Industrial Automation Distributor Mindshare – House Accounts

During these bad economic times, the company I work for has seen many of its customers delaying or flat canceling orders.  Our largest customer, however, is an exception to that rule.  Although they are not buying quite as much as they were in the glory years, their business has been steady and been one of the few bright spots for us.   And who do we owe thanks for delivering this customer to us?  Our largest competitor, who was designed in on the previous generation tool and elected to make this customer a “house account”, and not have their local distributor (who we happen to share) participate.

It turns out that one of the best industrial automation salesman in North America happened to call on this account, and suffice to say, we was upset with said supplier for telling him to back off.  He knew that the customer wasn’t happy with them, and offered to help them on the next generation project.  He was given a not so polite, “we have it covered, your services are not required”.  And that is where we came in.

As I mentioned in an early post, top salesman are a greedy bunch, and he wasn’t going to just walk away from a multi-million opportunity, so he brought my company in.  Through the force of his will, we was able to get us added to the bid list.  Since the customer already had 10 bidders, this was not an easy task.  He further used all of his skills and customer contacts to guide us through the sales process.  Because we came in so late, because we were orders of magnitude smaller than the other bidders, because this was a high visibility project at a very large customer, we could not make any mistakes and win.  And win we did.  I don’t want to sell short our efforts, we did a great job winning this project, but the fact is that without his help, we would not have even received a seat at the table.  And if his other supplier had not cut him completely out of the loop, he wouldn’t have stuck his neck out so far for us.

Which brings we back to the original topic; house accounts.  Most manufacturers have house accounts, and in some cases, they are necessary.  I would say, however, that in the field of automation, house accounts are a mistake more often than not.  House accounts make sense in large enterprise sales, where multiple teams of the supplier are interfacing with multiple teams of the customer on a daily basis. It is very rare that this happens in automation sales.  At the beginning of a project, the engineering teams may be in constant contact, and when the project is mature, the purchasing and sales teams may be in contact, but that is about it.  That does not constitute an enterprise sale.  A customer buying 7 figures of product from you doesn’t constitute an enterprise sale either.

Automation comp0nent suppliers are just that; component suppliers.  We may make a very important component, a component that would be very inconvenient or maybe even impossible to replace, but a component none the less.  Our management teams are not typically working with our customers management teams on global strategy.  As such, when you rely on visits every 3 months to gather customer intelligence and “build the relationship”, you run the risk of not being in quite the driver seat you thought when a new project comes along.  Building a relationship is a constant process, and many time a top distributor salesman is in a better position to do this because of their proximity to the customer.  The cost of sales is not zero, and if a supplier is not willing or able to commit the resources to stay in constant contact with an important customer, then you are putting that customer at risk by going it alone.

So you have to ask yourself, are your house accounts really an enterprise relationship or are they just a big customer who has negotiated a big discount?  If it is the later, proceed at your own risk.  The automation supply chain is littered with house accounts that are house accounts no more…

Automation Distributor Mindshare – Overseas manufacturing Part 2

Many years ago, my company won the automation business for a Fortune 500 company who had developed a novel manufacturing process that was going to revolutionize their industry.  That win led to three more wins on related machines.  In order to win this business, my distributor salesman spent two years developing the relationships that got us seats at the table.  Without his help, it is doubtful we would have even been asked to bid.

The total dollar amount for all four projects was on the order of $80,000, of which the distributor made around $20,000.  Between his time winning the project, along with his support helping the customer get everything working, I figure he put in around 2000 hours into this customer.  So in the end, he only made $10/hour, a little more than he could make flipping burgers at McDonalds.

But the story gets more interesting.  The engineering was happening in North America, the purchase orders were coming out of England, the machine assembly was in Singapore and the final installation was in Thailand.  None of this was a surprise, the customer was upfront about the replication plan from the very beginning.

And why did my distributor salesman  invest so much of his time on a project that did not amount to much up front and was immediately going to move offshore?  Two reasons – The customer was going to need $15,000,000 of equipment in the long run, and I came up with a plan to protect his investment of time no matter who built the machines or where they ended up.   Because the distributor was protected, they invested the time in the project, without which my company would have lost out on over $12,000,000 in business over a 7 year period of time.

Most manufacturers have no plan to protect their application making distributors in the case of a project moving out of territory.  This is a terrible mistake.  Think about it, as a manufacturer, would it make any sense to invest in the development a prototype product for an OEM customer when you knew from the start that the customer was not going to buy follow on units from you?  Of course not!  So why would anybody think it is different for a distributor?

