My distribution experience is a bit unique in that I have worked on both sides of the channel divide: both as a manufacturer with a multi-brand, multi-channel strategy and and as a distributor in the Interconnect, Passive and Electromechanical components (I,P and E) sector.
The a distribution channel has great value to a business who needs to reach specific markets in a way that compliments the production capability of their operation but with 18 years of experience working on both sides of the channel, I believe that a distribution channel, in the industry where I have played, only has merit if the distributor provides value. Now, value can be measured in many ways:
- inventory management
- cash management
- customer service
- value-added services
- selling organization
- cross-selling
- a unique expertise
Without any of these desired values, a distributor simply becomes a broker, providing little value to all. It is the responsibility of the channel manager to establish a fully-functional distribution channel that creates a win/win, for both the manufacturer and the distributor. The distribution channel must provide a clear value proposition to both the end-customer and the producer.
VERO Electronics, Hamden, CT (1993 to 1998) : my task was to establish a new channel for our products and to following the model, establish with our European parent company, I met with several large national distributors and established relationships with Newark Electronics, Allied Electronics and Digi-Key. These companies each published a very large catalog which provided a great marketing opportunity for their partners. There was a fundamental problem in going to market via distribution in the USA which the corporate office in England would not listen to and that was that the European market was very different from the North American market. In Europe, the market happily bought standard kit products off-the shelf but in North America the market expected all products to be customized for each application when meant that very little 'standard' products were purchased. Nevertheless, we were instructed to proceed and the program had limited success. However, it was a great learning experience and later, when managing the channel for Pentair, I effected a regional distribution program which had a much greater level of customer intimacy and was very effective.
Calgreg Electronics, Warwick, RI (2000 to 2001): now I was on the other side of the fence...managing a distributor! Calgreg was a regional I,P and E distributor with no external sales organization to speak on and had a very limited product offering. Calgeg, however, enjoyed a wonderful, and hard earned, reputation for customer service and great brand loyalty amongst it's existing clients. I was employed as the VP sales/marketing but shortly after I was hired I took on the role of General manager as well, permitting the owner to pretty much retire until the market downturn after 9/11 in which he came out of retirement to the detriment of my position. C' est la vie!. Calgreg had a very strong dependency with one customer and it was very important that we diversified our portfolio and to that end we established a sales external sales organization and increased the numbers of product lines distributed. Operationally, my goal was increasing our stock turns to 12 - turn our cash one a month- and this goal was met prior to my departure.
The owner did teach me that the goal of a distributor was 2% margin. " buy for $1, sell for $2.....2% margin" Simple, huh?
Pentair Electronic Packaging, Warwick, RI (2001 to 2008): managing the channels was just one aspect of my position within Pentair through this period. The company had moved into distribution because they simply had too many small customers and the operation was choking with the overall customer service levels quite poor. Unlike VERO, Pentair made a very strong commitment to the channel and we constructed a regional-based channel strategy and avoided the national distributors as our focus was on customer intimacy. With 8 regional distributors, we attempted to have as little cross-over as possible to ensure that there was a clear relationship between the customer, the distributor, the manufacturers rep, the regional sales teams and the operation. the following were the key actions taken t restructure and strengthen our channel:
- New contracts were created ( and later amended to include International Traffic in Arms Regulations ITAR controls),
- restricted shipping products to two days per week to force the distributors to better manage their inventory and this tactic permitted an even flow of material through our shipping department
- Prohibited stock returns during the last month of each quarter to ensure that we did not receive any credits which would be detrimental to the quarterly results
- Established a cooperative marketing program
- Created training materials based on value-added selling or both outside and inside sales teams
- Visited Electronic Distribution Show( EDS) with the company president each year which was just great PR for the channel management program
- Standardized prices lists and product discounts
- Prohibited drop-ships as a matter of policy to force the distributors to better manage their inventory
- used POS reports to prevent distributors competing with each other which eroded our price position
Pentair managed three brands through distribution: Birtcher ( acquired 2005), Calmark (acquired 2006)and Schroff
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