Critical success factor: A culture of continuous improvement

“I don’t care that we scored well… we can get better”

These were the surprising words from one of ICR’s participating suppliers as we were going through their survey results from our Channel Partner Leadership survey (which gets industrial suppliers action-oriented feedback from their channel partners’ executives).   The comment caught me off-guard because they scored higher than any other company previously had scored on 51 of the 56 best practices we outline in the survey.  Nonetheless, we spent several calls and numerous hours deciding how to address their improvement areas.   I was thrilled they were taking the feedback so seriously, but they did so well… why were they concerned?

Curious, I went through the list of all the companies that participated in the program to see if there was a behavioral pattern.  I noticed a trend:  The higher a company scored, the more time they spent with me afterward to understand what they could do to improve.  This included multiple meetings with several players, detailed dissection of the comments they received, reviews of structured improvement programs, emails back and forth, etc.  Conversely, when companies scored poorly, I noticed most participants were less interested in discussing.  In some cases, I even had a hard time getting the contact on the phone to discuss a plan of action for improvement.  My guess is they didn’t spend a lot of time reviewing the feedback.

I was a little taken aback by this… given that receiving lower scores generally implies more opportunity for improvement, wouldn’t those people be the most motivated to take action?  My experience tells me just the opposite.

I have a theory as to why this happens:  Companies scoring high are those that already have a culture of continuous improvement.  They are already focused on excellence and crave feedback on how they can get even better because they’ve already executed many of the obvious improvements they could think of themselves.

Senior-level company leaders often participate when we debrief on survey feedback and discuss improvement opportunities.   Leaders from higher scoring companies tend to focus on their lower scores, leading discussion on how they can be improved.  Leaders from lower scoring companies tend to focus on their higher scores, explaining that many things are going well.

But there’s a notable exception… When a company scores low and leadership is highly focused on driving to the root causes of issues, it’s almost always because the leader is new in his or her job.  I suppose it’s because they don’t feel criticized by the feedback personally.  In hindsight, it sounds obvious.

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Bart Schwartz is President of Industrial Channel Research, a company focused on helping industrial manufacturers understand customer needs and perceptions. He can be reached at bschwartz@icr-survey.com.

Channel Partner Feedback, Distributor Feedback, Distributor Management Best Practices, Distributor Performance Improvement, Indirect Channel Best Practices, Indirect Channel Performance, Indirect Channel Performance Benchmarking

Have you convinced your customers that you’re offering differentiated value or have you only convinced yourself?

In September, I spent a couple days at the International Manufacturing and Technology Show (IMTS) in Chicago. As I was making my rounds seeing the products of exhibiting manufacturers, I was reminded of what always strikes me at these shows: how similar all the products look across manufacturers.

So this year as I toured the booths, I decided to add a question to my usual discussion with the manufacturers: “How do you differentiate your company from seemingly similar competitors?”

I heard a few good answers about price and resources. But most explanations weren’t compelling: I heard responses like “We use the best rep agencies” and “We have the right mix of making some of our own products while importing others”. I even had someone tell me that the shape of their booth (an oval) demonstrated how different they are.

The reality is that in the eyes of the customer, many companies aren’t differentiating in meaningful ways. At ICR we conducted a study this summer asking users of cutting tools to evaluate roughly 60 different cutting tool manufacturers by rating them against about 20 statements. We received roughly 2000 evaluations. On the statement “This manufacturer offers something unique and different that I can’t get from other manufacturers”, about 75% of the manufacturers rated neutral or below. In other words, customers don’t see these companies as meaningfully different.

A lack of differentiation is a problem.

Even if you have a solid offering, if you can’t differentiate yourself from competitors, acquiring and keeping new customers is much more expensive. It takes more sales and marketing resources to convince customers that your company is the one to address their needs, and fewer customers come to you on their own. In an industry where cost of sales can run 10-25% of revenue, it matters a lot.

I know… it’s easy for me to sit here at my laptop and say “go differentiate your company”… it’s a lot harder to do it. There are probably more ways to differentiate a company than there are companies; but having consulted to dozens of companies over the past 20 years, I’ve noticed that highly differentiated companies tend to share three characteristics:

  1. Make significant efforts to understand what customers value and how those customers view their companies.
  2. Demonstrate a willingness to confront reality about how they are viewed rather than convincing themselves that they are special.
  3. Institute formal processes that challenge and improve the way they bring differentiated value to their customers on a regular basis.

What I found most concerning about the widespread lack of differentiation is the reaction I received from many manufacturers when I shared their customers’ perceptions. Many disputed it… others challenged whether it mattered. However, a few took it to heart and have launched initiatives that start by understanding what potential customers value and how their capabilities can deliver against those customer values in a usefully differentiated manner. They are on the right path.

