Optimizing Channel CompensationManaging the Channel for Collaborative Advantage

Dr. F. Barry LawrenceProgram Coordinator, Industrial Distribution Program

Director, Thomas and Joan Read Center for Distribution Research EducationTexas A&M University

Collaboration and Compensation

• E-Commerce at near B2C level• Developing an E-Commerce Enhanced Sales

Process• New Service Models• Supplier Partnerships

GENERATING GROWTH - BEST PRACTICESHow do we generate growth opportunities?

COUNCIL F R RESEARCHON DISTRIBUTOR BEST PRACTICESAn Alliance of the NAW Institute & Texas A&M University

CRDBP

www.naw.org/crdbp http://supplychain.tamu.eduwww.nawpubs.org

MetricsGrowth Strategy Best Practices

LEVERAGEAccount Penetration - Existing customers

GrowthMechanism

GROWTH

PROFITABILITY

CASH FLOW

ASSETEFFICIENCY

PENETRATEMarket penetration - New Customers

BROADENNew Products and Services

ADDSales & Marketing Channels

REACH OUTGeography

EXPANDMarket Segments

BUILDNew Platform (multiple drivers)

INNOVATEValue Proposition Innovation

DIVERSIFYLine of Trade & Value Chain Function

GROWTHDRIVERS

IndustryDynamics

CustomerRelationships

SupplierRelationships

Sales &MarketingStrategy

Sales ForceEffectiveness

Account gap analysisCustomer stratificationSales force effectivenessRetention strategyValue proposition update

Market gap analysisSupplier collaborationCompetitive value propositionSales force performance managementSelling process

Growth mapping core customer andstrategic supplierIndustry trends analysisCompetitive analysis

Customer feedbackPain point analysisGrowth mapping core customer and strategic supplierProduct & service portfolio management

Market mappingTechnology developmentsCustomer need/convenience

Market mappingIndustry trends analysisCompetitive analysis

Growth mapping core customer andstrategic supplierMapping key competitorsSupply chain network optimization

Market segmentationSupplier growth inputsCompetitive analysisIndustry trends analysis

Customer feedbackSupplier inputsValue chain analysisCross-industry best practices

Core customer retention rateCore customer conversion rateShare of walletBalance revenue reliance (risk)

New customer acquisition rateRevenue from new (core) customersNew customer retention rate

Growth pipeline run rateGrowth from new platformsChange in competitive advantage

Growth from new products and services Value proposition leverageBalance over-dependency

Growth from new channelsChange in competitive advantage

Change in competitive advantageRisk managementGrowth from diversification

Growth from new territories Value proposition leverage(national accounts)

Growth from new market segmentsDegree of variety in end markets(risk factors)

Number of innovative effortsGrowth from innovate opportunitiesChange in competitive advantage

OrganicDevelopment

Acquisition

Merger

Strategic Alliance

Growth Drivers

© 2011 Global Supply Chain Laboratory

MANAGING GROWTH - BEST PRACTICESHow do we manage profitability while growing?

COUNCIL F R RESEARCHON DISTRIBUTOR BEST PRACTICESAn Alliance of the NAW Institute & Texas A&M University

CRDBP

www.naw.org/crdbp http://supplychain.tamu.edu

© 2011 Global Supply Chain Laboratory

www.nawpubs.org

Profitability Drivers ProcessGroups Growth ForcesGrowth Challenges Best Practices

Supplier proliferationProduct mix Supplier's channel strategyChannel power balanceChannel visibility

Competency GapTalent attractivenessTechnology and applications infrastructureLeadership gapLack of coordination, control & synergiesOrganizational mobility

Margin pressure from growing customersLack of pricing strategy (value proposition)Competency gapLack of support toolsSub-optimal market mix

SKU proliferationProduct portfolio / mixCost Vs service trade-offFill rate challengesSupplier performance

Sales force capacity vs customer coverageLack of sales-support productivity toolsMisaligned sales force incentives

Warehouse capacityOperating cost challengesCustomer service (accuracy & efficiency)

Ownership typeAccess to growth fundingInvestor attractiveness

Transportation capacityTransportation cost (routing & cubing / loading)Customer service (on-time delivery)

Credit requests from growing customers“New Normal” challenges

Credit, return and rebate policies forproduct expansion growth strategies

Supplier stratification & relationship strategyOptimizing channel compensationChannel growth strategy alignmentLeverage supplier performance

Customer stratificationPricing optimizationIn-built mechanism for early warningsActive adaptation of value propositionMarket segmentation

Inventory stratificationFocused forecastingDynamic replenishmentInventory network optimizationCompetency development

Sales force size & structureSales force productivity (support tools)Sales force compensationAligning customer, company and sales force

Operations (inbound & outbound) productivity - LeanEconomy of scaleBest practices sharingInternal benchmarking

Human capital developmentInformation capital readinessStrategic awareness and alignmentCustomer-centricGrowth mindset Creative leadershipStrategy & structure match

Financial fitness through free cash flow andoperating productivityInvestor confidence

