ASSUMPTIONS/QUESTIONS FOR RE-THINKING OUR SELLING OBJECTIVES
Assumption One: We are, in general, selling to customers of different sizes that are in different, but mostly mature industries. Many of our customers are suffering from too much capacity and not enough pricing power in their competitive space. They aren’t excited about their current profitability or their growth prospects.
Assumption Two: 90% of our sales to these customers are repeat purchases involving items that the customers would probably consider commodities. They know that they can readily source the same or equal brands from two or more potential suppliers and always get a lower price, although not necessarily the best total value on all of the MRO needs. (See Exhibit A – "Profitability of Profits")
Question #1: What is the #1 procurement need that these customers have that we should be filling? (To buy the lowest "total procurement cost"(TPC) see articles #ed 4.2, 4.3; "High Performance..." video modules #ed 4.10-4.13)
Question #2: What is the over all driving-force objective that is behind those companies that have been pushing us along a continuum over the years from:
- trying and buying a product that we may have first pitched to them long ago to
- issuing blanket P.O’s, for repeat supply items that have become commodities to
- co-creating MRO systems contracts at the local plant level to now, at the extreme,
- seeking suppliers for a centralized (for multiple locations) supply contract that is: global, integrated, unified (covering multiple MRO categories) inside of which the variety of similar items is reduced to as few standard items as possible?
Question #3: If TPC has been the hidden, driving and organizing force behind ever more comprehensive supply contracts for the past 40 years, wouldn’t that be the same driving force that all of our mature customers have even if they have not formally defined and pursued it?
Question #4: Shouldn’t we also be looking for the lowest TPC from our suppliers? For a distributor how should we define lowest TPC? Or do we? Shouldn’t we, for example, prefer to buy from a commodity supplier with a higher price, because their total product/service offering yields both higher fill-rates and a "turn x earn" ratio? (First, optimize local, fill-rates, then turn x earn, then price to get best TPC.)
Question #5: If TPC is a largely hidden, but still a universal need, how could we do a more proactive job of selling the potential of our total service package to offer the lowest TPC? (Use "automated reminders" in video module # 4.10; everyone gets fluent with service metrics’ TPC reduction benefits – exhibits #ed 2 & 3 at www.merrifield.com).
Question #6: Why have we (and probably most of our competitors) been distracted from trying to fill our customers’ #1 universal need? Why have we been so fixed on trying to sell incremental products with occasional reminders that we sure would like a chance to bid on the commodity volume that we don’t currently enjoy? (We are all unwittingly still caught up in the product-push, marketing culture created by suppliers when that use to work.)
Question #7: Back to the notion of getting last look and trying to hold the line on margin erosion. What would be a more profitable account for the company: one in which our average GM% is 25% and our average order size has $50 of GM in it; or, one in which we average a 20% GM with an average of $100 in GM? (Hint the average industrial supply distributor’s average cost per transaction is about $80. See video modules # ed: 3.8 to 3.11 on small order economics and cures.)
Question #8: Which of the following choices should be our ultimate, guiding objective:
- Get an order for some product that we are pushing?
- Get a stream of repeat orders on the products we are pushing?
- Get repeat orders and last look to meet the price to keep the business?
- Get repeat orders, last look and a bit more for our own individual value-added contributions that have put incremental profits to the customers’ bottom lines?
- Sell a one-stop-shop assortment of items to and through the customer at both a lowest, best TPC for them and at the lowest total service cost for us so that we can make a profit?
Question #9: What percent of our current face-to-face time with customers and our sales meeting/education time is currently spent on each of the options in question 8? How should we theoretically, re-allocate our selling and education time over the 5 options in question 8?
(Read article #2.20 - A Strategic Time Management Assignment)
Merrifield Consulting Group, Inc., Exhibit # 15
Also Exhibit 1 of Support Notes for Article # 4.9