Markovsky On Adding Value:
Adding Value At The Wholesale Level
Much has been said and written about the demise of the traditional wholesale distribution channel.The "sky may be falling," but interestingly enough, it isn't falling for everyone. Why do some wholesale businesses prosper and others suffer? Are there similarities in the prosperous operations vs. the others? That's precisely what this new monthly column will attempt to identify.
Having performed management consultancies for literally hundreds of businesses over the years, we've recognized two operational truths:
1. When some businesses flourish and others struggle, given reasonably equal market circumstances, management focus on the details of the operation is usually the largest single difference, and
2. Changes in channel preference (channel migration) are generally driven by actual or perceived greater "added-value" and/or "more economical" and/or "easier" alternatives.
Those preaching doom and gloom generally base their argument on channel preference statistics, including growth in relatively new channels like the Internet and "big boxes." The truth is that the drivers of channel change are complex and interdependent, so absolute statements about channel growth, shrinkage and migratory trends are difficult, without many assumptions. And, frankly, the channel matrix in most product categories is still a highly fluid situation. Suffice to say that migration is happening and will likely continue. However, the good news is that there are things that can be done to mitigate the deterioration and position your business as a greater value-added alternative. This approach is also seen as a great way to position yourself for future opportunities, once channel preferences (like the Internet) stabilize.
Each month, this column will discuss the forces that are changing the business dynamic in wholesale distribution and, hopefully, provide some thought-starters for your consideration. We'll also provide some real world, value-adding "Best Practices" in use by other distributors, which might be helpful to your operation.
Adding value, in its simplest terms, is providing those things, such as superior products, technical and support services, product or application expertise or sales and financing assistance, for which your customers are willing to pay a premium. Many highly successful distributors believe that the combination of these services, beyond simply "taking the order," is the key to maintaining customer affinities for the traditional distribution channels. It's also been our experience that many distributor managers believe their organizations provide those "value-adds" to a much higher degree than is actually the case. The management tool for assuring that the value-adds you want consistently provided to your customers are, in fact, provided is called "Process Engineering." We'll be discussing that in subsequent articles, as well.
Business is like a race. If you manage all aspects of the race properly, the finish line will take care of itself !
Each month, we'll provide several proven Best Practices. Readers are encouraged to send along any successful approaches they may be using to add value for their customers. We will feature the best of them in upcoming columns.
While some of these ideas may seem basic, you might be surprised at how often they are overlooked as the pressures of day-to-day business dominate our activities.
1. Have regular "out-of-body-experiences."
When you come to the same place every day and see the same things for a period of time, you tend to become somewhat oblivious to the common occurrences around you. How people fulfill their job functions, treat customers, handle phone calls, manage inventories, dress, act and much more, can become almost invisible to management. But, those "invisible" deficiencies can have a profound cumulative impact on your business. For that reason, it's beneficial to have what is referred to as an "out-of-body-experience." Several times a week, stop what you are doing and, with a clear mind, observe how business is actually being done. Is it what you want and how you want it? Are your employees following the proper methods of doing their jobs? Does the facility layout and cleanliness give them their best chances for success? Most managers assume that business is being conducted the way they would do it themselves - don't assume. As the saying goes, inspect what you expect!
2. Know your threats.
In today's business climate, ignorance isn't bliss, it's the kiss of death! Every manager should have a candid, realistic point-of-view about the business threats he or she faces. The only way to adequately plan for success is to know what you're up against and prepare for almost any eventuality. Who is your real competition and what are they doing today and in the future? Companies that have grown through recent consolidation may have purchasing advantages, but in many instances smaller distributors can duplicate those advantages through buying groups. And, how will competitors respond to the sales and marketing activities you have planned? What other external (and possibly internal) threats could impact your success? What can you do to mitigate these threats? Assemble worst-case scenarios and "war game" them. Surprises are things that happen to the unprepared!