1 Is It Time for a Wake Up Call? Distribution Conference Reno 2005.

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Is It Time for a Wake Up Is It Time for a Wake Up Call?Call?

Distribution Distribution ConferenceConference

Reno 2005Reno 2005

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Ed RunnerEd RunnerE. C. Runner & Associates, Inc.E. C. Runner & Associates, Inc.

1 630 365 18981 630 365 1898

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Is It Time for a Wake Up Is It Time for a Wake Up Call?Call?

A. History & TrendsA. History & Trends

B. Important Issues TodayB. Important Issues Today

C. Critical Decision TimeC. Critical Decision Time

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A. History & TrendsA. History & Trends

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History- General Business 1955History- General Business 1955

Pent up demand.Pent up demand. Unlimited resources.Unlimited resources. Little world wide competition.Little world wide competition. Few government limitations.Few government limitations. No world class competition.No world class competition. End users lacked knowledge.End users lacked knowledge.

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Historical Distribution 1955Historical Distribution 1955

Distribution was transactional.Distribution was transactional. Distributors were small.Distributors were small. Distributors handled Distributors handled

commodities.commodities. Barriers to entry were low.Barriers to entry were low. Distributors could be easily Distributors could be easily

replaced.replaced. Distributors lacked funding.Distributors lacked funding. Channels often under-managed.Channels often under-managed.

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TodayToday

Distributor/manufacturer Distributor/manufacturer relations today have legacy relations today have legacy issues in all industries.issues in all industries.

In the lubricant industry, we In the lubricant industry, we have more legacy issues than have more legacy issues than most industries.most industries.

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Generic Sales ChannelsGeneric Sales Channels

DMSEFS SIR CIR

Mfr

EU

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Sales ChannelSales Channel

Each sales channel has advantages Each sales channel has advantages and disadvantages.and disadvantages.

We need to be more objective to We need to be more objective to understand these.understand these.

It takes real effort by all parties for It takes real effort by all parties for a channel to stay healthy for your a channel to stay healthy for your brand.brand.

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Comfortable BusinessComfortable Business

Concern for Concern for SurvivalSurvival

Change in the ChannelChange in the Channel

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Joint Success IssuesJoint Success Issues

High TrustHigh Trust Good product or service to sell.Good product or service to sell. Acceptable profit for dist & major.Acceptable profit for dist & major. Reasonably easy to deal with.Reasonably easy to deal with. A strategy for joint survival & A strategy for joint survival &

success.success. Dependable primary contactsDependable primary contacts Commitment to make it work.Commitment to make it work.

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A.A. History & TrendsHistory & Trends

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B. Important Issues B. Important Issues TodayToday

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““Manufacturer-distributor Manufacturer-distributor relationships are no longer relationships are no longer working.”working.”

NAW StudyNAW Study

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ConflictsConflicts

There are a number of conflicts in There are a number of conflicts in place that threaten our profits place that threaten our profits and the survival of our brands.and the survival of our brands.

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1. Sales vs Profit1. Sales vs Profit

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2. Long term vs short 2. Long term vs short termterm

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3. Efficient vs effective3. Efficient vs effective

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4. Way we do things vs 4. Way we do things vs the need for real the need for real changechange

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5. My needs vs your 5. My needs vs your needsneeds

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6. Internal company 6. Internal company politics distractionspolitics distractions

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7. Being too passive7. Being too passive

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8. Structure and 8. Structure and organization vs organization vs strategy.strategy.

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Result:Result:

Need for clearer Need for clearer strategy focused on strategy focused on long term needs and on long term needs and on joint success.joint success.

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““Sales channels are experiencing Sales channels are experiencing some critically important some critically important trends.”trends.”

““But wholesaler-distributor and But wholesaler-distributor and manufacturer partners don’t manufacturer partners don’t agree on the implications of agree on the implications of those trends.”those trends.”

NAW NAW StudyStudy

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Market Forces-TodayMarket Forces-Today

Buying groups.Buying groups. Distributor mergers or roll-ups.Distributor mergers or roll-ups. Integrated marketing.Integrated marketing. Hybrid channel efforts.Hybrid channel efforts. Traditional alternate channels.Traditional alternate channels. New alternative sales channels.New alternative sales channels. Web exchanges.Web exchanges.

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Getting More ProfitGetting More Profit

Getting higher pricesGetting higher prices Getting paid for extra valueGetting paid for extra value Getting paid for servicesGetting paid for services Getting reasonable Getting reasonable

compensationcompensation Running a lower cost model Running a lower cost model

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High Profit EffortHigh Profit Effort

The company that does not create a The company that does not create a plan that successfully motivates plan that successfully motivates customers, employees, and channel customers, employees, and channel partners to enthusiastically work partners to enthusiastically work together, runs the risk of having together, runs the risk of having someone else create the plan for the someone else create the plan for the market.market.

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ProductProductInformationInformationCompany supportCompany supportTech supportTech supportQuality sales forceQuality sales forceAdvantageAdvantageDifferentiationDifferentiationBetter marketingBetter marketingEasy to deal withEasy to deal withRapid response Rapid response TrainingTraining

Total Market OfferingTotal Market Offering Needs to be superiorNeeds to be superior

TotalTotalMarketMarketOfferingOffering

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B. Important Issues B. Important Issues TodayToday

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C. Critical Decision TimeC. Critical Decision Time

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Trends in DistributionTrends in Distribution

Increased use of distribution.Increased use of distribution. End users reducing supplier End users reducing supplier

numbers.numbers. End users smarter.End users smarter. Often old models don’t seem to Often old models don’t seem to

work.work. Manufacturers using alternatives.Manufacturers using alternatives. Distributors have more choices.Distributors have more choices.

