Distribution Channel Control

Distribution Channel Control is a way of selling a company’s product either directly or via distributors and is the route by which a product or service is moved from a producer or supplier to customers. A distribution channel usually consists of a chain of intermediaries, including wholesalers, retailers, and distributors, which are designed to transport goods from the point of production to the point of consumption in the most efficient way.

As an Entrepreneur, Have You Lost Your Authentic Swing?

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Businessman ThinkingI love the 2000 movie The Legend of Bagger Vance.

Remember it? Directed by Robert Redford, the movie was based on Steven Pressfield’s 1995 book with the same name. The actors include luminaries Jack Lemmon, Will Smith, Charlize Theron and Matt Damon. This was Lemmon’s final movie which makes it even more important to many people.

In 1931 (during the depths of the Great Depression), the City of Savannah, GA sponsors an exhibition golf tournament with great golfers Bobby Jones, Walter Hagan and the town’s golf prodigy and hero, Rannulph Junuh.

As he caddies, wise Bagger Vance (played by Will Smith) provides sage advice to help Junuh recapture his “authentic swing.” They talked very little about the fairway, sand traps or greens. They talked about post-traumatic stress, the meaning of life, guilt, regret, a broken heart, giving up, accepting responsibility and hiding. You know…light conversation (lol).

As many golfers of today can tell you, finding one’s authentic swing in golf is not just a matter of repetition. Golf is a mental game as much as it is a physical one. When a golfer’s muscles are tight from being angry at work, his/her slice or hook returns on the golf course. When a golfer’s optimism or confidence is compromised, the short game on the green becomes another nightmare. An executive’s capacity to make great strategic decisions is another version of one’s authentic swing.

Presidents of privately held mid-sized companies often don’t have time to play golf or have another similar outlet that offers feedback on whether the president is still centered. It is impossible to maintain your authentic swing when you aren’t centered. Often the all-important feedback comes in the form of poor business results. The president’s loss of his/her authentic swing is taken out on the business.

Sometimes executives just keep showing up when he/she knows he/she is “just not right with the world”. Continuing to show up is important, but just going through the motions can solidify bad decisions (a hook or a slice). Finding what keeps you centered is worth the effort. An executive coach could be your Bagger Vance.

How Can Changes in Technology Influence Growth Strategy Decisions?

No matter what industry you are in, advances in technology influence what your growth strategies should be.

Maybe you don’t view your company as directly related to technology. Perhaps you sell things like paper products, over the counter medications, or canned or bottled foods. The reality is, each year’s flu season drives increased sales for Kleenex tissues, Charmin’ toilet paper, Chap Stick lip balm, TheraFlu, Halls cough drops, Vicks Vapo Rub, Canada Dry ginger ale, Joy Mangano’s cotton and bamboo blend blankets, Hallmark get well cards, and Campbells chicken noodle soup. The flu even impacts which items are purchased from the Home Shopping Network.

If your company is involved with these and similar products, you may not be happy to learn about progress being made by Dr. Rider and his team at MIT, but you do need to know about it. An article by Scott Tarone in the September 2013 issue of TECHLIFESCINEWS shares information about DRACO, which is a double stranded RNA activated caspase oligomerizer that has been successful against 15 different viral infections including the H1N1 flu virus!

If customers tend to purchase and use your products when they are feeling well, you need to know about DRACO too. You might decide to establish higher market penetration goals.

If you don’t think that something like DRACO is relevant, maybe a better question is whether someone from your team should attend the annual CES event. Their advertisement in the Sept 2013 issue of WIRED magazine accurately describes the event as “It’s a Lab. A Social Phenomenon. A Marketplace and a Look into the Future.” This global stage for innovation will be in Las Vegas, Nevada from January 7-10 in 2014.

What your team members read is also important. If your business is influenced by techno gadgets, maybe someone in your company should be reading Liszewski’s Gizmodo blog.

Think about it. The formulation of growth strategy includes rethinking: your company’s positioning, products/services, customers & market, competition, and business model. We all need to be informed about technological advances before making these big decisions. Who is leading and coordinating the research effort for your organization?

