Manufacturers have long been seen as old school – but learning some new lessons may well be their ticket to survival, and success. That, at least, is the opinion of Industrial Performance Group, Inc., of Northfield, Illinois. The trade organization specializes in helping manufacturers and distributors improve sales performance and profitability. The group asserts that the biggest mistake manufacturers and distributors are making is to assume that e-commerce is the solution to sales and performance problems.
According to the Industrial Performance Group; “In most instances, the ultimate outcome of moving products and services to the Web is higher customer acquisition costs and lower margins for everyone in-volvedSurvival in the new environment requires flexibility, responsiveness, and the ability to deal with high levels of uncertainty. These attributes are typically not found in the traditional manufacturer distributor working relationships – in which product-related decisions are made by the manufacturer and information is transmitted down the channel on a need-to-know basis.”
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Other common mistakes identified by the Industrial Performance Group include applying old strategies and tactics in the new environment, and not taking action to change the nature of their working relationships. The organization has now published a free pamphlet, “The Five Most Common Mistakes Manufacturers & Distributors are Making During the Digital Communication Revolution & How to Avoid Them,” that offers suggestions for avoiding some of the common traps manufacturers and distributors may encounter as they navigate a “digital communication revolution.”
The five most common mistakes, and a condensed explanation of each, include;
Assuming the e-commerce is the solution to your sales and performance problems: Thousands of manufacturers and distributors in a wide variety of industries have bought into the web’s promise of reaching more customers for less money. Yet, in most instances the ultimate outcome of moving products and services to the Web is higher customer acquisition costs and/or lower margins for everyone involved. Moving to some form of e-based commerce usually increases the level of conflict between manufacturers and their channel intermediaries, which can have a negative impact on local area market coverage and customer service. Is the Internet a disruptive technology that will forever alter the landscape of most industries? Our ongoing research indicates that the answer to this question is largely determined by the actions of industry participants. The one thing you can count on is that your industry will eventually be impacted by the digital communication revolution – if it hasn’t already happened.
Assuming that you are still in control: In the past, the question of who was in control was more clearly defined. In the old environment, the manufacturers were in control. They determined the overall rate of change within an industry by controlling the flow of products and information through the distribution channels and into the marketplace. In this top-down approach, the primary function of distributors was to provide manufacturers with market coverage – access to customers. And the role of the customer was to be a loyal and predictable “consumer” of products that were being pushed through the distribution channels. This “Make & Sell” approach to the marketplace worked for many years because customers and distributors had fewer choices. However, in most industries those days are gone forever.
Applying old strategies and tactics in the new environment: Manufacturers and distributors are beginning to realize that many of the strategies and tactics they employ are no long producing acceptable results. The primary reason is that these strategies and tactics are out-of-sync with the new conditions in the marketplace. Prior to the digital communication revolution, competition was primarily product-focused. That is, competitive advantage was achieved by having unique, high-quality products at attractive prices. It was also beneficial to have a large installed-based business combined with loyal and predictable distributors and customers. In this “Make & Sell” approach to the marketplace, product-related decisions were made by the manufacturer, who was also responsible for developing and implementing a sales and marketing plan for taking these products to market. To thrive in the new environment, manufacturers and distributors must rede
fine the purpose of their working relationships. They must make the transition from “Make & Sell” to “Learning & Responding” to the ever-changing needs of customers in the marketplace.
Assuming that it will never happen in your industry: We have identified a number of factors that greatly influence the speed at which an industry is affected by digital communication and the nature of the impact. Those factors include: The willingness of customers to migrate to a new source of supply; the level of standardization and automation in the supply chains and distribution channels; and working relationships in the channels. The combination of these factors determines whether the participants in your industry survive and thrive as a result of the digital communication revolution, or whether you are displaced by the emergence of new and aggressive forms of competition.
Not changing the nature of your working relationships: Survival in the new environment requires flexibility, responsiveness and the ability to deal with high levels of uncertainty. These attributes are typically not found in the traditional manufacturer/distributor working relationship. In addition to moving products from the point of creation to points of consumption, the sales/distribution channel must now become a conduit for capturing, managing and moving customer-related information. This information can then be used to develop and deliver product/service offerings that provide both the manufacturer and its distributors with a first-to-market advantage. In our work with hundreds of manufacturers and distributors, we have identified the common barriers that keep them from taking action to improve the nature of their working relationships. They include: Denial of reality – manufacturers and distributors fail to recognize and accept the conditions in their industry are changing and that they must change in response; Complacency – we’ve always done it this way, why change now?; Severe short-term performance pressure – we’ll do something next quarter, if the numbers look better; Wishful thinker – a false belief that everything will be OK.
The Industrial Performance Group concludes that for many manufacturers and distributors it will be hard to give up the old and familiar ways of doing things for the new and unknown.
However, the rewards will be great for those manufacturers and distributors who take action to increase the levels of commitment, cooperation and communication in their working relationships.
Individual copies of “The Five Most Common Mistakes Manufacturers & Distributors are Making During the Digital Communication Revolution & How to Avoid Them” are available free of charge from the Industrial Performance Group at 800/867-2778.
