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.
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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."
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.
