Adventures in Distribution Part II
November 19, 2014
Experts in the distribution arena say the most important strategy for success is to focus on the customer and think about what creates a win for the customer. There is no better way to avoid a competitive threat or to fight off a challenge than to have customers feel a distributor is critical to their success and is doing a great job. “In the end, it’s all about relationships. Offering the best service to customers and bringing good value to the marketplace,” said Joseph Clayton, president of Sea-Land Chemical Co., Westlake, Ohio. His goal is to be the first company a customer calls when they have a need, are looking for a new chemistry, or are confronting a problem in the lab. “Our primary focus is providing the right product at the right time for the right application, and having the product in stock when it’s needed,” added Clayton.
The importance of relationships was affirmed by Selçuk Akat, general manager, Adco Petrol in Istanbul, Turkey. “We have customers we have worked with for three generations,” he related.“Our customers know that they do not buy only a drum of chemical from us but also our expertise and support.”
The typical business model for specialty distributors,Lubes’n’Greases heard, is to purchase the goods in bulk, stock pile them at multiple locations, and package and ship them to suit each customer. To deliver technical service, they hire account managers who are familiar with the lubricants industry and with customers’ needs. Naturally, pricing is part of the distributor’s toolkit, but specialists say they can demonstrate a history of service unachievable by competitors that rely primarily on low pricing.
“We define ourselves within the industry as the distributor that is staffed with a ‘lubricant experienced’ sales force that is 100 percent dedicated to the lubricant industry,” said Doug Hiple, industry manager for lubricants and metalworking for Monson Companies in Leominster, Mass. “The advantage that is immediately clear to our customers is that our sales force is entirely comprised of people that have grown up in the lubricant industry. We know the industry intimately and provide formulation assistance to our customer base.”
“It’s critical for a specialty additives distributor to have technically oriented salespeople,” agreed Dave Leiser, vice president of metalworking at North Olmsted, Ohio-based Palmer Holland. “We also have multiple stocking warehouses and offer multiple products from a wide range of suppliers,” he added. “That’s a real advantage for our customers, who are often looking to reduce the number of suppliers they have to deal with.”
Clayton noted, “Some of our salespeople are former chemists, so they know how the products are used. Also, since we call on the technical people, we know what they’re looking for.” Distributors pass this information up to their suppliers, to the benefit of all three parties. “Over the years, our suppliers have developed some very nice chemistry because of the feedback we provide,” he added.
U.S.-based Monson, Palmer Holland and Sea-Land detailed their product lines in Feb – ruary’s issue (see pages 22- 27). Based in Turkey and operating in the CIS, Middle East and North Africa, Adco represents Infineum, Evonik, Nyco, United Color Manufacturing, Rhein Chemie and Zenteum.
“We work side by side with our customers,” providing technical advice and support on issues such as OEM approvals, said Akat. “We update them on international market trends, new regulations, technologies. We attend most international conferences and follow industry publications.”
How Am I Doing?
To gauge its performance with customers, Monson uses a satisfaction rating system that Hiple said “provides us with a record of our performance year-to-date and monthly compared to last year.” At year-end 2011, its customer satisfaction rating stood at 98.3 percent, and it ultimately wants to reach 100 percent.
“The details that enable us to increase customer satisfaction come from proceduressuch as an operations meeting every morning to review any potential problems in advance that may affect a customer’s order, and a corrective action process that prevents the reoccurrence of a problem in the future.”
Distributors are not the only ones watching performance. One major additive company confided it has the following expectations for its distribution partner:
• Maintain proper inventory to ensure a secure supply for the buyers.
• Assess customers’ demands, provide accurate forecasting back to the supplier, and order accordingly.
• Make routine sales calls and assume account responsibility.
• Provide market feedback and implement price adjustments as directed by the supplier or the market.
Price increases are highly sensitive, of course, so these “are handled jointly by [us] and the distributor, with the supplier providing data and justification for the price adjustments,” a representative of this additive company told Lubes’n’Greases.
For other news — such as a break in the supply chain or a technical modification — the distributor’s supportive role is also well defined. “For any news regarding our technology or performance, the supplier delivers the information. For any news regarding logistics, supply, inventory levels or delays, the distributor would deliver the news along with any action plan,” this source said.
Since distributors must wear many different hats, “a typical sales call can last several hours,” said Leiser, “because we call on several departments at a customer, including engineering, purchasing and the testing lab.” One critical service: “If a supplier discontinues a product, leaving a customer in the lurch, the distributor can help them find a similar product to meet their specs.”