Bart Schwartz is President of Industrial Channel Research, a company focused on helping industrial manufacturers understand customer needs and perceptions. He can be reached at bschwartz@icr-survey.com.

Channel Partner Feedback, Customer feedback, Industrial Manufacturers

Are you a products company or a services company that sells products?

One of the most significant concerns we hear in our research about industrial suppliers is that the quality of service they provide is good, but the quantity of service they provide is less than optimal and getting worse.

In the past, many industrial suppliers have been able to differentiate themselves through their products.  That’s becoming increasingly difficult as products are commoditizing to the point where end users are much more likely to accept “good enough” with respect to product features and quality.

The situation industrial suppliers find themselves in today reminds me of where the computer hardware industry was in the early ‘90s… specifically for IBM.  The company was in tatters and the board was considering taking action to split the company into pieces and sell it off.  Before they went through with that, they hired a gentleman named Lou Gerstner to take over.  He had never run a technology company before, which turned out to be an advantage.

Mr. Gerstner made a large number of company-saving changes, but perhaps his most significant was in changing the culture and focus of the company.  He recognized what most devoted employees were unable or unwilling to recognize – that many of the product categories in which IBM participated were commodity spaces.  The products they sold were similar to those sold by competitors, just more expensive.   He re-oriented the entire company around services, focusing the product offering primarily on those requiring significant services, divesting the others such as PCs.  Today, a very successful IBM looks more like a services company than a products company.

As an industrial supplier, you need to look closely at yourself and ask whether your product spaces are becoming commoditized.  If so, are you more likely to be successful competing as a low-cost supplier or as high-service supplier?  Companies who aren’t clearly one or the other have trouble when products commoditize.

Once you select your strategy, you must stick with it.  I regularly see commodity suppliers that have taken a “high-service” strategy embark upon cost reduction programs that inevitably cut service levels.  Cost reduction programs can be very useful, but not when they erode the supplier’s core value.  Like IBM in the early 90’s, most of these companies do not understand what they should really be selling.  They may receive payments for products, but they’re really selling the services that make those products effective.

Bart Schwartz, President / ICR / 630.503.6093 / bschwartz@icr-survey.com

Channel Partner Feedback, Indirect Channel Best Practices, Services, SG&A savings, Supplier improvement ,

A quick overview of my presentation at the Industrial Supply Association conference in April

Several people who missed my presentation at the Industrial Supply Association in April asked me to provide a quick overview.  It’s impossible to capture the entire 75 minutes into a one-pager, but here’s the general idea….

The  industrial distribution landscape is likely to consolidate more rapidly than most people expect.  Within a decade or two, large distributors will control about 80% of the market.  The smaller distributors that survive will differentiate themselves by offering technical services not offered by the larger distributors.

This channel shift will have two profound impacts on suppliers.  First, suppliers that do not offer uniquely different products will be forced to consolidate in an effort to establish scale sufficient to have leverage with larger distributors.  Second, all suppliers will have to work exceedingly well with their distributors because more sophisticated distributors will simply not accept the level of partnering that suppliers provide today.  To be effective with channel partners, suppliers need to build capabilities in 10 key dimensions:

  1. Strategy and associated actions
  2. Branding
  3. Product offering
  4. Channel alignment and management
  5. Technical support
  6. Commercial arrangements
  7. Ease of doing business
  8. Partnering
  9. Tactical planning,communication and execution
  10. Training

Research by our company implies that most industrial suppliers struggle to exhibit these characteristics…and that will be problematic for them as distribution channels consolidate.  For suppliers to improve, they need to build an understanding of what they need to improve.  The best way to do that is for suppliers to ask their channel partners how they are performing against these dimensions in a structured, anonymous way then build a plan to improve.  Suppliers that ask the questions and are willing to embrace their improvement opportunities are much more likely to thrive through the consolidation.

Distributor Feedback, Distributor Management Best Practices, Distributor Performance Improvement

Should manufacturers push inventory carrying responsibility out to their channel partners?

Recently, a few of my manufacturing clients have brought up the question of whether they should require or reward their channel partners for carrying inventory.

Channel partners carrying inventory has obvious advantages to the manufacturer: less strain on the supply chain, larger average shipment sizes, less inventory, more predictable production schedules, larger lot sizes, etc.

So manufacturers should require or encourage all their channel partners to carry inventory that allows them to serve their end users without having to place placing frequent, rush orders… right? Well, it depends.

