All about distribution. Kenneth Rolnicki: Distribution channel management. Handbook of Sales and Marketing Director Distributors and Wholesalers

Dent D.

The book "All About Distribution" is the result of 30 years personal experience author in the field of organization of sales systems. It is a summary of his extensive practical experience. Often the scale of operations, complexity or inconsistencies in the use of distribution channels make it difficult for companies to see the problems. Many of these situations are described in the book. For creating effective system distribution is required to conduct a detailed analysis of its business model and explore the dynamics of the development of real business situations that arise in the supply chain, up to the final consumers of goods and services. It is this experience, which is of particular value, that underlies the ideas presented in this book. All materials of the book at different times were used for training and advanced training. For many students, English was a second and sometimes a third language, so the training also became good practice for them in mastering business and financial terms that people working in sales and marketing understand.

Send-to-Kindle or Email

    The file will be sent to your email address. It may take up to 1-5 minutes before you receive it.

    The file will be sent to your Kindle account. It may take up to 1-5 minutes before you receive it.
    Please note you need to add our NEW email [email protected] to approved email addresses. Read more.


The complexity of relationships in modern economy, the presence in any market of a huge number of companies requires the head effective management distribution channels. Dealers, distributors, resellers, sales representatives and agents, wholesalers, brokers and many other operators, this book will help you learn and make the most of all possible ways and the means to penetrate the right market, attract and partner with the best of the best, optimize the distribution network based on the strategic goals and objectives of the company, and effectively manage emerging...

Read completely

This book is one of the best practical aids planning, creation and development of the company's sales network. It will be a valuable tool for any manager working in sales and will help the manager find an effective solution in a variety of situations, from building a new distribution channel from scratch to developing a distribution network to launch a new product or enter new markets.
The complexity of connections in the modern economy, the presence of a huge number of companies in any market requires the head of effective management of distribution channels. Dealers, distributors, resellers, sales representatives and agents, wholesalers, brokers and many other operators, this book will help you learn and make the most of all possible ways and means to penetrate the desired market, attract the best of the best and establish partnerships with them, optimize the distribution network based on the strategic goals and objectives of the company and effectively manage emerging conflicts between different distribution channels.

Hide

The book All About Distribution is the result of 30 years of personal experience of the author in the field of organizing sales systems. It is a summary of his extensive practical experience. Often the scale of operations, complexity or inconsistencies in the use of distribution channels make it difficult for companies to see the problems. Many of these situations are described in the book. To create an effective distribution system, it is necessary to conduct a detailed analysis of its business model and study the dynamics of the development of real business situations that arise in the supply channels, up to the end consumers of goods and services. It is this experience, which is of particular value, that underlies the ideas presented in this book. All materials of the book at different times were used for training and advanced training. For many students, English was a second and sometimes a third language, so the training also became good practice for them in mastering business and financial terms that people working in sales and marketing understand.

Preface to the Russian edition

Russian market distribution began to take shape a little over 20 liters back, when we still knew nothing about the existence of the Internet, when there was no mobile communications And Email, and the concept of "business literature" referred to textbooks and reference books. There were no business schools in the country either. Information about how to start a business, how to build companies the right way, how to manage staff or work with suppliers, was completely absent. That is why the first generation of Russian entrepreneurs and businessmen created their business practically “by touch”, by trial and error. At that time, for many, the only source of knowledge was business. foreign companies in Russia. Watching the activity of foreign suppliers who began to explore the promising Russian market, we absorbed business knowledge like sponges. Now, when so many years have passed, and our business has long been strengthened and has stood the test of more than one crisis, we understand that many victories and successes were often achieved thanks to intuition, sheer enthusiasm and a sincere desire to be better than competitors. If we had at the beginning of the journey the amount of information and knowledge about the business that is available now, perhaps we could have avoided many mistakes and failures, and our business would have been even more ambitious.

Of course experience successful companies says that in order to create a profitable, growing and dynamically developing business, there is not enough book and academic knowledge - you need a strategic vision, business intuition, leadership qualities and much more, which is given to someone by nature, and someone brings up in themselves for years. But basic knowledge of the “subject”, understanding of the laws of functioning of a particular business are a necessary basis for the successful implementation of any business project.

^ All About Distribution provides the current generation of distribution managers with invaluable knowledge of how to operate. sales channel and the relationship of its participants. skillfully
this knowledge will help companies involved in the distribution & use of
ku, qualitatively change the business, win or keep T ° RSKu Ch ep och-
tion, build mutually beneficial relationships with their PP ChDarao, e "oz-
buyers. placing shchikami or

There are no analogues of this book in Russian, and in English
literature, it is difficult to find another equally deep research * e*°*оЪ

Participation of the Treoian company in the publication of this book in Russia on the ^Y topic,

development of a civilized IT distribution market, help for SP!!! VKLAD in times " partners in the development of their business and mutually beneficial cooperation * P *^ Our
Foreword
^ U "R ° ™ ty director of the distribution ^

This book is the result of 30 years of personal experience in distribution in a variety of roles, from an accountant at Arthur Andersen to 18 years as a management consultant for VIA International, a firm specializing in channel strategy and product and service delivery. During this time, I had the opportunity to work with the best practitioners. But not only - it is often difficult situations that serve as a source of the most useful lessons.