Turn the Waves of the Economic Ocean into Success

The cover of the 09-09-13 issue of BLOOMBERG BUSINESSWEEK proclaimed HOLY SHIP … for good reason. Drake Bennett’s article shares that Maersk Corp. has recently ordered 10 of the new Triple-E cargo ships that can haul 18,000 TEU (standard shipping containers). That is huge! It wasn’t very long ago when carrying 6,000 TEU was remarkable. One Triple-E ship is as long as the Empire State Building is high and can carry 182 million IPADs or 111 million pairs of shoes from Shanghai to Rotterdam. That 25 day trip involves 530,000 gallons of fuel. When you visit Shanghai Harbor, you cannot help but notice the three Triple-E hulls on DSME’s floating docks. At this point, a new Triple-E is entering service every 6-7 weeks.

Although a portion of the readers of my weekly blogs are in ship building, import/export, and/or transportation, I realize that not all of you are. So why should you care that Maersk ordered 10 Triple-E cargo ships?

Maersk is the world’s biggest shipper in part because its leaders apparently know how to read the rise and fall of the economy and spot windows of opportunity. The shipping industry is very cyclical. They started planning to GO HUGE 4 years ago. The 500+ page contract to order 10 Triple-Es (with an option to buy 10 more) was signed in February 2011. It takes a year to build, test, and deliver one Triple-E, so the ships are now launching during the 3rd and 4th quarters of 2013. If competitors try to copy Maersk, their timing would be way off.

This is yet another example of true wealth that can be traced back to actions taken during recessions and periods of uncertainty. 2008-2010 were some of the most stressful years for most companies. Maersk was busy getting ready to buy/fill/launch 10 HUGE Triple-Es. By the way, Maersk did not exercise its option to buy 10 more, but isn’t it impressive that they created the opportunity for themselves?

Although we are not anywhere near the scale of Maersk, we do benefit from the fact that 3 of our 5 related businesses grow more rapidly during periods of uncertainty and/or recessions. That didn’t just happen. The concept of establishing a suite of related businesses (and 2 unrelated companies) was the result of deliberate research, analysis, and negotiations. Fortunately, none of our contracts were/are 500+ pages, like Maersk’s.

What is your executive team doing to read the cycles of the global (macro) economy? your industry’s economy? your company’s micro-economy?

What risk will you be taking to turn the waves of the economic ocean into success?

A Classic Barrier to Growth – Increased Cost of Credit

No duh…right?

I can still recall how it felt when my first business attracted its first line of credit.  During the years of great inflation of the late 1970s/early 1980s, the interest rate was close to 20% on our SBA guaranteed loan. My partner and I celebrated “Yeah…We Got the Loan!” but that was followed quickly by “Oh Dear.  We got the loan payments!”

Today, the interest rates on loans and lines are a whole lot lower, but they just aren’t as accessible.  The cost comes in other forms than just interest. Sometimes, it comes in the form of seeking venture capital earlier than you would have five years ago.  The deceptive increase in the cost of credit comes in the form of the hassle factor and increased administrative time spent on credit card companies.  Identity theft increases the cost of credit. The increased cost of credit comes in the form of distractions and lost opportunity as we all must keep a watchful  eye on what is happening at corporations like CHASE, CITI, and Bank of America…even if we aren’t shareholders or customers.

With our most progressive clients, one of the major segments in strategic planning retreats is focused on finding ways to diminish the impact of financial industry dynamics on the growth of their companies.  Ownership. Pricing. Channels. Strategic alliances.

What do you need to be less reactive to the financial industry?

 

Aldonna R. Ambler, CMC, CSP has earned the right to be called THE GROWTH STRATEGIST®. She has won over 2 dozen national and statewide “entrepreneur of the year” awards for the resilient growth of her international businesses across 4 recessions.  Her midsized BtoB clients get on…and then stay on…the published lists of the fastest growing privately held companies. She owns and operates a suite of companies that help privately held midsized companies achieving accelerated growth with sustained profitability® through opportunity & resource analysis, 4 approaches to strategic planning, executive advisory services, growth financing, and targeted search.  2012 is Ambler’s 8th year hosting a weekly peer-to-peer-to-peer syndicated on line talk show that features interviews with CEOs/Presidents of midsized companies (typically between $20 and 200 Mil/yr) sharing success tips about the growth strategy-of-the-week. An archive of over 300 interviews is available at www.GrowthStrategistShow.com. She can be reached toll free at 1-888-Aldonna or at Aldonna@AMBLER.com.