It really comes down to how effectively channel partners can forecast end-user demand. .. In situations in which forecasting effectively is difficult; requiring or encouraging channel partners to carry inventory is likely to create problems for the manufacturer in the form of returns, requests for credits and obsolete inventory in the supply chain. I’ve seen dramatic short-term benefits from manufacturers that set up programs rewarding channel partners’ holding inventory… only to see them come crashing down in a flurry of returns and decreased ordering about six months later.

The challenge is that not all channel partners are effective in forecasting… sometimes that’s due to a lack of sophistication… sometimes it’s just the nature of their demand patterns.

The key for manufacturers is to figure out the optimal ways in which different types of channel partners should be holding inventory, then require or reward those desired behaviors. Large, sophisticated channel partners selling a small number of SKUs to a large number of end-users are typically prime candidates to carry inventory. Small, unsophisticated channel partners selling a variety of SKUs to a small number of end-users are less likely to be effective carrying inventory. The rub is that most channel partners fall somewhere in the middle.

Manufacturers must determine the characteristics that make a channel partner a good candidate to carry inventory at different levels, then build the appropriate requirement / reward framework so the channel partner performs as desired.

Bart Schwartz, President / ICR / 630.503.6093 / bschwartz@icr-survey.com

Distributor Management Best Practices, Distributor Performance Improvement, Indirect Channel Best Practices, Indirect Channel Performance, Indirect Channel Performance Benchmarking, Industrial Manufacturers ,

Using the distributor planning and management process to drive performance

One of the key dimensions of Industrial Channel Research’s best practice framework is “Tactical planning, communication and execution”. This is the process of suppliers working with their distributors to set goals, create a plan to achieve those goals, measure performance throughout the year and make course corrections as necessary. The benefits of suppliers and distributors working collaboratively are tremendous. It fosters alignment between activities and investment, but it also sends a message to the distributor that the supplier wants to be a trusted partner.

Unfortunately, many industrial suppliers do not have an effective program in place. When I speak with suppliers without an effective program in place, I hear reasons like “we are too small to do that” or “we are understaffed” or “we are not important enough to our channel partners”. There may be some truth in those excuses, but it’s like the old saying goes… no one plans to fail, they simply fail to plan.

One big misconception about these programs is that they are cumbersome and time consuming. They do not have to be. A simple, well-structured program could be managed over the phone with only a few hours of interaction throughout the year. It requires a little thinking and some discipline, but it does not need to be difficult.

Maybe even more importantly, having a structured program in place forces a pro-active dialog between supplier and distributor. Planned interactions are structured to talk about goals, plans and performance; but simply having the forum for discussion creates opportunity for productive, impromptu dialog. In other words, the planned meeting and standard agenda items become the excuse to improve the relationship and its performance overall. Without a structured interaction program, suppliers’ field personnel tend to spend their time primarily reacting to distributors’ problems and the relationship takes on a negative, unproductive tone.

If you are a supplier, the first step to putting the optimal program in place is to understand how effective your program is today and what needs to be improved. From there, a roadmap to improvement can be created.

Bart Schwartz, President / ICR / 630.503.6093 / bschwartz@icr-survey.com

Channel Partner Feedback, Distributor Feedback, Distributor Management Best Practices, Distributor Performance Improvement, Indirect Channel Best Practices, Indirect Channel Performance, Indirect Channel Performance Benchmarking, Industrial Manufacturers, Uncategorized ,

Getting your channel partners involved in managing your product portfolio

Recently, I was on the phone with the president of an industrial company frustrated that his company’s product innovations weren’t as well received as he would like.   When I asked him to describe his product development process, he said he had the best engineers in the business and they knew what they were doing.  When I pushed him on how the process incorporated market insights, specifically from his distributors; he was silent.  Fact is, effective product portfolio management relies on marketplace insights; industrial distributors are uniquely positioned to provide those insights and have a vested interest in doing do.

Distributors can provide manufacturers product portfolio insights such as:

  • Market opportunities
  • Necessary portfolio breath (i.e., the right categories)
  • Necessary portfolio depth (e.g., the right sizes, shapes, coatings)
  • Performance problems
  • Product discontinuations
  • Appropriate new product launch approach

But to get those insights, your distributors need to be appropriately involved in the process.  Ask them what the next big innovation needs to be… involve them in portfolio review sessions… consider their input regarding the best way to launch new products.

What’s the best way to determine if you’re involving your distributors appropriately in managing your product portfolio?  Ask them.

