direction with a shared sense of purpose. Working relationships that lack focus are prone to drift — wandering off course and getting away from the main thing — profitable growth. Lack of focus in a working relationship creates a significant gap between what the manufacturer and distributor hope to achieve and what they actually accomplish. This disconnect between expectations and actual performance is a major source of conflict between manufacturers and distributors. As a result, a tremendous amount of economic value is destroyed as precious resources are consumed by inefficiency and conflict resolution.

Focus can be obtained by working to assure that both parties have a clear and common understanding about where the working relationship is headed. They must also agree on what their goals are and how they plan to accomplish these goals. In addition, both parties need to understand their roles and responsibilities and what each can expect in return for their efforts.

Alignment

Everyone claims to be busier than ever before. However, are the activities that consume your time and money moving you down the path to profitable growth, or are they wasting precious resources? This is the essence of the second component of execution: Alignment. Alignment is about making sure that the day-to-day activities of both parties are connected to the goals of the working relationship.

Manufacturers and distributors involved in working relationships that lack alignment find themselves working harder and harder just to keep their heads above water.

Improving alignment requires that a manufacturer and distributor take an objective look at their day-to-day activities. They must determine how each activity, project and/or initiative currently underway, or slated for the future, contributes to the accomplishment of their goals.

Conducting this assessment will help them determine which activities, projects and/or initiatives should be improved, reduced or eliminated altogether.

In today's economic environment profitable growth is harder to achieve than ever before. However, by working to develop relationships with Focus and Alignment, manufacturers and distributors will discover that they're spending more time talking about their successes and less time talking about problems in their working relationships.

To learn more about achieving profitable growth call 800.867.2778 or email us at info@indusperfgrp.com

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