Progressive Distributor - The path to adding value

The path to adding value

The Fluid Power Distributors Association developed a step-by-step approach to help distributors define, deliver and get paid for services that customers value.

by Richard Vurva

Today, more than ever, distributors have to earn the right to be their customer’s supplier of choice. In order to hold onto business, distributors have developed a variety of services geared toward specific customer needs, including 24-hour-service, assembly, design and engineering support, consultation, and much more. Most distributors have a laundry list of value-added services they perform.

But does your company understand what your customers value most?

If you’re not careful, you can go broke trying to perform services that customers may not even feel are important.

To help fluid power distributors define, deliver and get paid for value-added services, the marketing committee of the Fluid Power Distributors Association developed FPDA’s Value-Add Action Plan, an online tool available through the members-only area of www.fpda.org.

The Value-Add Action Plan consists of a seven-step process that any distributor can apply to its own business model. The steps lead distributors through the process of identifying what customers value, analyzing their costs to provide the services customers desire, proposing a plan for performing the services, then reporting on the activities they have performed for the customer.

“The purpose was to give fluid power distributors a road map to follow,” says Bill McCleave of W.R. McCleave & Associates, a distribution consulting firm that developed the seven-step process.

Joe O’Brien of Gibson Engineering Company, a factory automation distributor in Norwood, Mass., and FPDA marketing committee chairman while the action plan was being developed, says the plan can help distributors point out their unique differences.

“The way to fight the commoditization trend is to point out the various kinds of value we bring to the table,” he says. “Distributors that have survived over the past decades have found a way to add value.”

The plan took about 18 months to put together. The committee recognized during the process that because there are no magic bullet approaches to defining value, it would be impossible to develop a turnkey program for distributors to follow. Instead, the committee came up with the seven-step approach for distributors to use as a guideline to help them think more strategically about what they offer their marketplace.

“Our hope is that this tool will help our distributor members think a little more strategically about how they do business and how they go after customers,” says marketing committee member Mike Joyce of Primetech in Columbus, Ohio.

“If you go through the steps, it will cause you to look critically at your business and applications, look critically at your sales personnel and processes, and ask yourself, ‘What message am I giving my customer?’” Joyce says.

Each step of the plan identifies resources that distributors can use as they complete the seven-step process. For example, there are downloadable customer interview forms to help distributors develop questions to ask customers what they value from suppliers. There are links to consultants with expertise in developing customer forums and customer satisfaction surveys to obtain feedback from customers. Some of the links are still under development and new resources will be added on a continuing basis.

One link connects visitors to the YPS Group Inc. of Acworth, Ga., a consulting firm that has helped fluid power distributors and other distribution companies develop customer advisory councils.

“The fundamental reason to do a customer advisory council is to listen to your customers and give them what they want,” says Todd Youngblood, managing partner and chief executive officer.

In order to develop superior value to customers on an ongoing basis, distributors must have a detailed understanding of what their customers need and value, he says. That’s why step one of the Value-Add Action plan is to ask your customers what they value.

McCleave says that some distributors, in their zeal to demonstrate their value, report the value of activities they perform for customers that may not be important to that customer. For example, they may boast about freeing up plant floor space by clearing out excess inventory. But if the customer doesn’t have a plan to utilize the empty storage space, that activity has little value to the customer.

“What we’re trying to do with the Value-Add Action Plan is not start the process at the reporting phase, although that is very important, but start by asking the customer what they want,” he says.

Knowing what customers value is only the beginning of the process. The next steps in the Value-Add Action plan are designed to help distributors determine which services their companies can offer customers, how to establish a pricing structure for those services, how to market and sell their offering, measure its effectiveness and continually identify additional value-add opportunities.

“The Value-Add Action Plan is an exercise to help you reflect on what you do best, what you’d like to do, and what your customers value,” O’Brien says.

FPDA members holding user names and passwords can access the Value-Add Action Plan through the members-only section of the FPDA Web site, www.fpda.org. Non-members eligible for FPDA membership are invited to apply.