Among VIA's clients there are companies that have achieved huge success in the market and have famous brands (yes, they also sometimes need help). Working with them, we had the opportunity to access a vast practical experience. Often the scale of operations, complexity or inconsistencies in the use of distribution channels make it difficult for these companies to see the problems. They are usually relieved to know that we can bring some clarity and objectivity to the situation and recommend effective strategies based on commercial logic. Many of these situations are described in the book, but in most cases we keep the participants anonymous. However, you will also find examples of real companies and situations. They are based on facts that have long been public knowledge or are well known among people in our profession.

Our work often requires a detailed analysis of the internal model of our clients' organization and the study of the dynamics of the development of real business situations that arise in the supply chain, all the way to the final consumers of goods and services. It is this experience that is of particular value and is the basis of the ideas presented in this book.
Finally, we have had the opportunity to work with many smaller companies and businesses, usually right after a venture capital investment, when all stakeholders expect sales to skyrocket. This growth, as a rule, is determined by entering new market segments, mastering the sale of new products, which means the need to build new distribution channels. In the process, we have learned many hard lessons about what exactly attracts growth players to the right supply chains, and these lessons are also presented in the book.

All the contents of the book have been used at various times to educate people working in the field of distribution. They sought to understand it deeper, looking for new ideas and models that could be applied in their work. For many of these people, English was a second and sometimes a third language, so it also became good practice for them to use business and financial terms that people in sales and marketing understand (and sometimes vice versa).
Additional information about^ VIA search on the website www. viaint. com

Thanks

The fact that the book was written at all is due to a distribution manager in Germany who asked me after one of the seminars to compile a list of recommended literature on the topic. And I found that I didn't know of any such book. He dropped a seed into the soil, which after a few years sprouted and bore fruit.

I am indebted to my professional colleagues and partners in VIA , especially Rosemary Wyatt, Michael White, Guy Swarbrick and Sharon Davis, for their support and for giving me enough free time to write the book. I borrowed them professional experience, as well as the knowledge that they generously shared with me. Their reviews and feedback contributed significantly to the end result, as did Rob Absshire of Publicis , with whom we have worked together on many of our projects in the field retail sales. The late Professor Erin Andersen of INSEAD representing the scientific community was a great source of inspiration, as was Professor Ann T. Coughlan of Kellogg School of Management . Of course, the creation of the book is impossible to imagine without the constant support of our clients who continue to share their dreams of their difficult tasks and problems. There are no words to thank them for their trust and sincerity. Special thanks to Phil Darnell of Hewlett-Packard , whose ideas have inspired several interesting projects which we have had the honor of working on.

In preparing for publication, Sean Daly provided invaluable assistance, having laid out the book, redrawing almost all the illustrations and tables. All the remaining mistakes are my fault.

Finally, I want to thank my family for their support, which gave me the opportunity to work for a long time and distracted me only with tea and coffee breaks, occasionally wondering who would be the killer in the last chapter - the watchman or the forester. Now they can make sure that this book is a slightly different genre!

Part 1
Introduction or why business models matter?
Chapter 1

Introduction

Who is this book for?

This book is for anyone whose job is in marketing, sales, distribution, or service delivery. It is for anyone whose job it is to create demand and meet customer needs for goods and services. If any of the terms below apply to your work, then this book is for you:


  • ways and means of entering the market ( routes to market);

  • strategy for delivering products and services to the market ( go-to-market);

  • distribution channels(distribution channels);

  • channels for goods to enter the market channels to market);

  • sales channels (sales channels);

  • managing relationships with customers or partners;

  • sales to legal entities(business to business);

  • sales to retail consumers ( business to consumer ).
^ This book is for managers of companies that market, supply, sell and service products or provide services. otherssuppliers; it will be useful to anyone who is at the forefront of this relationship.

If there is even a small element of commerce in your work, then when I wrote this book, I had you in mind. It is written for people who do not consider themselves financial experts, but who understand that they must have a good understanding of the economics of their business and the businesses they work with. It is a source of practical knowledge about the difficulties with which
faced by all parties involved in the promotion and supply of goods and services. Applying this knowledge can open up new business opportunities for you.

On the other hand, if you understand finance but know relatively little about distribution, then this book will allow you, without years of practice, to understand the specific problems, factors, relationships and sources of success that apply to all participants in the value chain: intermediary companies , manufacturers or customers.

The book is intended for anyone who manages the relationship between two or more participants in the supply chain, whether it be an account manager, an affiliate manager, a distribution channel manager, a sales manager, or a customer loyalty program manager. And, of course, it is intended for executives and immediate supervisors of employees working in these business-critical roles. Everyone involved in these areas should be aware of the commercial implications of interactions between different market players and how they can be used to gain and maintain positions. To build relationships that are beneficial to both parties (whether they work for the “seller” or “buyer”), they need to understand how their own enterprise works.

In order for any product to reach its target audience and its market share was growing, the supplier must create a distribution system that will become a business model for him, and for all intermediaries in the supply chain. This book is for anyone who is trying to improve their company's business performance or whose job it is to manage the behavior and activities of other players with whom their company interacts for mutual benefit.

