Here at Tech-Research we have been pondering how suppliers in the Electronic component industry go about choosing the best distribution network? On the surface it seemed like a simple question, but once we talked to some key decision makers in the industry we realised there are a many complex considerations.
So what are the key criteria when making these
decisions? Well, it goes without saying,
that the distributor needs to be financially stable and preferably not in the
middle of takeover discussions! But that’s not all!
Count the Customers
The first strategic consideration seems to be customer
reach. Manufacturers want to be able to reach as many potential customers as
possible. So, is the answer to appoint the maximum amount of distributors,
particularly focussing on the largest with the greatest amount of customers? Well no, it doesn’t quite work like that. You
need to keep the distribution network down to a manageable size to keep
administration costs in line and to stop any disputes between the distributors,
that the supplier will have to police. Ideally, the Distribution network will
be complimentary.
The suppliers themselves need to think about their own
unique requirements, whether they have a particular hole in their coverage,
either geographically, within a certain market sector or technology. They will
try to find the best partner to plug these gaps.
The question of size is always key! There is a fine balance
between finding the company that offers the broadest coverage – Nationally,
Pan- European or Globally – and the partner that will offer the correct level
of focus on each supplier. Clearly,
large global suppliers will want to make strategic links with the global
distributors and will probably have enough clout to demand some level of
resource. However, most suppliers will have no such guarantee and may be more
comfortable with smaller partners, with a more limited linecard.
It’s a Commodity Game?
So, will the distributor stock all the main commodities? Be
prepared to hold the entire range? Have the systems and procedures in place to
keep these items in stock? Are they prepared to make the investment? The
problem is that all distributors have their own unique customer base that does
not necessarily match all the commodity requirements of the supplier. It
therefore seems that the procedures need to be robust and the terms and
conditions of the franchise need to encourage stock holding. This is an area where the franchisee and the
franchisor will have to work together.
Be Committed!
To promote a supplier’s products the right level of resource
is needed. In the ideal world this would mean dedicated Salesmen, Product
Managers, Field Application Engineers and other interesting job titles. However,
in an ever more competitive world where margins are being squeezed, it is
unrealistic to expect this level of support in all cases. It is therefore essential
to understand exactly what is achievable and to be jointly committed to making
it happen.
"The Supplier's Decision?"
© Copyright 2012, Technology Research Ltd.
N.P.I.
So how good are distributors at NPI (New Product Introductions)? Not very
according to one European Distribution Manager! Clearly this a bone of
contention, the suppliers want all new
products put into stock and promoted , whilst the distributor faced with the
demands from multiple suppliers, only wants to stock new products with firm
evidence that they will sell. Understanding a distributor’s policies and
procedures on this subject is a key parameter. However according to a
Distribution Corporate Account
Manager, the secret here is to
use the catalogue companies with their high inventory levels and huge database
of customer engineers. They seed the marketplace with new products; he believes
this complements the broadline volume distributors, who can pick up future
business on larger projects.
It’s in the Design
Designing products into the customer is now seen as a
critical part of what all distributors offer and a major decision point for the
supplier in deciding which partner he appoints. Quite often this is also linked
to size where smaller, more focussed distributors are perceived to offer a
better technical service. This is not always the case, but uniformly it is
linked to dedicated resource of the right calibre people, who are well trained.
In more specialist or niche suppliers this can be THE key to their success.
Some medium sized suppliers have expressed that getting
design work done by distributors is incredibly difficult if you are below a
certain size; and, they have taken to appointing rep’ing agencies to fulfil
this function. It also seems that certain parts of Europe have unique market
conditions that make it more likely that Rep’s are used.
It’s Who You Know!
Throughout our research into this topic one subject came up
repeatedly. It is a people’s business and if the relationship with the senior
management isn’t right then there could never be success. However, if the two
management teams interact well, with clear goals and commitments on both sides
then joint success should follow. In one case a Distribution Manager felt the
longevity of the relationship has meant easy access and better mindshare.
Intriguingly however it was also not seen as a guarantee for
results! Ultimately the sales people, internal and external, who have those
daily conversations with the customers, have to be comfortable and motivated to
sell the suppliers products.
Confused?
So what does all this mean? Surely there are too many
conflicting criteria to appoint a perfect distribution network? Well yes and
no. Every supplier needs to take stock from his only individual perspective, as
everyone will have a different set of priorities. Based on their own market
size, the types of market they wish to hit, the importance they apply to design-in,
NPI, resource, commodities etc., etc. What comes across strongly is that the
rules of the game and commitments on both sides need to be established clearly,
before the final signing of the franchise contract. The balance of the network
needs to be constantly monitored as the marketplace changes and acquisitions and
mergers take place. Whatever the final decision, the supplier needs to focus
his efforts on making his franchise and his products the one of choice within
the distributor, by ensuring the commercial terms and the service offered, make
it easy for the distributor to sell their product.
Note: Tell us what you
think. Do you agree or disagree with our commentary? Have we missed something obvious?
We'd love to hear from you!
Do you need some insight in a specific area? If so, contact us
now at.
Email: greg.nicol@tech-research.co.uk;
Tel: 07551-660721
Technology insights & decisions made easy...
www.tech-research.co.uk
www.tech-research.co.uk
No comments:
Post a Comment