by Ed Rigsbee, CSP
We need banking, but do we need banks? We need groceries but do we need supermarkets? We need services and consumables but do we need to receive these things in traditional ways? Do we need distributors?
The answer is: Only if distributors truly create value in the process of getting stuff from the source to the user. At my seminars, when I ask distributors what their product is — the usual answer is service. Wrong! Your product is logistics. Wal-Mart has done an excellent job of disintermediatingMy research indicates that for you to cost effectively achieve world-class levels of logistic services, you must adapt Total Organizational Partnering. I realize partnering is a term that has been grossly abused over the last decade; nonetheless, it is what you must achieve.
Partnering is an idea that is loosely used to describe anything from teamwork to alliances to contractual partnerships. Partnering, as I define it, is the process of two or more entities coming together for the purpose of creating synergistic solutions to their mutual challenges. Again, I recommend you adopt Total Organizational Partnering as your business strategy.
Partnering is not a flavor-of-the-month management strategy to be hastily adopted and then as quickly abandoned, but rather a long-term strategy for success. Partnering is not instant gratification. To adopt Total Organizational Partnering, you'll need to understand the Partnering Pentad Model. A pentad is simply the name given to a group of five. The Partnering Pentad represents the five key areas of your business. In each of the five areas you must develop outrageously successful relationship (alliance) strategies. It is the quality of these relationships that hold all the areas together. Once in place, you'll have Total Organizational Partnering.
1. Strategic External Alliances is the area of your business where you develop alliances with outside entities for activities where you have core competencies that complement one another. For many distributors, these include buying/marketing groups and targeted specialty alliances for software/technology development. By sharing core strengths, two or more can create an environment of synergy yielding all involved more than the sum total of their collective contributions. Land mines to watch for are core values of alliance members being too different, circles of interest overlap being too little, and continual management change of one or more alliance partners.
2. Supplier Alliances is the area that many distributors are most concerned — no supplier, certainly no customer. Just-in-time delivery (JIT) and electronic data interchange (EDI) ordering have become commonplace today. Eventually, you will have these relationships up and down the supply chain — providing you are still in business. Frequently, what I hear from suppliers about their customers is, "They're talking marriage but acting one-night stand." Not long ago I delivered an opening keynote presentation to an association of industrial distributors. Unfortunately, upon visiting the Web site of one of that industry's major suppliers, I noticed that few of its distributors had hyperlinks to the distributors' own Web sites. I call that missed opportunity. To successfully compete in the world of B2B e-commerce, you must adopt alliances. The biggest land mine in this area is to neglect reviewing the quality of the relationship and exploring areas for improvement. What is it that you do that your suppliers cannot? Which of your activities actually adds value to your suppliers' efforts and desire to get their goods to the end user?
3. Customer Alliances weigh heavy in determining your total volume and profitability. In this area, you must be externally driven. Your customers will consider you an important vendor as long as they feel they're receiving good value. Value-added is a term that much is being written about. Integrator, Applied Distributors, is now documenting value-added services with customers. Agriculture and food processing conglomerate Cargill has moved to value-based purchasing. It measures the total value proposition of its suppliers rather than just buy on price alone. You must be value driven rather than product driven to understand what your customers want. What they perceive as value is their reality. The important land mine to watch out for is short-term thinking on your part when making customer relationship decisions.
4. Employee Alliances to many distributors is a non-issue. Meaning, they don't. What motivated the WWII generation is different from what motivates baby boomers and is different from what motivates the GenXers. Just because something motivates you, it doesn't necessarily mean it will motivate those of a different generation than yours. If you want your employees to have an ownership in your business — even though they don't have a legal ownership, and to hold sacred the business as you do — you must empower your employees. Empowering means giving them the authority and encouraging them to accept the responsibility to do the job. Then acknowledge their successes and failures in an environment of safety — one where you encourage and reward risk-taking. The major land mine to watch out for is the Ego Trap, yours of course. To give power, you must be a powerful person, one who possesses personal power rather than power simply acquired from your position. Permission cards and employee recognition certificates are a great start. More on these ideas are available at www.rigsbee.com.
5. Owners or CEOs as the Optimal Partner is the final and, in many ways, the most important leg of the pentad star. Not the most important from the perspective that all revolves around you, but that of having a culture of true partnering. True partnering starts at the top. You must lead the charge and show by your actions, more than your words, that Total Organizational Partnering is truly your preferred and accepted business strategy. The critical land mine here is when you arrogantly believe that you are at the center of the pentad and that all the alliances should revolve around you. The coveted center of the pentad star is reserved for all the relationships that bind the separate legs.
Globalization is the primary driver behind partnering alliances. Large multinational companies are building alliance relationships to gobble up market shares in every conceivable industry and location. Large families of businesses are competing against one another. As such, smaller organizations feel the pressure and the partnering trend becomes "monkeys see, monkeys do." A secondary driver is based on the fact that organizations generally adopt a new paradigm based on the recommendations of others. Change evolves through one's witnessing the success of others. Organizations and leaders with strong reputations within an industry or economy have immense influence over their contemporaries.
While I have witnessed many companies profit handsomely from alliance relationships, I have also seen them scramble to get on the partnering bandwagon with little regard for the quality of partners they select. Admirable businesses like Timex have discovered that the wrong partner can cost millions of dollars. Creating successful partnering alliances that will pay off in terms of increased market share, know-how or earnings diversification is no easy chore.
Today, consolidations and rollups are of great concern to many distributors. In the February 2000 issue of Industrial Distribution, Bill Wade stated, "The basic premise couldn't be any simpler. Take a highly fragmented industry — like distribution — facing technological change, customer upheaval or chronic financing difficulties. Add in a few well-heeled foreign firms or, worse, a couple of previously unknown competitors from outside the business. Since the industry leaders are probably family-run businesses with limited succession strategies, the next step to protect profit and continue growth is clear: consolidate."
A consolidation or rollup, as it's frequently called, generally occurs when an organization or individual with deep pockets sets out to buy several small companies in a fragmented industry and rein them in under a new or collective pennant. Does this sound familiar? In 1997, the National Association of Wholesale-Distributors reported that 42 of the 54 industries they studied had been significantly affected by consolidation. Frequently a professional management and buying strength create economies of scale that allows the consolidator to pluck the low-hanging fruit in the industry. They will invest significantly in systems to eliminate the duplication of effort and inefficiencies that exist within the industry being consolidated.
If your organization is sick and bleeding, this plan will not deliver the quick results you most likely desire. As I stated, this is not a quick fix. If you lead a healthy organization, your best strategy to remain profitable and independent is Total Organizational Partnering. To protect against being disintermediated, stable and incremental improvement in all five pentad areas will deliver the most successful long-term results. Total Organizational Partnering will assist you in becoming a world-class distributor — one that adds value to the chain and understands logistics.
Adapted from PartnerShift ---How to Profit from the Partnering Trend by Ed Rigsbee, CSP, published by John Wiley & Sons, New York, October 2000. Ask for PartnerShift at your local bookstore. All of Rigsbee's books are available from Amazon.com.
Ed Rigsbee, CSP is the author of PartnerShift, Developing Strategic Alliances and The Art of Partnering. He has experience in distribution, retail, outside sales and sales management, has owned a manufacturers representative firm, has been an adjunct professor and is a soccer referee. He has more than 1,000 published business articles and is a regular keynote presenter for major corporations and national trade and professional associations. For more information, call 800-839-1520 or e-mail him at [email protected]). His Partnering University Web site is located at http://www.rigsbee.com.