There are many books and courses on finance. Some of them are for financiers, many are for "non-financial" managers. Most of these books deal with manufacturing companies; some even have a chapter or two on service providers. There are also books on channels and supply chains, often written from a sales or marketing perspective, such as how to minimize controversy or increase your influence in the distribution channel. However, there has not yet been a book published that would describe the business models of companies specializing in the distribution of goods and services, and written for people whose position does not require special accounting knowledge ... So here it is!

It was not my intention in writing this book to teach you how to understand balance sheets, profit and loss accounts, or depreciation...although we hope that after reading it, you will still be able to do so. It will help you understand:


  • why working capital management is critical for distributors;

  • how to respond to the demands of distributors or retailers to increase the profitability of their sales if you occupy a leading market share;

  • how to obtain from the supplier the resources you need to achieve your growth targets;

  • how to increase your share in the business of your partners, even if they claim that doing business with you is not as profitable as doing business with your competitors;

  • how to acquire significant weight in the distribution system, even if you have a small market share;

  • how to rationally use limited resources, directing them to the development of distribution channels so that they bring maximum income;

  • how to increase your influence with partners who may not even sell your products, but whose recommendations are critical to shaping consumer preferences.
What is a business model?

Since this book is said to be all about business models, it's best to explain right away what we mean by the term "business model." A business model is how an enterprise makes a profit from its activities. This is a financial reflection of the role, market position, strategy and results of the business plan of a particular player in a particular industry. It's logical financial results economy of the industry and its marketing infrastructure. The business model is static - in the form of a certain price structure, profitability, capital turnover cycle, etc., and at the same time changeable - in the dynamics of costs, market shares, profitability and competition. So the business model of, for example, a supplier of plumbing products will be predictably similar in some ways, and predictably different in some ways, from the business models of distributors of computer products, music publications, or cream cakes. The same can be said about the different players in the "ecosystem" of one channel: their share, balance of power and strategy determine where and how they will profit, what they should invest in, and what the scale of these factors should be in relation to the size of their business.

In this book, we will show you the relationship between these factors and their impact on business model design. We will help you understand the inherent limitations and interdependencies of distribution that managers constantly face when working with the types of business models described. We'll show you ways to improve the performance of each of the players you manage or negotiate with. These limitations are at the same time opportunities. For example, retailers do not hold significant inventory due to limited or high cost of retail space (attractive outlets usually have a terrifying rental price). An enterprising supplier with efficient logistics can offer just-in-time delivery or take over the retailer's assortment management, thus gaining an advantage over other players without such capabilities and increasing its share in the corresponding product category. The retailer understands that he cannot afford empty shelves, so he will be willing to accept a more modest profit in exchange for the guarantee that his inventory will meet demand and be replenished in a timely manner. The ability to balance these two aspects, expressing them in numbers, at first glance, does not have a direct bearing on sales and marketing, but it has a much more long-term impact on partnerships than a short-term marketing action to increase the share of certain products in sales.

In this book, we are figuratively teaching you how to fish, not fishing for you. By telling you about the main types of fish, that is, the dominant business models and their inherent characteristics, we want you to become real fishermen. As a result, you will be able to assess the situation in any business model of any distribution system in any market from any point of view (be it partner management, sales or purchases), identify problems, discover existing opportunities and form a business development strategy that will best help you achieve your goals. goals.
How this book is organized

This book describes the business models of all major types of intermediaries in the distribution system. We will focus on the following topics:
The Role of the Players- in most industries, the roles of key players are almost the same, although there are a few special cases and exceptions. However, the terminology used in different industries can vary significantly or have several different readings. To make sure your industry terminology doesn't lead you in the wrong direction, we define key roles so you can recognize which players you're dealing with;

How business models work - we will consider the main features of the role of each player in the distribution system, giving the fundamental outlines of their inherent business model; trace the impact of well-known economic factors and the emergence of characteristic problems that determine the appropriate management priorities. We will show you the key features of business models and how they are determined by the roles of individual players, the structure of the industry and the characteristics of the distribution system. We will describe the business model in simple language and offer a system of key indicators that demonstrate its dynamics, give numerous examples and show how various market factors shape the structure of business models and affect their effectiveness;

Key performance indicators of the company and their role in business management - we will define and describe all key indicators, as well as how and why they are used. We will define a set of benchmarks to help you develop a sense of the norm and what can be done to improve it. We will show you how they are interrelated, what problems it causes for the various players in the distribution system, and what compromises it requires. We will look at several case studies demonstrating how successful players have applied their strategies to solve distribution problems;

How to increase sales - understanding the key goals of the managers with whom you do business will allow you to formulate your proposals in terms that are meaningful to them. You will be able to show them how your offering can positively impact their business models: demonstrate that investing resources in your products and services is beneficial to both parties and that working with segments in which you want to grow will bring them more high profits. In the same way, it will help protect your position: when you are asked to give up profits or increase investment in market development, you can indicate how little benefit such a move will bring to their business as a whole. With a comprehensive understanding of the business model, you will gain greater confidence, which will allow you to develop customer relationships at a higher strategic level in the management hierarchy.

By reading the entire book, you will have gained a powerful resource of numerous practical examples and recommendations. However, we also encourage you to refer to this book when you face specific challenges or unfamiliar situations. Getting familiar with some of the technical elements of business models can seem like boring reading until you encounter these questions in real life, and then you will gratefully remember detailed explanations and detailed examples.