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Where We Fit in the MarketWhere We Fit in the Market

IntegratorsIntegrators

AHTDAHTD

TraditionalTraditional SupplySupply

Catalog or web housesCatalog or web houses

VALUE ADDVALUE ADD

MARGINMARGIN

••

••

••

••

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A Look At CompetitionA Look At Competition

A B

CD

Performance

Pri

ce

What will you What will you do to movedo to move

company company performance performance value to the value to the

right?right?

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Reviewing Your BusinessReviewing Your Business It’s not in the product.It’s not in the product. You survive because you’re different.You survive because you’re different. You will prosper being compelling.You will prosper being compelling. How are you really different?How are you really different? What do you bring that is compelling?What do you bring that is compelling?

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Providing & Selling ValueProviding & Selling Value

TrustValue

Expertise

KnowledgeBrand Preference

Differentiation

ComfortCredibility

Brand Recognition

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ManageManage

This is a crossroads for many This is a crossroads for many companies in the US.companies in the US.

Be sure we know what business Be sure we know what business we want to be in.we want to be in.

Connect with customers better.Connect with customers better. Bring real value.Bring real value.

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# Distributors/ Manufacturer Profit# Distributors/ Manufacturer Profit

RevenueRevenue

CostCost$$

Number of DistributorsNumber of Distributors

MaximumMaximumProfitsProfits

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Voice of CustomerVoice of Customer

CustomerCustomer

Satisfaction,Satisfaction,

Loyalty, andLoyalty, and

PurchasesPurchases

Relate to Relate to

Performance.Performance.

CustomerCustomer

Satisfaction,Satisfaction,

Loyalty, andLoyalty, and

PurchasesPurchases

Relate to Relate to

Performance.Performance.1 2 3 4 5

5

4

3

2

1

Rati

ng

s

II

Importance

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You You WantWant ProofProof

Importance to Customer

Cu

rren

t Perf

orm

an

ceHigh

Low

Low High

Bring Valuable Information

Reliable Performance

Products Meet Specs

Applications Knowledge

Contact Frequency

Easy to Deal With

Acceptable Lead Times

Accurate Invoicing

Literature

Advertising

Resolution of Complaints

Special Pricing

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We need a better balance between We need a better balance between the long term vs the short term the long term vs the short term needs of all parties: needs of all parties:

• the major,the major,• the channel, the channel, • channel partners, andchannel partners, and• the marketthe market..

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High Profit EffortsHigh Profit Efforts

Efforts to reduce duplication.Efforts to reduce duplication. Cost being taken out of channel.Cost being taken out of channel. Differentiation.Differentiation. Manufacturer and distributor can Manufacturer and distributor can

improve profit better working improve profit better working together.together.

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SaturationSaturation

Saturation of distribution hurts all Saturation of distribution hurts all but a monopoly. Saturation:but a monopoly. Saturation:

-- distributors compete on price.-- distributors compete on price. -- customers value product less.-- customers value product less. -- hurts everyone’s profit.-- hurts everyone’s profit. -- limits funds for staff and value -- limits funds for staff and value

add.add. -- customer support suffers.-- customer support suffers. -- the brand suffers.-- the brand suffers. -- everybody loses.-- everybody loses.

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A Modest ProposalA Modest Proposal

It’s time.It’s time. The alternatives offer some real The alternatives offer some real

negatives.negatives. Taking the best from other Taking the best from other

industries, the lubricant industry industries, the lubricant industry can improve significantly.can improve significantly.

It’s reasonable.It’s reasonable.

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Current

Current

Becoming More ValuableBecoming More Valuable

Current Value to Customer

How DoWe

Increase

OurValue?

WhatIs

OurPotential

?

We can’t get improved prices or profitsunless the customer sees value.

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C. Critical Decision TimeC. Critical Decision Time

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Managing Partner ConnectionsManaging Partner Connections

AttitudeAttitude Remember, in addition to the Remember, in addition to the

message, we are also message, we are also communicating attitude.communicating attitude.

We represent our attitude and the We represent our attitude and the attitude of the company.attitude of the company.

We can build the relationship, We can build the relationship, even in the midst of trouble.even in the midst of trouble.

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BullseyBullseyee

CriticalIssues

ImportantImportant

Unimportant

Growth

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Critical Success IssuesCritical Success Issues

High TrustHigh Trust Good product or service to sell.Good product or service to sell. Acceptable profit for dist & major.Acceptable profit for dist & major. Reasonably easy to deal with.Reasonably easy to deal with. A strategy for joint survival & A strategy for joint survival &

success.success. Dependable primary contactsDependable primary contacts Commitment to make it work.Commitment to make it work.

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Time for a Wake Up Call?Time for a Wake Up Call?

A. History & TrendsA. History & Trends

B. Important Issues B. Important Issues TodayToday

C. Critical Decision TimeC. Critical Decision Time

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Time for a Wake Up Call?Time for a Wake Up Call?