NACD: Relationships with suppliers matter in chemical sales

11 November 2011 13:12  [Source: ICB]

"Sales personnel need to understand each customer's capabilities and shortcomings" Dr Barry Lawrence Director, Industrial Distribution Program, Texas A&M University

Optimizing interactions with customers and suppliers is key to improved performance for chemical distributors

In the economically challenging environment facing most businesses today, companies are evaluating all aspects of their operations to identify opportunities for improvement - distributors are no exception.

As critical components of the supply chain in many different industries, they recognize the need to pinpoint areas where improvements can influence the bottom line.

That is why the Washington DC-based National Association of Wholesaler-Distributors (NAW) Institute for Distribution Excellence has sponsored several research consortia designed to discover sales and marketing best practices. These studies were conducted by Texas A&M University's Global Supply Chain Laboratory - the only research center in the world that focuses on the distribution industry, according to Dr Barry Lawrence, director of the Industrial Distribution Program and the Global Supply Chain Laboratory. "The goal of our research is to develop e_SDHpinformation that can be directly applied by industry and result in noticeable performance improvements," he says.

A surprising discovery in the field of sales and marketing performance led to the creation of the research consortia, as a way to help the industry increase its profitability. "We found that even though distributors operate as the sales and marketing arms of their suppliers, those specific activities were the areas of weakest performance," Lawrence says.

For example, a study on pricing optimization identified strategies for using general sales and marketing information collected by distributors to optimize pricing.

"Implementation of these strategies has helped some distributors achieve gains in gross margins and increases of 80-100% in net margins, which are clearly real, measurable improvements in performance," Lawrence adds.

The most recent study focused on customer stratification. Typically for most distributors, about 5% of customers account for more than 90% of net margins. Therefore, it is important for management to focus on the needs and ­expectations of those core customers. It is also necessary to be able to do so while generating new core customers, all while managing the large number of others who do not fit into this category.

"Customer stratification is only one aspect of the overall sales and marketing optimization process, but it is a very important piece," ­Lawrence notes.

THE BOTTOM LINE
It is also important for distributors to understand their current position in the market, identify what type of business they want to be - and where they want to be - and determine how to implement the changes necessary to achieve that goal.

The bottom line is that relationships are the foundation for most effective optimization strategies. For example, on the customer side, typical chemical distributors deal with an ­incredibly varied customer base.

The sales force, therefore, plays a crucial role in helping the company to maximize the value proposition it presents to its customers.

"Sales personnel need to understand each customer's capabilities and shortcomings - and to do that they must develop a real relationship with each of them. Armed with this information, the company can then be sure its products and services fit with the needs of different customers, and optimize management of product inventory [and] logistics."

Relationships are critical on the supplier side as well. In fact - because chemical distributors are often dealing with very powerful suppliers - an effective approach is to consider those suppliers as customers.

All of these activities are interwoven: ­"Supplier, customer and sales force stratification all work together and are important. And when they are matched up with industry stratification, they make it possible to optimize ­performance," Lawrence concludes.

Author: Cynthia Challener

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