Progressive Distributor - Smart people choose smart partners

Smart people choose smart partners

How to succeed at integrated supply with your manufacturing partners

by Stuart Mechlin

Integrated supply (IS) is a rapidly growing market with potential to be a $43 billion channel within the next 10 years, according to the latest study on integrated supply by Frank Lynn & Associates, Chicago. Today, delivery of integrated supply is still highly fragmented, reflecting industrial distribution in general.

Because of its rapid growth, winners and losers are still being sorted out.

Return on investment for winners in this channel will be enormous. The sooner an integrator achieves a solid lead, the quicker it achieves ROI. The catch is that the window of opportunity to establish an insurmountable lead will be open for only so long. Companies that dont capture an early lead will run an expensive catch-up race.

So the key problem for any integrator today is: How do I accelerate integrated supply success and become one of the winners?

Success is defined by having more sites, locking in relationships with customers, developing a track record and, finally, replacing other integrators when they stumble.

Having more sites ramps up your learning curve, increases economies of scale and moves your company into the profit side of the ledger more quickly. Good execution can provide you with an almost fortress-like position with existing customers who will not easily switch integrators. An equally important result of locking up the relationship is that you and you alone get the next IS plant opportunity.

A track record of successful sites is probably your single-most productive selling tool. And finally, when subpar integrators get thrown out, that plant will not likely return to the old way of doing business. The customer will want another integrator in place, quickly.

A surprising result from a recent survey conducted by W.R. McCleave and Associates and Modern Distribution Management newsletter showed that 50 percent of manufacturers still take a neutral position concerning integrated supply. Neutrality is not what an integrator wants to see when looking for partners to accelerate a successful execution of its strategy.

Instead, integrators want to partner with smart manufacturers that understand integrated supply. Choosing smart integrated supply partners can accelerate your success.

So what does the smart manufacturer partner look like? Smart manufacturers:

   1) do end-user homework
   2) understand the channel
   3) recognize and understand the site managers role
   4) understand the business-to-business relationship
   5) deliver both product and process

Do end-user homework
A smart manufacturer understands the customers customer. Many manufacturers still view the distributor as their customer. Smart manufacturers understand that the focus of integrated supply is on the end-user.

How and why the end-user decides to switch to integrated supply, the selection process and the delivery criteria are what drive the integrator. Smart manufacturers seek out end-users to learn all they can about the customers selection process. For some, it is as simple as picking up the phone and requesting a meeting. To others, its the realization that their own purchasing departments use integrated supply to improve their internal enterprises.

End-user information is also available from third-party sources. Industry association conferences, fee-based seminars, consultants and extensive media coverage offer a gold mine of information about what drives the end-user. Understanding the end-user takes resources and time, but it is simple to accomplish and offers a terrific payback.

In recent years, manufacturers as a group have been conspicuous by their absence at many important IS gatherings. Interestingly, only a small number of the usual suspects the smart manufacturers consistently invest time to gather valuable information about IS buyers in order to develop a successful channel strategy.

Understand the IS channel
Smart manufacturers recognize that integrated supply is a channel. They recognize that it is not business as usual.

Smart manufacturers are focused on what the integrator must deliver on an ongoing basis: lower acquisition and processing costs. Integrated supply is a channel that is defined by consolidation, rational decision-making and extensive measurement metrics that are used early and often. It is a channel that transforms the integrator into the long-term procurement arm of the end-user. Although traditional distributors may touch many of these areas, the depth and intensity of these channel drivers separate IS from traditional distribution.

Dumb manufacturers shove existing pricing, volume and marketing programs down to the integrator. Smart ones customize programs that go to the heart of what the integrator needs: programs to help the integrator score high on the end-users mandated performance measures.

Recognize and understand the site managers role
Smart manufacturers understand the integrated supply site managers role. Whether the integrator runs the tool crib on-site or operates an off-site facility, the site manager is a key person. How he or she executes this job and what motivates them is crucial to any suppliers success.

This person is not your traditional distributor hunter/ salesperson. They are engineers with personality. They are problem-solvers for the plant. Site managers manage relationships with purchasing, maintenance, safety, engineering and operations personnel. They are the procurement arm and the partner of the end-user. The best ones become the go-to person and literally become one with the plant personnel.

At the same time, they must maintain and enhance the integrators ability to generate profits and provide access to sister sites. It is a tough role, with limited time and major responsibilities. It is just now becoming viewed as a profession that offers training, a career track and rewards.

This person is principally motivated by documenting cost savings to both the end-user and to the integrator. Initially, these cost savings come from inventory reduction and process savings. But after the low-hanging fruit is picked, such savings become increasingly harder to find and deliver.

Smart manufacturers understand that this key individual can help them gain greater access to the end-user. Suppliers that understand the site managers role can help deliver results. By doing so, they are rewarded with a huge potential to convert customers to their products when end-users consolidate purchases. Integrators are desperately looking for manufacturers that recognize, understand and help site managers achieve success.

Understand the business-to-business relationship
Smart manufacturers grasp the business-to-business relationship of the integrator. First, they realize that the integrator sells at the chief financial officer/senior management level of an end-user facility. This relationship is a direct result of the potential dollar savings at stake.

Typically, an integrator has one or two senior salespeople. The sophistication and big risk/big reward nature of this sale necessitates a rainmaker on the selling side. Additionally, integrated supply is an ongoing, managed process. Even the best end-users are not sure what they need or want. Continual education is a must. Also, ongoing marketing for that next plant and next opportunity is a fact of life and therefore requires senior-level employees.

Manufacturers must mirror this integrator/end-user business relationship. Relationships at the senior management level and customized programs distinguish the smart manufacturers. Integrators want to deal with supplier rainmakers who can deliver results, understand strategy, the channel, and the profit and loss economics of the integrator.

A lucky few manufacturers have grown so far in their understanding and execution that integrators have invited them to present their programs to end-user prospects. The integrator sees them as crucial to making the sale. These smart manufacturers have created their own success.

All too often, manufacturers send in farm teams to sell to integrators. Then they wonder why they lost to the competition.

Deliver both product and process
Finally, smart manufacturers deliver both products and processes. Products include brand names, ability to be specd, ISO quality, consolidation opportunities and innovation. Most manufacturers are here already. That is the good news. The problem is, manufacturers get stuck here and rely on an amazing features of their products mind-set that has worked with traditional distribution.

Smart manufacturers focus on a service process that complements and leverages top-quality, innovative products. An IS service process includes end-user site surveys, cost-saving analysis, technical personnel, application training and support. Of particular importance are pricing/inventory programs that recognize the IS site as a switching yard rather than a four-turns-a-year warehouse. These processes have to be delivered as a branded service that specifically focuses on the needs of the integrator.

Manufacturers that continue to concentrate on product alone, as too many do, are viewed by the integrator as practicing business as usual. At best, the usual mediocre results follow. At worst, substitutions and consolidations occur before they know it. What once was taken for granted is now out in the cold.

Initial integrated supply success comes from providing inventory management expertise, improving the transaction process and demonstrating productivity savings. However, the day of reckoning is fast approaching. Customers will soon demand that integrators bring product innovation, plant floor process savings and product price savings. Smart manufacturer partners can offer the leverage needed in this area and grow sales in the process.

Smart manufacturers dont have all the answers. On the contrary, they are not afraid to admit when they dont have answers. However, they tend to look over the horizon. They have established a better track record than most at anticipating the future. Smart manufacturers have anticipated that this channel will be a winning channel for them. Integrators must partner with smart manufacturers if they are to win the inside pole position in their own race for success.

Stu Mechlin is vice president of the industrial division of Affiliated Distributors.