Bart Schwartz, President / ICR / 630.503.6093

Channel Partner Feedback, Distributor Feedback, Distributor Management Best Practices, Distributor Performance Improvement, Indirect Channel Best Practices, Indirect Channel Performance, Indirect Channel Performance Benchmarking, Industrial Manufacturers , , ,

Why your brand matters to your channel partners

Henry Ford once said “A man who stops advertising to save money, is like a man who stops the clock to save time.”  What Mr. Ford knew is that it’s rarely enough to have a great offering; long-term success requires that companies continually remind current and prospective customers who they are, what they sell and why they’re important.

Unfortunately, cutting advertising and branding expenditures is an all-too-common response to meeting short-term financial objectives.  Your channel partners are typically more attuned to their suppliers’ brands than anyone else is.  It matters so much to them because:

  • Channel partners know the brands they carry reflect on them… positively or negatively.
  • Being the distributor of strong, well-known brands can open doors to prospective customers that otherwise may not be open.
  • Strong brands can reduce the effort/investment required in the selling process as prospects often need less convincing to purchase.

To give channel partners the level of brand support they need, industrial manufacturers need to adhere to four guiding principles:

  1. Provide clear and consistent branding and brand messaging.
  2. Invest in your brand and brand messaging appropriately.
  3. Show an adequate level of participation in events like trade shows.
  4. Ensure channel partners have the ability to co-brand in accordance with brand guidelines.

The best way to know if you are adhering to these principles effectively is to ask your channel partners.  They’re on the front lines and see the implications every day.  Make sure you ask.

Bart Schwartz, President / ICR / 630.503.6093

Channel Partner Feedback, Distributor Feedback, Distributor Management Best Practices, Distributor Performance Improvement, Indirect Channel Best Practices, Indirect Channel Performance, Indirect Channel Performance Benchmarking, Industrial Manufacturers, Uncategorized ,

Preparing for why distributors really go to trade shows

One of the few rewards for suffering through a long Chicago winter is that there are a dozen industrial trade shows right in my backyard. If I choose, I can spend my entire summer collecting totebags embroidered with my favorite manufacturer’s logo. Yes, it’s time for manufacturers to decorate their Lucite displays with their latest and greatest widgets to display to the world.

There are a lot of attendees who will be interested in those new products, but that’s not primarily why distributors come to trade shows. They have plenty of opportunity to hear about the latest widgets throughout the year. They come to talk to their manufacturers’ executives about their relationships and how they can be improved… things like pricing, branding, planning, promotions, training, line authorizations, delivery problems, quality issues, support issues, etc. So I pose this question to all manufacturers currently shining-up their wares: Do you really understand your channel partners’ issues and how they perceive you?

This year when you’re planning your booth, bring your latest and greatest widgets; but also come prepared with a detailed understanding of what’s on your distributors’ minds and how to address their concerns. To do that effectively, you need to solicit distributor input in a structured manner before the conference so you can arrive with answers in hand.

Bart Schwartz, President / ICR / 630.503.6093

Uncategorized ,

Strategic direction: More important to your channel partners than you think

Recently, an industrial manufacturing client of mine was kind enough to let me sit in on its Distributor Advisory Council (DAC) meetings and then go on a few distributor meetings.  They did a very nice job of facilitating the discussions and all of the distributors were very cordial… but while I was quietly observing I was sensing a tone of concern from the distributors:  They weren’t comfortable that they understood the manufacturer’s direction.  I continually heard questions like:

  • “What’s happening to brand X?”
  • “Are you going to develop a product line that does Y?”
  • “When will product line Z be discontinued?”
  • “What are you plans to react to competitor A’s recent announcement?”

The manufacturer’s responses tended to be “good question… let me get back to you.”  That didn’t seem to satisfy many distributors.

At a break, I took one of the more vocal distributors aside to ask him what concerned him the most.  To my surprise, he said that he wasn’t too concerned that the manufacturer wouldn’t make good decisions; they’re a quality supplier.  What concerned him was that he didn’t know the direction, so he couldn’t plan appropriately.  He told me “How can I plan when I don’t know what’s coming from one of my key suppliers?  If I think there’s even a remote possibility that they’re going to discontinue a product line in the near future, I’m not going to invest in utilizing that line for my customers.  I’ll find a comparable line from another one of my suppliers that has made it clear they’re not going to yank it.”

This summed it up pretty well.  Distributors are like financial markets… they don’t like uncertainly.  A manufacturer / distribution relationship is a partnership like any other:  an agreement to go on a journey together.  Distributors are much more likely to sign-up for the journey if they understand the destination.

Bart Schwartz, President / ICR / 630.503.6093

Channel Partner Feedback, Distributor Feedback, Distributor Management Best Practices, Distributor Performance Improvement, Indirect Channel Best Practices, Industrial Manufacturers ,