Great distributor salesmen are businessmen, and as businessmen, they must make decisions on how to invest their time for maximum profit.  If a distributor doesn’t believe there is long term profit potential, they will work on something else that will deliver long term profit.  Protecting the distributor salesman time is the fastest way I’ve found for developing mind-share within a distribution channel.

I have heard many manufacturers say that the logistics of keeping track of who gets paid what is impossibly complex.  On top of that, there is the real issue of what to do with the distributor near the buildsite that may be called upon to support the customer during replication.  These two issues have been used as reasons to not protect the application making salesman.

I say bullshit.  I developed a program that is simple to implement and makes all parties happy, including the customer.  Whenever it is known that this situation will arise, we assign a custom part number to whatever product the distributor has sold, regardless of whether it is custom or standard.  From there, I make a decision (based on input from the application making distributor and the supporting distributor) as to the percentages each distributor receives of the total commission.

Typically, the application making distributor gets 75-90% of the total commissions.   Some might say that this is too high, and it should be closer to 50-50.  But in my mind, by the time a project is going into replication mode, most of the hard work is done.

More often than not, the support distributor actually does not need to perform any support, and is only there as an insurance policy if something does come up.  Since most overseas manufacturing facilities do not do any engineering work, you cannot even make the case that the support distributor is developing new business.  And even if they do, well guess what, it is a new application and they will not have to share any of the commissions!

What does it take at the factory to pull this off?  Four fields in the sales order program.  Distributor1, Distributor2, Distributor 1 commission, Distributor2 commission.  That plus 60 seconds to fill them out and anybody in the company can figure out exactly who gets what.

Now since things can change (perhaps it is taking more support that orginally thought), I always leave an out for a yearly review to make sure the percentages still make sense.  That is it.  Everybody is happy.  The application making distributor is protected, the support distributor is paid for their time, the customer knows they have local support if they need it and the manufacture has created a sales and support team poised to win.

Although it is unfathomable to me that automation manufacturers don’t have programs of this type, I’m not complaining.  The longer they resist putting these types of plans in motion, the more mindshare I capture away from them.

Automation distributor minshare – Overseas Manufacturing

15 years ago, automation sales was much simpler than it is today.  You contacted a customer, solved their application and they bought the solution from you.  If the customer needed to replicate the system in the future, you most often received those orders too.

Those days are long gone.  The chances that a manufacturing line build-out will occur in North America today is next to zero.  It is common for the prototype to be designed and built in NA, but then follow on orders will come out of the facility where the machines will operate, typically in Asia.  Even OEM customers will many times design in the states and then move production closer to their customers, who are for the most part, in Asia.

The problem arises when the application making distributor salesman does not get to participate in the overseas sale.  When this situation occurs, the manufacturer all too often shrugs their shoulders and says there is nothing they can do.  The order has to go through the local distributor near the customer’s manufacturing site.

I have found that there is no faster way to destroy a relationship with a top distributor salesman that to allow this to happen.  Large automation projects can take years of work to come to fruition.  Let’s face it, nobody makes any money off a prototype system.  The support costs for all parties during the prototype phase of a project are breathtaking.  All the money is made on the follow-on machines.  What is the point of putting years of effort into a customer if you will never enjoy the fruits of your labor?

Losing customers to overseas manufacturing is a chronic problem for every automation distributor organization in North America.  If a manufacturer wishes to engage a top distributor organization and obtain mind-share, there is no better way than to have a plan in place to protect a distributor salesman’s time in the event of a project moving overseas.

In my next blog, I will lay out a simple plan that has worked well for me that not only serves the interests of the distributor who developed the application, but also the overseas customer who may require local support.

Industrial Automation Distributor Mindshare – Dual Distribution

When you look at most automation distributors line cards, you will see two or more manufacturers of practically every technology imaginable.  As a result, many manufacturers refuse to have exclusive distributors.  The thinking goes, “if you want an exclusive with my line, then get rid of all of those other lines!!”  Due to monetary reasons we have discussed in previous posts, this almost never happens.  As a matter of fact, the only time it does happen is when the biggest of the big manufacturers (Allen Bradley for instance) is such a large percentage of said distributors business, that the distributor is practically owned by them.  As most distributor owners are entrepreneurs who value their independence, they do not allow themselves to get into that position.  Threatening a distributor to get rid of other lines will typically cause the distributor to give  even less mind-share, since they may well be afraid that their supplier is trying to run their business.  So this brings us back to the issue of multiple distributors in a single geography.

