First, Today's distribution market is teetering on the edge of another consolidation wave.

Second, Winning manufacturers also realize that the channel has subdivided into specialties by market segment, but it's not so obvious.

This makes it imperative to gather your distribution data and study your potential moves carefully before choosing up sides with distribution or making acquisitions.

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• Gather the right data: Get information on brand positions by distributor, their market orientation, chain affiliation, etc. And study the profiles of major players.

• Develop organizational discipline: Develop a data gathering, planning, system and implementation discipline to gather the right information on branches and roll it up for strategic planning purposes.

• Develop scenario plans: Develop a vision of your future distribution mix under different sets of major assumptions and major industry events. Choose distribution to align your brand(s) with the right distribution to reach desired market segments.

• Make Your Bets: Document, Review and Communicate your plans

• Coordinate, Monitor, And adjust plans as you make your plays

12 Best Practices from Leading Manufacturers

How Distributors Choose Manufacturers

12 Step Success Process

12 Best Practices of Distribution Planning

The expert companies who have dealt with these issues have 12 best oractices which give them leading competitive capability:

1.   Their top management is committed to sound distribution strategy and planning.

2.   They have a senior manager dedicated to the job of distribution planning and management.

3.   They have grasped the importance of chains to a distribution portfolio.

4.   They understand chain management expectations of suppliers.

5.   They understand the concept of distribution intensity: number of required authorizations in a territory to serve the demand.

6.   They balance their mix of distribution to cover market segments requiring different intensity as well as take advantage of multiple location opportunities with chains. They understand the three basic distribution strategies: exclusive, selective and intensive, and when to use them.

7.   They understand the related concepts of coverage, penetration and market share.

8.   They know their strategic moves: Maintain, Penetrate, Grow, Terminate.

9.    They have a disciplined distribution planning process.

10.  They have a distribution planning system which helps identify the market size, distributor volume by brand, distributor volume by market segment and helps process what-if scenarios with different distributor portfolios.

11.  They create trade area game plans with 1 or 2 conditional options to the base plan.

12.  They organize to coordinate the game plans: a. To optimize total market share and b. To achieve maximum impact with coordinated solicitation, authorization and termination moves.

Industrial, Electrical and other Construction Products with many skus and many users that generate frequent, small transactions ($100-$1000 average) require distributors that carry an assortment of products that a tradesman wants to buy from one source. With a mainland land mass of 2.7 times that of Europe, it takes a lot of distributors to serve the North American market.

There are two challenges with choosing distribution:

1. Consolidation is causing manufacturers to choose up sides with distribution. You need to identify possible scenarios and response plans. Or pre-emptive plans
2. Channel Subsegments. Distribution channels may have subdivided into specialties or at least strong tendencies to specialize, and manufacturer brands within a product category have arisen to fill those specialties. Spotting these trends is crucial to choosing the right distribution as well as making intelligent acquisitions so you can achieve marketing and sales synergies.

The best manufacturers want more exclusive representation from distributors. They want the best distributors to cover the market in each trading area. It's not just strong product lines that enable them to ask. It's a sound policy of distribution planning backed up with information about market size, share, and the volume by brand of distributors in a trading area.

Manufacturers can then make solid decisions they can back up. Decisions that make sure they'll be with the players for the future. Distribution Planning helps you do this.

Source: Channel Marketing Group Survey of Distributor Executives

Learning From History: Electrical Channel

In the 70's and early 80's, chains bought independents in record numbers, or started new branches. Then larger chains switched their sights on acquiring 1 and 2 state chains, even smaller regionals. Then the "super regionals" like Rexel (CDME, Wilcox & Gibbs) bought other super regionals (Summers, CES, etc.) to become nationals. Rexel has become the largest electrical wholesaler in the world. CED, with 107 locations in 1978, has grown to over 400 in the U.S. and over 500 including Canada. Incidentally, four distribution companies have 80% of the business in Canada.

The North American acquisition picture has changed. For instance, in the electrical channel, most of the dollar volume of acquisitions since 1998 have been by Europeans Rexel, Sonepar and Hagemeyer. But even they have slowed their activity in the wake of a sputtering economy and lower distributor earnings, and Rexel has thrown in the towel now that their parent, PPR, has put them on the block.

Recently, (2000-2003), consolidation has slowed to less than  half the rate  of 97-2000. The economy did a number on earnings. But now we see branches closing, and whole independent distributorships closing. If the economy comes back, it may take a couple of years before acquirers are willing to pay premiums over asset value and the activity heats up. If the economy stays down, there will be at least a few dozen distress sales over the next two years. Either way, we think consolidation will heat up. But different distributors will sell in the different scenarios.

A harbinger of things to come? Probably. But once again it is happening steadily, over time. Recently, distribution consolidation has slowed a bit as distributor earnings have suffered and their expectations of a healthy sell price with them.

Diagnose Your Distribution Position

Every manufacturer wants market share. How you get it is another matter. The time honored technique of measuring coverage and penetration is useful. It will tell you if you have too many distributors or too few by territory. It will also tell you if you're in the right chains regionally and nationally. That's a baseling. The real magic is in identifying the subtle segments of the channel where your brands need to play to reach your desired end market segments.

That takes a disciplined process of identifying brand positions and market segment mix by distributor location and rolling that up into chain summaries as well. There is no substitute for this strategic information asset. The process detailed next is how to do it.

Twelve Step Success Process

Channel Marketing Group will help you implement a twelve step Distribution Planning Development Process

1.   Develop your Distribution Planning System and Discipline. Get top management buy-in, support, and firm communication to the sales management that you are serious about the effort. Consider compensating reps for the information as part of their commission structure.

2.   Develop distribution authorization and termination policies and processes

3.   Set up a distribution planning council that reviews all authorization and termination decisions

4.   Educate field sales management in the planning discipline, distribute distributor and market size data tools.

5.   Field sales gathers intelligence and runs workshops to develop competitive brand volume estimates and market segment mix by location.

6.   Field sales managers evaluate current share and chain positions, adjust estimates, submit to headquarters.

7.   Headquarters benchmarks competitive data, notes inconsistencies in data compilations against known estimates, notes "macro" share positions by territory and chain.

8.   Field adjusts data, holds workshops to categorize distributors for new authorizations, penetration, termination or aggressive growth.

9.   Field sales generates optional distribution plans and submits to headquarters.

10. Regional and National Sales Management review plans, give feedback for field managers to adjust plans. Final goals set.

11. Reorganize to implement your plan

12. Measure success against goals and adjust plans in periodic review meetings

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