Although our goal is to explain the general and specific aspects of business models to you with numerous real-life examples, it should be pointed out that often we will express only one of the points of view. There are lessons yet to be learned, as well as deeply ingrained behaviors that defy commercial logic: market leaders who adopt new entrant tactics in the market; distributors and resellers offering discounts on scarce items; capital that is squandered without any understanding of its true value. We are happy to provide you with the knowledge accumulated over the years of practical management and consulting. They will help you avoid many traps. Take advantage of them, otherwise you may find that competitors have passed you at the next turn and took market share right under your nose!

Chapter 2
Why Business Models Matter

The Importance of Distribution

Typically, about half of the price paid by the buyer for the product is related to the activities involved in getting the product to the buyer (and the buyer to the product). Over the past 15 years, this share has increased significantly as production costs have decreased, while markets have become segmented, and channels for promoting and delivering goods and services have become much more numerous. This is usually the part of the price that is the least controlled and least understood.

Trends in consumer and organizational demographics are driving the emergence of smaller market segments leading to further fragmentation. Moreover, innovations in products and services multiply the available choice many times over. Even the simplest consumer goods can now be delivered to multiple consumer segments through multiple channels specific to different countries and regions. Many of these channels include one or more intermediaries: wholesale suppliers distributors, dealers, brokers, packagers, retailers - or rely on influencers who shape consumer preferences or express preferences on their behalf, such as architects and designers. Very few companies know how to determine the cost of using one or the other channel, whether it be direct, single-level (for example, "supplier - dealer - buyer") or two-level (for example, "supplier - distributor - retailer - buyer") distribution. Yet fewer companies can calculate profit using various intermediaries. We found a wide variation in the cost and profitability of distribution channels and individual intermediaries across all industries and distribution systems. Companies,whichdecided to spend resources on analyzing their system for promoting goods and services, they were able to significantly reduce costs. This allowed them to increase profits or reduce prices and get as a result competitive advantage.

Ways to enter the market determine the range of available consumers. Not having the right approaches to the market, you just won't reach your target audience. The burning desire of the company Coca Cola in the 1990s it was to make buying Coke more and more affordable. Look at the result: almost anywhere in the world you are only a few minutes from the place where you can buy Coca-Cola at any time of the day or night. Many industrial companies are still having difficulty accessing their potential customers and are unable to find channels that will be willing to deliver (note: "want" not "able" to deliver) their products to the target market. Establishing a market entry channel may require significant investment in the development of specialized internal systems and infrastructure capable of responding to market conditions, collect and evaluate sales forecasts, organize marketing programs and advertising campaigns, plan and implement complex logistics. It is very difficult to simultaneously create a new channel to market and at the same time ensure the profitability of the distribution system and the planned growth trajectory. The distribution system can not only help meet the demand for your products and services, but also shape it. Usually, a local agent in a foreign market is assigned just such a task. The compensation system for his efforts is directly related to the achievement of the target level of sales, and the supplier is limited only to operational support. The distribution channel can be used not only to satisfy the demand you create, but also to create demand that you will satisfy. Your allocation of player roles in the distribution system, investments in its development and your prices will determine how effectively you can penetrate the target market and how much profit you can make.

The way you enter the market has a critical impact on your brand. How can you guarantee the level of service or quality that is built into the brand if you do not manage the process of market penetration and do not control your distribution? If your brand is built on the quality of a product or service, then the distribution channel must correspond to this not only at the time of purchase, but also in the field of warranty and service support. How effectively you incentivize partners to complete this task has a direct impact on customer perception of your brand.

And if your brand is built on a low price, then your distribution channel must be up to the task and maintain an efficient level of costs.

Often the distribution channel also sets the stage for product differentiation. It happens that you can demonstrate the difference between your product and competitors' products only using a certain channel. Company Dell in the computer industry - good to that example: it sells products that are 95% indistinguishable from competitors (using standard computer components based on Intel technology and operating system Microsoft). The channel used by the company - direct sales via the Internet - until recently was the main source of its difference from competitors who sold their goods through networks of retail partners and dealers. Similarly, this channel gave them more flexibility in pricing.

Today is your financial director wants to get a higher return on a smaller investment. Never before has the cost of promoting and distributing a product been the subject of such close attention from management. High costs, dependence on business partners, the complexity of market structures and processes make today the ability to manage your distribution business model necessary condition successful business.
Dynamics of distribution systems

History shows that distributionalways hard to buildabsolutely correct. To understand the reason for this, we need to start by identifying the typical categories of players in the distribution system and defining their roles. On the image 2.1 three main structures of distribution systems are shown:

Direct - in this structure, the supplier owns and manages all resources in the supply chain of the goods up to the final buyer (or group of buyers]. Recently, the number of companies using this model has increased due to the opportunities that the Internet provides. Examples - Dell in the computer industry easyjet in the lower price segment of air transportation, Charles Schwab in the stock business and Lands End in the production of clothing. Using the direct selling model, these companies have all grown by lowering costs, or by offering a more convenient way for their customers to buy, or both. In addition, through direct communication, they receive important information about customers and can quickly respond to changes in supply and demand, adjusting their prices and forming Special offers. This model includes sales managers, typically working with very large corporate clients in most business-to-business sectors.

