Choosing, managing distributors 101

Arlyn Mendoza –CONTRIBUTED PHOTO

Arlyn Mendoza became Country Manager of Hershey’s Philippines on Aug. 1, 2019. Before getting this top post, she was Sales Head of General Nutrifoods Philippines and National Sales Manager of such top local companies as Asia Brewery and Pascual Foods, thus knows more than a thing or two about supply chain management and efficient distribution.

Here, she shares with us the importance of choosing and managing distributors.

Q: What is the business case for outsourcing your sales force to third party distributors?

A: There are a number of reasons why a company will still consider an outsourced sales force. First is financial. Having a third party distributor somehow reduces your operational expenses given that it converts your fixed to variable cost, which will only vary with sales revenue. If not much sales are generated, then it results in less distribution cost as well.

Another reason why companies outsource their sales force is because of distributor’s competencies. You can leverage on their strength through faster, wider and deeper placement and availability of your product. With this, you will be able to conserve your time and energy so that you can focus on building your brand and conceptualizing sales and marketing strategies.

Just imagine more than 50 sales personnel nationwide on your payroll, plus the complexities of logistics if you choose to directly service nationwide customers.

Lastly, outsourcing your sales force minimizes your risks associated with account management such as trade receivables and inventories. However, the company’s final decision on which route-to-market model to use will always be contingent on its capacity and objective.

Q: Should major key accounts be covered by the company themselves? Why or why not?

A: Ideally, yes, in terms of retailer engagement. Servicing, collection and other operational aspects of the business would be expensive unless the company already has scale. Directly engaging the retailers will bring focus and control in selling and negotiation. Another option is having an exclusive team within the distributor’s structure. This will give you more control and confidence that the sales people are focused only on your brands.Q: How can both a principal and a distributor determine if they are compatible?

A: Primarily, both the principal and distributor should have common mindset on how to do business. For them to be compatible, both organizations should have a market centricity outlook. Their frame of mind should be market oriented and not product oriented.

There are cases wherein the principal is market oriented but the distributor is not, chances are the principal will not be able to gather all important market information they need to arrive in a strategy to improve the brand. However, the principal can try to rub off that market-centric frame of mind to their distributor for them to appreciate also the importance of market data. In return, the principal will analyze and market insights from the information provided by the distributor, in this way they will value and understand reason behind what they do. If they can do this, then collaboration will follow.But it’s another case is if the distributor is market centric and the principal is not, so even if the distributor will provide market information but they will realize that it’s not appreciated by the principal, eventually they will stop sharing that information. If this is the case, then no market or business analysis is happening, no collaboration or any effort from both organizations to improve the business.

The KYC model, which means “Know your customer, Know your consumer and Know your competitor”, will be very helpful and a good foundation on which to initiate compatibility and collaboration for both the principal and distributor.

Q: What are the indicators to determine that the principal and distributors are collaborating?A: There are actually two mechanisms that we can consider to validate:

First, there should be transparency. If both principal and distributor are market centric, then they already know what is expected from them and they understand the reason behind what they do. The distributor is openly informing the principal of issues happening or even possible issues that will happen. In return, the principal will likewise share with the distributor any pertinent finding that would help to strategically aid sales growth.

The second indicator would be higher level of growth investment. Again, if the distributor is market oriented, then they will be willing to invest towards the growth of the market. Unlike if a distributor is only focused on selling the product and not understanding the market, they will not allow additional investments since they deem that it’s a cost for them.

The third indicator is very obvious, which is performance. If the distributor is collaborative, definitely it will reflect in their performance. Positive results will be seen, it will be a win-win result for both organizations. —CONTRIBUTED

Josiah Go is the chair and chief Innovation strategist of Mansmith and Fielders Inc. Follow him at www.josiahgo.com