Many industrial automation manufacturers have a very diverse product line where no single distributor has the expertise to sell everything.  If we limit ourselves to narrow product classes, say positioning stages, or linear encoders, servo motors, etc, I am going to go out on a limb and say that it is a mistake for any industrial automation manufacturer to have multiple distribution.  The fact is that industrial automation sales requires application work.  We are not selling chopped liver.  If the application work is not done, a sale will not be made.  If the distributor who has the talent and willingness to do this work worries that they will not be compensated for their time; then guess what, they aren’t going to do the work at all.  This single fact seems to escape most manufacturers, to their own detriment.

As a manufacturer and distributor salesman, I have always hated dual distribution.  On the distributor side, it was hard enough to win customers away from manufacturers I didn’t carry, let alone worry about whether I would going to lose the order to some other distributor who carried the same products, but did not do any work.  On the manufacturer side, I have better things to do than be a traffic cop between two distributors warring over one customer.    If a manufacturer wants distributor mind-share, they must do what so many are unwilling to do; give a distributor an exclusive territory and route all applications through them.  If nothing else, this establishes trust and without trust, a manufacturer will never obtain the mind-share they are looking for.

Many years ago, I had signed up a distributor whose major manufacturer had a division that competed against my products.  This distributor had exactly they type of salesman that succeed with my products, so I was very interested in working with them.  Because my company had a unique story to tell about her products (more on this in a later blog), they had interest in working with us.  At first, the activity was almost completely one sided.  I would make contact with a customer in their area and immediately hand it over to them and support them in any way they needed, no matter how small the project.

At first, the distributor did not bring me any new applications that they had uncovered.  But that didn’t stop me, I continued to route customers to them as soon as I found them.  This gave me the opportunity to get to know the distributor salesmen and build a relationship with them.  After a year of this, the distributor salespeople not only knew that we were a good company to work with, but they also WANTED to find new business for us.

When they finally bring me a project, it was the motherload.  In the end, that customer bought over $1,000,000 of positioning stages, amplifier and motion controls from us.  Since then, this distributor has brought in countless new customers that they just as easily could of sold their major line into.  We are working on so many project with them, that their major has offered to expand their territory if they cancel us.  Since we now have become such an important part of their business, and they are looking to reduce their dependence on any one manufacturer, they turned down the offer.  If I hadn’t given them an exclusive territory, if I hadn’t routed applications to them when it would have been just as easy to take the orders direct, if I hadn’t spent the time building trust with their top salespeople, this distributor never would have introduced our product into such large projects or important customers.  I established trust by giving them customers (and then performing well for those customers), when it would have been easy to keep them out of the loop.  Top distributor salespeople get their knees cut out from them so often, then when a manufacturer goes out of their way to include them in a sale, they do take notice.

In the next blog we will tackle the pancea of high tech distribution; overseas manufacturing.

Industrial automation distributor mindshare – Rising above the noise

Understanding that distributor salesman want to make money is just the first step in gaining mind-share.  The real trick is convincing distributor salespeople to spend time on your product.  Top salespeople have very limited time and will only work with those manufacturers who they deem will give them the best return on their time.  They also realize that the sales cycle can be very long and complex.  For many automation projects, the distributor salesman will need to put in 2 years or more of missionary work before they will see a return on their time.  The long sales cycle represents risk.  So unless you have a ton of residuals that you can give them straight away, it is very difficult to convince top salespeople to risk their limited time learning something new.

Top industrial automation distributor salespeople have potential suppliers calling on them all day, every day.    If they even engaged all the suppliers that called them, let alone invest time learning their products, they wouldn’t have any time to sell to customers.   The pitches from manufacturers literally become noise after a time.  The best way I’ve found to rise above the noise is to first think through how you are going to handle certain situations that come up for distributors on a daily basis.  Will you have dual distribution?  What happens when a distributor sells out of territory?  What happens when a customer moves manufacturing oversees?  Are there house accounts?  What commissions do you pay for very large customers?  If you can answer these questions in a way that gives the distributor confidence that YOU WILL PROTECT THEIR TIME INVESTMENT, you will be well on your way to attaining mind-share.  So few manufacturers take the time to deal with these important sales channel issues that if you proactively address them, you will be miles ahead of your competition.

In the next blog, we’ll start exploring these channel  issues in more detail.