Single-level distribution - this system assumes the presence of one level of intermediaries between the company and its customers. Intermediaries can perform a number of functions: expand the market coverage area (for example, foreign agents), provide special services to complement the offer (for example, installation of greenhouses and conservatories), or position the product in a certain way in a channel already known to consumers, when the supplier needs to take into account existing shopper habits (e.g. retailers). This system provides easy and sometimes immediate access to established customer segments or capitalizes on investments already made by intermediaries, such as foreign agents, in the establishment of a warehouse or sales representative system. The main disadvantages are the need to share profits with the intermediary and some blurring of the sales focus, since the intermediary usually sells several brands, including products of potential and direct competitors (remember the variety of soft drinks or confectionery standing on the shelves of the middle grocery store). In addition, the presence of an intermediary between the seller and the buyer creates a distance between them and can have negative consequences depending on how willing or contractually obliged the former is to share information. Two-Tier Distribution - In many markets, there are literally thousands of potential resellers serving consumer segments. Each of them will probably only make a few sales per month, and the cost of finding them and managing a commercial relationship with them cannot be justified by the profits made from such low sales. Imagine that you are a manufacturer of especially delicious gummies. You need to recruit thousands of little boys and girls (along with their parents and grandparents) to find your toffees at local newsstands, stalls, stations, airports, gas stations, candy stores, large supermarkets. In terms of sales organization and infrastructure costs, it would be prohibitively expensive to operate separately with each of the thousands of similar stores across the country. Fortunately, someone has already done this for you, creating a relatively small number of small wholesale cash-and-carry stores where small-scale owners retail outlets They come once or twice a week to replenish their inventory. In order for them to find your products, all you have to do is supply these small wholesalers with your products (a task we will cover in Chapter 10). Thus, a two-level distribution system is created: you - a small wholesale store - a kiosk - a buyer. Similar models can be found in the computer and mobile industry, where thousands of local dealers serve small and medium-sized companies. The advantage of this model is the use of an already existing distribution system and cost savings, which allows the manufacturer to work with a mass, but small wholesale market. The price to pay for this is an even greater distance from consumers and markets.

Tiered distribution (not shown in Figure 2.1) - similar to the two-tier model, but with additional intermediaries between the supplier and end user. Such a system is appropriate in markets that are characterized by a complex geographical structure or have special economic conditions. For example, a cigarette dealer in Zimbabwe sells one cigarette by purchasing a pack from a local store. In many emerging markets, the company Unilever sells soap in small, single-use packages using a distribution system with many intermediaries. In China, five- or six-level distribution systems are often found, supplying goods to central areas far from the booming commercial centers along the east coast..

