Bill Gates once said, “Your most unhappy customers are your greatest source of learning.” In that vein, we’ve found that much can be learned from thinking about the sales that you didn’t make. In a number of recent instances, we’ve seen how a focus on those unsuccessful efforts can inspire manufacturerdistributor teams to bring innovations into their relationship, that turn those formerly lost sales opportunities into success stories.
A great case study of such a success was told by our friend Jerry McCabe, winner of the 2010 Automotive Aftermarket Industries Association “Innovator of the Year” award and formerly vice president of Affinia, the $1.8-billion company that manufactures filters, brakes, and steering/ suspension parts under brands like Wix. He provided a “success story” involving the company’s relationship with O’Reilly Auto Parts, the national automotive parts wholesaler with over 4,000 stores . They recognized that there were literally thousands of filtration SKUs, and that the only sales that were being made involved the much smaller number of highly-popular SKUs that moved rapidly off the shelves.
By linking the inventory systems of the two firms, Affinia and O’Reilly were able to immediately locate all SKUs that were available somewhere in the systems of the two firms, and achieve far more sales. “What that effort did was create a situation that allowed Affinia to expand its business, O’Reilly to expand its business, and both companies to take a great deal of cost out of the system,” Jerry summarized. “Sales that would have been lost are now being made. Lots of redundant activities were eliminated at the same time, with significant savings.” The outcome was a clear ‘win-win’ success.
A second case study involved the relationship between a large electrical products manufacturer and its largest national distributor. While many of the products sold through this relationship were stock items, there were also ones that fell into the engineered-to-order category. An analysis of performance indicated that their market share realized in that engineered-toorder category was basically only about one-fourth of that associated with the stock products that went into them. Clearly, there was something wrong with the company’s processes that was causing such a loss in share.
The conclusions reached were summarized by one of the distributor company executives: “Our partner had introduced a Product Configurator several years ago to allow us to respond to engineered to order demands. What we learned was that it was a ‘Sales Terminator’, not a ‘Product Configurator.’ It didn’t work more often that it did work. And, subjecting a contractor to using it was like asking them to endure a root canal. When we benchmarked competitor offerings, even in cases where our system worked, it took four to five times as long to use and often ended up generating a requirement to call the manufacturer in order to complete the quote.”
A joint team from the two organizations addressed this challenge, and came up with some out-of-the-box ideas. They identified, for example, four common configurations that accounted for nearly 50% of demand, and introduced them as ‘kitted’ offers with a very short menu of options. For the remaining portion of the business, they rebuilt the configurator structure so that it achieved best-inclass status in terms of performance along metrics like time-to-complete and userfriendliness. As a result, their sales in the engineered-to-order category are now at roughly the same level of market share as the other lines of business appropriate for comparison. This has yielded significant gains for both organizations in terms of both the revenues and profits, and at the same time, eliminated a source of dissatisfaction among the contractors that are their key customers.
What has been learned from studies like these is that much can be gained from studying the sales that aren’t being made, especially those that in some sense should be made given the product/technology base, customer relationships, and business systems that are involved. We’ve identified two things that manufacturers and their channel partners can do to achieve results like those described in these case studies.
First, it is all too common in manufacturer-distributor relationships to simply assume lost sales are the fault of the other party to the relationships. Certainly, there was potential for that in both of these cases. An executive from the electrical distributor involved in the second case study noted, “Our sales people recognized this problem for a long time, but just accepted it as reality and something they couldn’t do anything about given the problems with the manufacturer’s configurator.”
Working as a team, thinking about the problem from a “systems” perspective, and often being willing to accept changes in the roles for and boundaries between the two organizations is necessary to solve the problems that are resulting in sales that aren’t being made. McCabe noted that while the initiative that he described was complex from a technical perspective, the more important, and more challenging, investment was in building a culture of trust between the two companies: “What was really important in retrospect was the change in the level of trust – it started with a handful of people seeing a small hole in a wall that they were able to chisel through and look at the other side. It shows how far things can go if two companies really work together.”
The second lesson is that insights about end customers are usually critical to finding why sales are being lost, and that such insights often have far more to do with services than with products and technology. In both of the cases presented here, it was a critical service element that was thwarting sales. In one case, the failure was being unable to identify whether parts were available or not. In the other case, the failure was in being unable to efficiently respond to a customer’s need to configure a unique system for the application on which they were working.
Effective service delivery is often thwarted by unhealthy relationships characterized by distrust about end customers. The channel organization typically fears that the manufacturer will “cut them out by going direct,” especially as an end customer begins to buy more and more. And the manufacturer fears that the channel partner will try to “substitute another product or even their private label brand,” especially if the end customer is a big buyer.
We believe that the way to ensure stability in terms of end customer planning involves some basic blocking-andtackling relationship elements – honestly, commitment over the long-term, good communications. There must be a good business reason for the relationship in the first place, one that is likely to endure and one that both parties must identify and acknowledge openly. When this is done, it’s unlikely that suspicions of the type suggested above will arise. And, at that point, the two organizations can work as a team to solve service deficiencies that are causing them to lose sales that they should otherwise have made.
Today’s environment is a challenging one for many firms, and finding new headroom for growth is a constant priority. Looking carefully at the sales that aren’t being made can point the way to new growth options that can yield rewards for both manufacturers and their distributors. And, once such opportunities are identified, a strong trusting relationship and a focus on collaborative service delivery can result in a success story like those related here.
|George F. Brown, Jr. and Atlee Valentine Pope are the founders of Blue Canyon Partners Inc., a consulting firm that helps businesses develop and implement growth strategies involving strategic manufacturer- distributor relationships. They have published extensively on this and other growth strategies relevant to firms in business markets. They also are the authors of CoDestiny: Overcome Your Growth Challenges by Helping Your Customers Overcome Theirs, Austin, TX: Greenleaf Book Group Press, © 2010.|