The Top Nine Causes of The Plateau Pattern™: No Felt Pain

Joyce is the President of a $35 Mil multi-location distribution company. They utilize dashboard management so they know that their inventory turns, picking accuracy, order fill rates, average order size and other industry metrics are within acceptable ranges. The company participates in an industry buying group.  They even get money from manufacturers to help fund their marketing.  Joyce has been pleased that they have been gradually recovering from the downsizing that was forced on them in 2008/2009.

What do you think?  Is the company positioned for growth or a plateau?

Although a vignette can never convey the whole story, there is enough information here to prompt some questions.

$35 Mil can become a comfortable size for a distribution company.  The branches can usually be served by a single hub. By the time a distributor reaches that size, decisions have been made about order entry systems, EDI, bar coding, etc.  The blend of commercial & residential, projects & products, and outside & inside sales has become well established.

So what would prompt Joyce and other executives in this business to consider taking this business to the next level?  The second top cause of The Plateau Pattern™ is “no felt pain.”  Ironically, these are the business leaders who get blind-sided because they can’t see that they are getting “behinder” and “behinder” with each passing day.

What are other companies doing with e-commerce that threatens the very existence of distribution companies like Joyce’s? Which Baby Boomer owned competitors are being sold, participating in roll ups, or becoming part of a larger industry consolidation? At what point will the bright, young, ambitious managers in Joyce’s company realize that she isn’t investing in growth, become bored, and start to look elsewhere?  Which value-added services are other progressive distribution companies quietly developing and offering to Joyce’s customers?

Joyce may be comfortable and feel no pain now, but it is probably short lived.

The Risks of the “Accepting The Devil You Know” Strategy

Cash was always “KING,” but now it is “QUEEN”, “PRINCE” and “DUKE” for a heck of a lot of companies.  Instead of business leaders looking to optimize opportunity, partner with new players, and aspire to new approaches, most seem to be seeking survival, reducing risk, and controlling change. You are not alone if your recent business decisions have felt like accepting the “lesser of two evils” or being stuck working with “the devil you know.”

But it’s not OK.

This extended recession has done some significant damage.

I am becoming particularly concerned about family owned businesses as they huddle around one another and act like it is “us against the world.”  The old premises are resurfacing. You know the ones I am talking about…no one outside the family can be trusted and only immediate family members would care enough.

You have a lazy brother who refuses to learn to use new technologies or an emotional sister who wants to give extra discounts to her friends or a cousin who assumes you will establish a new location in Colorado so he can go skiing more. Just because they are relatives, are these people all automatically better than considering strategic alliances with an up and coming firm or bringing in a CFO who actually understands growth financing or considering a new channel of distribution (because you know the way you currently do things hasn’t been working for YEARS!)?

Maybe your family has passive aggressive behavior, long term indecision, difficulty holding one another accountable, confusing compensation formulas, or conflicts over succession.  If so, selecting business strategies that emphasize maintaining the status quo will compound those problems…not solve them.  Please, do a gut check.  Are you becoming more introspective, less open to negotiations, less willing to hear new proposals, and less willing to meet new people?

This is scary stuff!  It sounds trite, but we have to regain our entrepreneurial spirit, quest for quality, and love of learning!  We just can’t let the lousy economy set us all back dozens of years!

Aldonna R. Ambler, CMC, CSP has earned the right to be called THE GROWTH STRATEGIST™. She has won over 2 dozen national and statewide “entrepreneur of the year” awards for the resilient growth of her international businesses across 4 recessions.  Her midsized BtoB service, technology, and distribution clients get on…and then stay on…the published lists of the fastest growing privately held companies. All of her own service businesses (strategic planning, executive advisory, growth financing, radio show, speaking, search) help privately held midsized companies achieve accelerated growth with sustained profitability.™ Ambler is in her 7th year hosting a weekly peer-to-peer-to-peer on line radio program at www.Business.VoiceAmerica.com and www.growthstrategistradioshow.com that features interviews with CEOs/Presidents of midsized companies (typically between $20 and 200 Mil/yr) sharing success tips about the growth strategy-of-the-week. Family owned businesses will be emphasized in 2011. Ambler can be reached toll free at 1-888-Aldonna or at Aldonna@AMBLER.com

Do Your Loyalties to Past Distribution Channels Block Your View of What End Users Truly Want?

