Progressive Distributor - Surviving in the information age

Surviving in the Information Age

Distributors must move from a product to a service orientation to survive

by John Pearse

So, you’re worried about national Wal-Mart style distributors, the Internet and disintermediation (as in, cutting out the middleman). But have you tried to judge the impact of the Information Age? Adapting to the demands of the Information Age may help you confront all of these issues.

In the Information Age, businesses are populated with knowledge workers, people whose valuable knowledge is used to solve customers’ problems. You may be thinking, “That’s what I have right now! That isn’t new.”

You’re partially right. You have people whose knowledge adds value every day to the products you sell. But are you selling their valuable knowledge or are you giving it away? Are you protecting that knowledge or does it walk out the door whenever an employee leaves your company?

Stop for a minute and think about how your business currently adds customer value. You have many value-adds. First, let’s identify some of those value-adds that are under attack and probably won’t add much value in the future, then list those that will still add significant value.

Your least valuable value-adds
Low prices: Even Wal-Mart has changed its slogan from “Always the lowest price — Always” to “Always low prices — Always.” In most markets, the lowest-price supplier is frequently the first to go out of business. You decide. Would you rather be “Sam’s Discount Computers” or IBM?

Efficient ordering systems: Virtually everyone has one, and the Internet may become the most efficient ordering system of all.

Inventory: National distributors have more.

Fast delivery: Even if you have your own trucks, it is still tough to beat UPS or FedEx.

What do all of these value-adds have in common? They are under attack by large, national distributors, alternate marketing channels and the Internet. They all require large amounts of money and massive infrastructure, but they don’t require much product knowledge.

Your most valuable value-adds
Customer knowledge and relationships: How much is a trusting relationship with a customer worth? A lot! Who is most likely to sell a new product to a customer? You are. The Internet doesn’t sell new products very well. How would you find a product on the Internet if you don’t know it exists or what it is called?

On-site information and salesmanship: If you deliver the information a customer needs at the moment he needs it, you will most likely get the order. How does a remote, national distributor identify new shop floor applications without visiting the plant?

Complementary product synergy: Who is best at telling a customer which products from Supplier A work best with the products from Supplier B? How much is that worth? It’s worth a happy customer and the sale of two products instead of one.

Local product application experience: Every territory has some concentration of manufacturers in the same industry. Your company may focus on electronic manufacturers, automotive plants, or wood product producers. Who knows the most about the applications those industries need? The local distributor.

Local product service and support: Handling local installation, start-up, maintenance, repair, product complaints, warranty claims and troubleshooting is worth plenty to any customer. A remote Internet-based supplier can’t offer these services because they all require a local, knowledgeable person.

Customized products and services: Most of your suppliers have no interest in taking small orders for specials or orders for modified standard products. Consequently, you fill the local need for product modifications, system design, fabrication and/or kits. If you didn’t do it, it wouldn’t be sold.

Knowledge about your suppliers: You insulate your customers from your suppliers’ demanding policies and sales terms. Without you in the middle, how much would your most demanding customer buy from your most rigid supplier? Nothing? So much for disintermediation.

What do all of these value-adds have in common? They all require a great deal of knowledge. Your company has that knowledge.

Knowledge is distribution’s greatest value-add
Knowledge about your customers, products, suppliers and their interrelationships is fundamental to high-quality service and support. Only a local distributor has all that knowledge. In the past, this knowledge was distributed free of charge. In the Information Age, this knowledge will be sold.

Knowledge is a distributor’s most valuable asset. Companies that buy distributorships are not particularly interested in a distributor’s hard assets, like inventory and accounts receivable. They want to buy what the distributorship “knows.” Goodwill is just another name for knowledge.

Successful Information Age distributors will move from a product orientation to a service orientation. Their strategy will be to make more profits from services than they do from product sales. The big, national distributors will move the large volumes of “stuff,” while smaller distributors will add value to all the products customers purchase. When a customer buys a product over the Internet, the local distributor will charge the customer to support it.

Smaller distributors that attempt to maintain their product orientation will fight a losing battle against the large-infrastructure national distributors. That’s not to say large distributors won’t have their own problems. The largest distributors will fight it out on the Internet.

When large distributor prices are published on the Internet, the lowest prices will win. In this battle, the distributors with the most capital and lowest costs are the most likely survivors. This means there will be a large market for regional service distributors and a very small market for very large product distributors.

Prepare for the information age
To prepare for the Information (or knowledge) Age, start placing a higher value on your company’s knowledge. When a valuable employee leaves your company, even just for a vacation, a certain amount of your company’s knowledge is no longer available for sale. When someone terminates employment, company knowledge is lost forever. Company knowledge must be captured, stored for future use and served up to employees when they need it.

The best way to save company knowledge is to use Internet technology. Wouldn’t it be fantastic if all of your employees’ knowledge was stored in a mini-Internet inside your office? Through a simple in-house Internet search, you could find the knowledge you need at the moment you need it. This Internet would store your suppliers’ catalogs, sales call reports, product recall notices, obsolete part number lists, drawings and customer policies. In short, it would store everything your company knows, without paper.

This is possible today. It’s called a corporate intranet. An intranet runs on most standard personal computer networks and uses inexpensive Internet software. Microsoft offers many of the tools your intranet requires. Distributor software suppliers are just starting to offer turnkey intranets. For example, Enlighten.Net, a corporate intranet designed for distributors, can arrive with supplier catalogs already installed. (To learn more, visit www.Enlighten.Net. )

Intranets can also be integrated using the World Wide Web. This integration supplies employees with everything that’s available on the Internet, plus all of their own company’s knowledge. Employees enter what they know and extract what others know. In companies that have installed these systems, new employees use their intranet’s search engine and find most of the answers they need without interrupting their bosses.

Imagine how much time is saved on new employee training. When valuable employees leave, their knowledge stays in the system. The knowledge base of these corporations grows every day and so does the value of their businesses.

The arrival of the Information Age requires distributors to concentrate on the value of their company’s knowledge. The distributor of the future will capture, store and sell knowledge. In the future, knowledge-based services will be more profitable than the physical products the distributor currently sells.

If small and medium-sized distributors base their future businesses more on their knowledge and less on the products they sell, they will have the tools to compete with the national distributors and the Internet. But first, they must join the Information Age.

John Pearse is a co-owner of Pearse-Pearson Company Inc., an industrial distributor in New England, and founder and president of Distributor Information Systems Corporation (“DISC”), a supplier of automated billing systems for industrial distributors. He can be reached at jpearse@discmail.com or 860-674-0550.