Julian Dent. All about distribution. Managing Sales Channels As sometimes happens in the pursuit of "artistic" translation, the title of this book is also not all right. That's how it was in the original - Distribution Channels. And, indeed, the book is not devoted to "everything" about distribution, but to a narrower area - the study of business models of players in the distribution channel. Virtually nothing about product marketing. But quite a lot about financial performance, managing growth and building relationships between different types of players in the channel. On fig. 1 shows typical distribution channels. Another type of players is OEM (not shown in the picture). OEM (Original Equipment Manufacturer) is a term that describes a situation where one supplier (OEM) produces a product that is part of another product. Rice. one. Typical Structures distribution business models - the key to successful product promotion. If you need to build a sales system through intermediary partners, then you need to understand how their business model works. Then you can explain your company's offer to them in terms that are understandable and meaningful to them. Unfortunately, in any industry you can find examples marketing programs generally not taking into account the business models of partners. Out of fear of damaging supplier relationships, a channel may accept a program even if it harms its business. An obvious example is the end-of-quarter bonuses for "loading channel warehouses" that encourage dealers to buy large quantities of goods. Be careful when comparing the financial performance of different companies. Despite advances in accounting, there are many ways to prepare reports. For example, let's take two completely identical companies. Both by the end of the year had surpluses of goods in warehouses. Company A prudently writes off 50% of items that have been in the warehouse for more than 3 months, and company B writes off only 25% of the cost of goods that have been in stock for 6 months. Company A's profits this year will be lower than those of Company B. But next year, the situation may change. Golden rule - use financial indicators to ask questions [about how they were calculated], not to draw conclusions. Distributors and wholesale companies Credit is a key service that allows dealers to deliver and install their products to customers before they receive payment without investing their own financial resources. Dealers seek to increase the liquidity of their finances by purchasing goods from three or more distributors in order to maximize all available credit opportunities. The distributor, on the other hand, seeks to establish reasonable credit limits and spread the risk over thousands of trades1. Distributors can rarely determine exactly how much logistics costs fall on a particular shipment of goods, and their prices for delivery services are usually arbitrary and set so as not to scare off buyers. When the industry enters the maturity phase, the profitability of the core business declines and the distributor begins to charge for the provision of related services. For example, for delivery to a terminal on behalf of a reseller. Sometimes this service may include the issuance of shipping documents issued on behalf of the reseller. In emerging markets, where financial and distribution capital is still small, to finance a rapid expansion into new market consignment sale may be used. Different types of distributors are defined by their business model (Figure 2). Distributors-logistics - distributors operating in markets where goods are "bought" and not "sold", such as spare parts or expendable materials. In fact, these distributors provide logistics services to the supplier. Rice. 2. Types of distributors depending on the business model Many distributors marketing department is a source of additional income that attracts supplier funds by offering innovative marketing tools and activities. By supplying goods to thousands of local resellers, the distributor assumes the credit risk for those sales. His task is to manage the loan portfolio in order to minimize the amount of bad debts and the losses associated with them. Distributors are an important source of market information. Often, the possession of this information is considered by them as an important competitive advantage. Even owners of well-known brands can lose market access, damaging the relationship with the distributor. 1 It seems that the expansion of credit lines will increase the business, but also increase the risks. Here and further approx. Baguzina The roles performed by the distributor for customers and suppliers determine the business model of the distributor and its key features. The distributor's business model is capital-intensive due to the need to maintain inventory and provide commercial credit to resellers. Consider a typical financial report of a distributor (Fig. 3). Rice. 3. An example of a distributor's financial statement The distributor's working capital includes: inventory + accounts receivable - accounts payable Profit is a very small amount between two big ones. At the heart of the success of a distributor's business model is the ability to properly balance the level of profitability of operations with the working capital profile for a particular product offering. The role of product managers is critical in the work of a distributor. Their remuneration should be linked both to the level of profits and to the effectiveness of working capital (or at least inventory) management. Distributors looking to grow their business should invest in volume expansion with care so that their cost growth does not outpace sales growth. Unlike warehouse management, whose productivity can be dramatically increased in just a year, the introduction of new information technologies often pays off only after a few years. Distributors are increasingly looking to shift most of their costs from a fixed category to a variable one, resorting to outsourcing of the main elements of their infrastructure, including transport, warehouses and even call centers. Another dilemma facing distributors is in the area of ​​Internet sales. By increasing the share of online sales (as opposed to taking orders by phone), they lose the ability to offer the customer a more expensive version of the product, cross-sell, or respond quickly to lower prices from competitors, but can significantly reduce ordering costs. Distributors who try to grow without proper planning will soon find their cash situation deteriorating rapidly even as both sales and profits increase. The task is to accelerate the turnover of capital. This means tightening credit terms for customers, reducing inventory, expanding supplier credit lines and extending their return periods. Any of these ways can affect a distributor's key trading relationships and interfere with its growth plans. Profit and profitability Gross profit margin = (Revenue - Cost products sold) / Revenue *100% Or in our example (19,316 - 18,308) / 19,316 *100% = 5.2% The normalized indicators have a significant drawback - they do not take into account the size of transactions. Competent distributors should not build a system of bonuses for product managers only on the basis of the gross profit margin, expressed as a percentage, as illustrated in Fig. 4 Figure 4. Comparison of profit earned from different brands, in percentage terms and in monetary terms. Profit structure by product range. Even within certain categories of goods, there are always positions that are less sensitive to price changes, so the price of them can be increased without compromising the overall sales volume. For example, a distributor sells laptop bags at such a high profit margin that they make money from those sales. more money than selling laptops. A differentiated pricing policy within a category or for different categories is called portfolio