What is your definition of seamless service/an extraordinary buying experience?

For a long time, the wealthiest clientele appreciated being “taken care of.”  They sought advice from experienced financial planners and guidance from brokerage firms, door to door itineraries for their elaborate vacations, and the artistry and project management of top name interior designers.

Trust has been eroded within the financial industry.  The Internet puts information and resources at our finger tips. The recession has strained the wallets of even high end buyers. Individuality is stifled in many work environments. There is pent up desire to express oneself … somehow. Continue reading

Channel Changes – And We Aren’t Talking About Television Here

Recently, a few of my clients have been expected to commit the time of key employees to find obscure parts and products, work with designers to make it all come together, and then just hand over all of that work so the construction company can put the project out to bid. And the construction company then threatens that if the vendor doesn’t turn over all of the information, the vendor won’t be included in the bidding process and won’t end up earning a dime on the project.

Essentially, the construction company is expecting the distributors (vendors) to take on the overhead costs without being paid for it.

The construction industry has been a highly competitive place to be for YEARS.  We all “get” that.  With the implosion of the financial industry and lingering recession, it’s become even more difficult to survive.  Jobs go out to bid more and more and more.  We know that, too. But in the past when a vendor has been asked to do a hundred hours of sourcing, the presumption has been that the vendor would be getting the project.

I’ve seen too many companies go out of business because they gave into this kind of pressure.

My clients are carefully adjusting the terms of their contracts. Who can afford to give away hundreds of hours of high level work? How can companies retain talented employees (even during a period of high unemployment) when their work isn’t respected and won’t generate income and bonuses?

If your business specs out complex projects, sources dozens/hundreds of parts and products for those projects, and/or includes a design element in all of that work, it might be time to revisit the terms of your contracts.  You won’t want to be blindsided when a construction company refuses to pay for that effort and wants to put the specs out to bid….without you.

PAUSE before Rolling Out the Results of Your Strategic Planning Effort

Congratulations! Your executive team has invested several weeks (perhaps months?)

analyzing  trends                                              generating scenarios

establishing significant ratios                      clarifying competitive position

adjusting pricing logic                                     selecting products to launch

creating targeted campaigns                       determining the best financing

modifying the organizational structure   updating compensation formulas

identifying new distribution channels     comparing CRM systems

declaring goals                                                  setting budget guidelines

How impressive!  How executive of you!

How boring!

PAUSE before you convey all of this to supervisors and line staff. You don’t have to impress them with your acumen.  You need to convey the direction, the priorities, and the themes in a memorable way.  It’s okay… no, it’s preferable if your strategic plan is conveyed in simple, direct language!

Think about the wording used in television advertising.  Getting your entire team on board quickly is “internal marketing”.  What is the slogan that captures the essence of where you are headed?  For what will your company be known when your strategy works well?

Diversify Yes, Chaos No

On Tuesday, April 28, 2009, Jason Caldwell of WENCOR, was my guest on my weekly online radio show, The Growth Strategist™ and provided some great advice about how to diversify without creating chaos.  A well known distributor within the aeronautics industry, WENCOR has been expanding internationally, gotten into manufacturing, and acquired a few businesses.

Many distributors lose their shirts when they try to become manufacturers. WENCOR has been successful because they maintain their identity as a distributor. They got into manufacturing to improve their control over the quality and cost of some key products. Their customers still count on them to provide the right products at the right price. Whether WENCOR is the manufacturer is relevant to WENCOR but not their customers.

Being fiscally conservative has also helped WENCOR succeed through diversification.  Their employees are encouraged to look for opportunities, but when they bring ideas to be considered, they must present well thought through business proposals.

Like other companies that successfully grow through diversification, WENCOR uses a check list/criteria for its acquisitions that includes “cultural fit.”  Interesting tidbit: 8 years after the acquisition of DIXIE Aeronautics, Jason Caldwell is the President of DIXIE and still serves as the EVP Sales for the parent company, WENCOR.

Growth Strategy Tip

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