Routing and loading optimizationEconomy of scaleSupply chain network optimization (Transportation vs Inventory)

Customers Human andIT Capital

Suppliers Shareholders

GROWTHFORCES

Customized terms based on customer stratificationIn-built mechanism for early warningsActive adaptation of value proposition

Optimizing channel compensation throughstrategic supplier relationshipLeverage supplier performance

GM%

CTS

DSO

DOI

DPO

OPPORTUNITY

CAPABILITY

> HUMAN CAPITAL> INFORMATION CAPITAL> ORGANIZATION CAPITAL

> FINANCIAL CAPITAL

OPERATINGMARGIN

CASHCONVERSION

CYCLE

SUPPORTSERVICES

STORE

SELL

SELL

SOURCE

STOCK

SUPPLYCHAIN

PLANNING

SOURCE

SHIP

BUSINESSMODEL

GROWTH

PROFITABILITY

CASH FLOW

ASSETEFFICIENCY

ECONOMICDRIVERS

RESOURCEDRIVERS

>> Shareholders>> Leadership

>> Human Capital>> Information Capital>> Organization Capital

>> Supplier>> Purchasing Workforce

>> Supplier>> Customer>> Cross-functional Workforce

>> Supplier>> Sourcing Workforce

>> Customer>> Sales Force

>> Customer>> Operations Workforce

>> Customer>> Sales Force

Sales ProcessLead

Generation

Potential Data Sources

Phone & Internet

Business Development Analyst

Lead Generation Tool

# Qualified leads

Prospecting

Customer contact – understand pain

points

Face-to-face

Sales force

Sales pipeline tool (~CRM)

Success Rate

Estimate potential

Face-to-face

Sales force

Sales pipeline tool (~CRM)

Success Rate

Selling

Design solution

Face-to-face

Sales force & Specialist

Value Proposition Builder

Conversion Rate

Present/Demo to customer

Face-to-face

Sales force & Specialist

Value Proposition Documentation

Success Rate

Negotiate & Close the sale

Face-to-face

Sales force

Sales management support tools

Success Rate

Post-sales

Order Management

Phone & Internet

CSR

Order Management System (~ERP)

Success Rate

Sustain relationship &

Retain

Face-to-face, Phone & Internet

Sales force, Business Development & CSR

Opportunity Management

Analytics Tool

Retention Rate

Sales Process

Activity

Channel

Role

Tools

Metrics

Drivers

$hareholder Value & Customer Service

Sales Force Stratification Framework

• High Profitability• Effective Relationships• Resists New Business• Developed Skill Set

Farmers

• High Profitability• Effective Relationships• Business Development• Developed Skill Set

Entrepreneurs

• Low Profitability• Weak Relationships• Resists New Business• Undeveloped Skills

Defenders

• Low Profitability• Weak Relationships• Busness Development• Innate Skills

Hunters

Productivity

Effic

ienc

y

Opportunity

Skill

Dev

elop

men

t

Inside Sales

• Combining business analytics with traditional sales work.– Relationships will be leveraged.– Advancing value added services to strengthen relationships.– Monetizing e-commerce and value add.– Collecting information (data) from multiple sources (including

the customer) and enhancing/validating with our system.– Using tools like customer stratification to direct the outside

sales force.

Customer Stratification Model

§ High Profitability§ No Relationship§ Low Cost to Serve§ Low Volume

Opportunistic Customers

§ High Profitability§ Sustained Relationship§ Low Cost to Serve§ High Volume

Core Customers

§ Low Profitability§ No Relationship§ High Cost to Serve§ Low Volume

Marginal Customers

§ Low Profitability§ Sustained Relationship§ High Cost to Serve§ High Volume

Service Drain Customers

Customer Life (Loyalty)

Gro

ss M

argi

n

Sales Volume

Cost To Serve (C

TS)

Outside Sales

• Driven by analytics to optimize relationship building.• Developing and managing value added services.• Adding to organization’s intelligence.

Challenges

• ERP is not fully operational.• CRM is in nascent stage.• E-Commerce is dependent on both.• Analytics is dependent on all three.• Most firms don’t have the resources to fix the problems.

Solutions

• Technology is advancing so fast the processes are commoditized fast(affordable and easier to implement). IT monopolies are breakingdown.

• Understanding of the problems and how to solve them is also movingfast.

• Value added services are better understood, managed, andimplemented.

• Firms can be selective on the combination of ways they go to market.• Decisions can be based on financial, capability, and market

constraints/opportunities.

Resources

Available from NAW - National Association of Wholesaler-Distributorswww.naw.org

http://id.tamu.edu/professional-development/thomas-joan-read-center/programs-calendar/

Discount Code for AHTD Members

‘COMP20’

For Registration Questions:

Ms. PeggyJo Johnsonpeggyjo@tamu.edu

979-845-3148

Questions? Comments….

Thank you!!

http://id.tamu.edu/professional-development/thomas-joan-read-center/programs-calendar/

Discount Code for AHTD Members

‘COMP20’

For Registration Questions:

Ms. PeggyJo Johnsonpeggyjo@tamu.edu

979-845-3148