pricing. Experiment with prices and find out which products will tolerate a price increase and which won't. Since profit is a small amount between two large ones, sales managers must be very careful when giving out discounts. It is useful to analyze the distribution of sales volume by ranges of profitability of transactions (Fig. 5). Figure 5. Dynamics of the ratio of revenue and gross profit margin in the case of applying the lowest possible selling prices. Examining the far right side (Figure 5)—which products were sold to which customers at high margins—can reveal interesting niche opportunities on which to try to build part of a sales system. If you analyze the structure of sales (the relationship between the size of transactions and the size of discounts), you can often see ways to use discounts to increase profits. On fig. 6 is a graph in which customers are ordered by sales volume (from left to right, the revenue curve gradually decreases). If we follow the normal business logic of giving more discounts for larger deals, then the second curve on the graph (gross profit margin) should rise smoothly, mirroring the sales volume curve. Instead, you can see that many small customers are given significant discounts. Rice. 6. Distribution of the gross profit rate depending on the volume of purchases of certain clients A number of factors contribute to the formation of profits. To account for them, the parameter Specific Profit Rate = (Revenue - Cost of Sold Products - Variable Costs) / Revenue *100% not as accurate as the gross profit margin. Brands with a leading position in the market bring in less gross profit, but the costs of their promotion and sale are lower. This can be taken into account by analyzing the specific profit. It is important for a distributor to analyze the specific profit, both in terms of products and in terms of customers. Get rid of your biggest client if he's making a loss! The distributor uses two metrics to measure performance: the average order size and the average cost per order. Even a small increase in the average order size or a small decrease in the cost of processing it has a big impact on the bottom line profitability (Figure 7). Rice. 7. Cost profile for serving a client or group of clients Operating profit margin = (Revenue - Cost of goods sold - Overhead) / Revenue * 100% In our example (19,316 - 18,308 - 952) / 19,316 * 100% = 0, 29% Net profit margin = (Revenue - Cost of sales - Overhead - Interest) / Revenue *100% In our example (19,316 - 18,308 - 952 - 12) / 19,316 *100% = 0.23% If the distributor is included in the holding, the main indicator will be the rate of net profit before tax. Tax management will be carried out at the holding level. Given that the distributor's overhead costs are relatively small, it is unlikely that they can be reduced to increase profitability. Therefore, increasing sales and increasing profitability is the only strategy that can bring results. Working capital Working capital is a descriptive term for the capital associated with a distributor's sales cycle. Capital to finance the cash-product-money cycle, i.e. the time it takes for money paid to suppliers to return to the distributor as a result of selling the product to customers. The shorter the cycle "money - goods - money", the less working capital the distributor needs to finance its activities. Managing the three components of the working capital cycle is a distributor's first priority. DPO Payable Period = Accounts Payable / Cost of Goods Sold * 365 days In our example 1550 / 18,308 * 365 = 31 days Inventory in days of storage DIO = Amount of inventory / Cost of goods sold * 365 days In our example, 1408 / 18,308 * 365 = 28 days When evaluating the size of inventory, it is necessary to keep in mind the seasonality factor. Typically, the end of the distributor's fiscal year is at the end of the peak season, and this allows you to show a financial balance with little inventory, which is a sign of good management. * 365 = 36 days Duration of one working capital cycle = DSO + DIO - DPO In our example 28 + 36 - 31 = 33 days Turnover = 365 / Duration of one working capital cycle In our example 365 / 33 = 11 times a year distributors may vary. Some work with a narrow assortment to keep inventories low. Others are reducing the number of suppliers in an attempt to increase loan terms, which in some cases can lead to negative working capital, ie DPO > (DSO + DIO). This can lead to the accumulation of cash that can generate profit (deposit in a bank), which is used to reduce prices or make excess profits. Productivity Above were considered the indicators that control the separation of profitability and working capital. Let's look at the indicators, sometimes called productivity, that reflect 2 Is this why some companies start their financial year on March 1 (or April 1) to reduce the overstocking that occurs on January 1, which immediately follows the end of the high season? both profitability and working capital, but at the same time depend on individual products, product groups, suppliers and customers. Inventory Investment Gross Margin GMROII = Gross Margin / Inventory * 100% In our example 1008 / 1408 * 100% = 72% Most distributors have a natural rhythm of doing business and 80% of their products fall within a certain profit and turnover range . But there are low-performing items that product managers feel the need to keep in stock (for completeness, or based on customer needs). In this case, honestly ask customers to pay for this service, ensuring higher profitability. GMROII is used as a measure of the performance of product managers. Inventory Investment Rate of Return CMROII = Unit Profit / Inventory = Unit Profit / Revenue * Revenue / Inventory = Profit * Turnover Using profitability and turnover figures for individual products (categories), product managers can profile their product portfolio with respect to to the averages3 (Fig. 8). Rice. 8. Profile of the portfolio of goods according to the characteristics of profitability and turnover. Most interesting goods are the sleepers. Some of them may contain a service component and are likely to be in steady demand and do not require promotional efforts. There may also be goods that are at the beginning life cycle. Interesting opportunities for the development of sales can provide a combination of running and sleeping goods. Considering that in many industries the average number of items in a distributor's account is less than two, it is easy to understand that the correlation coefficient will be low. Investing in training salespeople to effectively pair dormant products with hot ones can bring a significant increase in profitability. Rate of Return on Working Capital GMROWC = Gross Margin / Vol. capital = Gross profit / Revenue * Revenue / Turnover. Capital Capital = Inventory + Accounts Receivable - Accounts Payable In our example 1008 / (1408 + 1897 - 1550) * 100% = 57% GMROWC Monitoring by certain categories can be used to define tasks and calculate compensation for product managers. As with any specific indicator, GMROWC must be used in conjunction with sales value indicators. 