A good distributor is also upfront about its ability to deliver the products being requested. And in fact, most distributors simply don’t have the capacity to sell every product a customer needs. By the same token, a good distributor will help customers
find the product they need. “Part of our job is to be a networker or facilitator, to help our customers find where to go,” said Clayton. “It’s not always about selling product; it’s about maintaining the relationship.”
Akat agreed, “I prefer to take a win-win attitude toward problems and challenging sit- uations. I encourage my team to be positive, and we never promise unrealistic things to sell our products.”
Anticipating a Need
A successful distributor must anticipate challenges and take steps to meet them, sources said. Simply put, it’s always smart to anticipate the future and have a plan ready to implement.
For example, one easily anticipated problem is that of short lead times for deliveries, because customers don’t always think ahead. That’s where a stocking distributor can be invaluable. “Because we have multiple warehouses and provide quantity discounts,” said Clayton, “we allow customers to have very short lead times.”
Monson’s Hiple concurred. “You must continually juggle inventory levels to be sure you’re purchasing efficiently. You must have inventory when the customer needs it, but you don’t want to be overstocked.” And having seven stocking locations enables Palmer Holland to “bundle products from different suppliers together for our customers, saving them the expense and hassle of handling multiple orders and invoices,” said Leiser.
A related service is packaging flexibility. While the distributor may buy in bulk or in volumes that qualify for discounts, such as a tanktruck or railcar load, customers typically don’t need those sizes. “We buy in large volume, then repackage into smaller sizes,” said Hiple. “So our customers can get the quantities they need while benefitting from our volume pricing.”
Suppliers, it turns out, also benefit from a distributor’s warehousing capability.
“There have been times when products were in short supply, and suppliers called to see if we could help them out because they knew we had inventory,” said Clayton.
In addition, he said, a shrewd distributor can work with customers to stretch its inventory of products in tight supply. For example, if a customer orders five drums of a tight product, the distributor may ask how many they really need. If only three are needed right away, the distributor will sell those three at the five-drum price, and send the other two later. Meanwhile, that leaves the distributor with two drums available for another customer. “You can’t do that if you don’t have the relationship with the customer, or the inventory, or the people,” said Clayton.
Avoiding the Price Trap
While price is important when dealing with a customer, there are many instances where price is not the most significant factor in a purchase. In the lubricants market, technology and service often are more important in deciding which product to buy. So responding to a low-ball competitor by cutting price only ends up degrading the distributor’s product and service.
“To avoid the ‘price is king’ trap, customers must see the value both in having product readily available and in the technical service we offer,” said Hiple. “We staff a 24-hour technical service line to answer customer questions, plus we can run analytical testing and manage inventory.And with an industry-focused sales group, we offer formulation assistance. Still, we must continually prove our value to our customers.”
Sea-Land’s Clayton agreed. “Our philosophy is to be competitive on price, but we try to bring value to the relationship — information, product availability, and inventory. The majority of our customers understand that level of service adds cost. But because we bring a high level of service to table, there’s an expectation that we should get a certain value for it in return.”
“We emphasize our technical knowledge, customer service, portfolio and value we bring to the relationship,” said Hiple. “We have a lot of feet on the ground so we can often be more flexible and responsive than a manufacturer. This, combined with a sales force has that has grown up in the lubricant industry has been a very successful business model for us.”
“It is a very tricky business,” said Akat, “and again, we customize our approach according to the customer’s profile and needs. We try to emphasize the big picture, where price is just one component. For instance, the competition’s product could be cheaper but it may require a costly blending operation or result in a higher formulation cost.”
It is interesting that some customers think they can get a better price by going directly to a supplier. But distributors say they typically buy in such volume that smaller customers are better off working with them than going direct. Clayton related that one of its suppliers told a customer: “Sea-Land buys 20 times what you buy, so you have a better shot at getting a product at better price than if you buy direct.”
Distributors can save customers money and freight because product is stocked closer by. They can offer discounts for quantities that a direct supplier would not. And if the distributor stocks products from several suppliers, a customer can buy a number of components by making just one phone call, cutting one purchase order, incurring one freight charge, and paying one invoice.
“When you analyze it, there’s often no true savings to be had by going direct,” asserted Clayton.
Distributors are in a constant struggle to grow their business and find new customers. As Hiple said, “We keep our customers and grow with the addition of new customers by continually bringing value in the form of new products, technical expertise and, of course, service.”
Clayton emphasized that “when you’re selling components, you have to know what they do, how they can be formulated.” He recalled the case of a supplier marketing a chemistry that wasn’t working well — because it was aimed at the wrong application. The supplier’s former distributor couldn’t sell the product’s attributes because its staff didn’t understand the chemistry.
“We knew where the product could be used, were able to get customers to understand its true benefit, and convince them to try it in a formulation. And we sold well over one million pounds of product in a year.”