3 With this technique, there will always be "best" and "worst". If you apply benchmarking, it is possible to get an absolute matrix (regardless of the averages). Sustainability In the long term, in addition to the previously mentioned operational indicators, it is important to track fixed assets, capital structure and long-term liabilities. Return on net assets RONA = Operating income / (Working capital + Cash + Fixed assets) In our example 56 / (1755 + 401+ 423) * 100% = 2.2% Return on equity ROCE = Net income before tax / (Total assets - Interest-free liabilities) In our example 44 / 1756 * 100% = 2.5% (no interest-free liabilities) Total assets - Cash surplus - Non-interest bearing current liabilities) In our example (28 + 12) / (423 + 3706 - 401 - 2314) * 100% = 2.8% How to interpret the ROIC value? We need to compare it with the weighted average cost of capital (WASS):  ROIC > WASS  the management team created value added  ROIC< WASS  управляющая команда уничтожила стоимость Создание стоимости VC = Операционная прибыль после выплаты налогов - (Инвестированный капитал * WASS) Если, например, WASS = 6,2%, то VC = 40 - (1414 * 6,2%) = -48 млн. Произошло уничтожение ценности. Есть много свидетельств тому, что VC - это показатель качества работы, наиболее тесно связанный с преумножением средств акционеров. Создание ценности требует от менеджмента тщательной работы и с прибыльностью, и с управлением капиталом. Улучшение лишь одного аспекта работы предприятия недостаточно. Управление созданием ценности на операционном уровне. Искушенные дистрибуторы анализируют показатели создания ценности на уровне отдельных клиентов и поставщиков. На рис. 9 изображен реальный пример анализа клиентов дистрибутора. Рис. 9. Пример анализа ценности, созданной несколькими клиентами. Размер круга - величина созданной ценности. Клиент А создает наибольшую ценность, принося высокую удельную прибыль, несмотря на высокие издержки. Персональному менеджеру на будущий год будет поставлена задача постараться уменьшить издержки.4 Клиент В создает прибыль благодаря низким затратам на обслуживание; нужно попытаться увеличить прибыльность операций с ним. Клиенты E, F и G находятся в прекрасном положении: высокая прибыльность, низкие затраты на обслуживание; нужно наращивать объем бизнеса с ними. Управление ростом Потенциальная способность к росту = Чистая прибыль после налогообложения, % * Цикл оборотного капитала В нашем примере 0,14% * 11 = 1,6% То есть, за счет own funds the company can only grow by 1.6% per year!  With the growth of volumes of operations, there is a need to increase fixed assets from time to time. If profitability is at a low level, then an abrupt increase in fixed costs can lead to periods of unprofitable business (Fig. 10). To improve the performance of the business model, it is necessary to defer new investments as much as possible. This means that the enterprise will work for months (or years) at the limit of its capabilities (Fig. 11). It is important not to go too far here so that the business does not shrink due to underinvestment. Rice. 10. Interaction profile of specific profit and fixed costs as sales increase. Rice. 11. Interaction profile of specific profit and fixed costs when using the strategy of deferred investment. The hardest thing to strike the right balance between business growth and new investment is with major upgrades. information systems. Our experience shows that shifts in the top three distributors are due to successful or failed IT implementation, and not to differences in prices, assortment or quality of service! 4 Ambiguous proposal. Perhaps it is high costs that make it possible to provide the client with such quality services, thanks to which business with him becomes so profitable. And further. Involving people in the change management process is critical to achieving growth goals. This is usually more effective than "management with numbers". Currently, storage and delivery costs fluctuate constantly depending on the choice of a centralized warehouse strategy or several local warehouses. A distributor looking to grow should be wary of additional storage space. Growth brings with it the complexity of the management system. Each subordinate must understand how his actions can affect the result and quality of the company! How to sell to distributors. Remember that you [as a supplier] are selling a commercial relationship; you are selling your distributor value, not your products. Players at the last link in the supply chain The roles of players are determined by what share of their business is occupied by services provided to the final consumer (in Fig. 12, this share increases from left to right). Rice. 12. The roles of the players of the last stage of the distribution channel. To make trade discount"linger" in the trading channel, it is necessary to make part of the discount or even all of it non-guaranteed so that the seller cannot give too much big discount to the buyer in case he does not earn it himself. It's not a good idea for a service company to hire additional employees just to deal with temporary labor shortages. What will you do with the "surplus" staff when order volume returns to normal levels? The service-based business model is shown in Fig. 13. Fig. 13. The value tree for the service provider. Rice. 14. Gross profit indicators depending on the role of the service provider. Resource Return Rate = Contract Amount Paid by Customer / (Total Resource Used * Standard Rate) How to sell to resellers? Successful vendors organize advisory boards made up of representatives from their partners that meet on a regular basis (for example, every six months). This allows vendors to test the relevance of their offering compared to competitors, or the response of the channel and the market to planned changes. Partners readily comment on what they do not like about the planned changes, but prefer not to participate in the development of proposals for the entire channel as a whole. Partners are willing to talk about the activities and plans of competitors, but often seek to distort the situation in the hope of gaining advantages for themselves. Experienced vendors know how to handle this kind of “negotiation process” and how to keep the dialogue at a strategic level, deferring private tactical issues for discussion in one-on-one meetings with partner representatives. What does the reseller expect from the supplier? The most important quality of a supplier for any player in the distribution channel is predictability. Sometimes managers working with partners do not have sufficient depth of commercial and financial skills. It is recommended to train them in the courses "finance for non-financiers", which will allow them to acquire useful practical application partner skills. It's helpful to ask your channel partners to rate not only your results, but also the results of your strongest competitor in surveys. This will allow you to visualize the magnitude of the gap between you. Traditional metrics for assessing the competitiveness of your offer always describe the situation with some delay - your sales and the share of operations with a partner begin to decline after your relationship with him has soured. What does a reseller expect from a distributor? Assortment, optimal prices, availability of goods in stock, ease of use, lending. Many distributors may experience a shrinking customer base as resellers seek to reduce their reliance on a single supplier or increase their leverage. Reseller relationship management. The key to success is two factors: the presence of a strategic relationship management process and the presence of a competent partner manager. The true purpose of relationship management is to "blow up the pie" of opportunities for both the supplier and its partner, rather than fighting for a piece of the available "little pie", which often takes the form of a zero-sum game.5 Retailers Business model features:  High operating costs  Minimum amount of receivables  Relatively high inventory turnover  Significant amount of accounts payable  The value of assets is approximately equal to the value of long-term liabilities An important indicator is the productivity of used premises. As your products move down the scale of customer perception, you are left to invest primarily in marketing that stimulates retailers (Figure 15). Rice. 15. Correspondence between the composition of marketing programs and the competitiveness of the goods perceived by consumers. 5 And here it was not without a systematic approach. See, for example, Systems thinking. How to manage chaos and complex processes or the Art of systems thinking.

 

It might be useful to read: