Summer 2021 – ERA XCOM Digest

Ellen Coan, CPMR
CC Electro Sales
Sr. Vice President/Education
ellen_coan@ccrep.com

ERA Virtual Sales Training coming in September

Summer is fading FAST and school is on the horizon for many — preschool, grade school, middle school, high school, college, grad school or beyond to ERA SCHOOL = Sept. 21-23 Virtual Sales Training is coming your way!

Everyone needs to learn new skills or sharpen the skills we have. We are always growing or learning a new “dance.” The ERA Virtual Sales Training will offer nine sessions ranging from negotiation to account profiling to time management, including a snippet of MRERF Sales Professional certification available.

There will be a mix of industry knowledge and professional training that will attract all in rep, principal and disty offices nationwide from management to outside sales to inside sales.

If you don’t get a chance to come to Austin, Texas, in 2022 for the annual ERA Conference, maybe this September the 2021 ERA Virtual Sales Training and networking will keep your team moving in the forward direction – up and to the right!

As your ERA SVP of Education, I am trying to bring our members every business improvement opportunity. The ERA Water Cooler sessions and ERA Talks podcasts give us real-time issues and solutions typically from a panel of our peers. The “work arounds” or “scenarios and solutions” are always showing a new light on a common theme. ERA is appreciative for all the volunteers that share their insight to show the rep model is tried and true. It is here to stay as we are challenged by market conditions no one ever dreamed of in our once perfect world. The reps along with their principals and distribution partners are forging a new path and we need all the training we can get to make sure we stay strong and do not stumble along the way!

Bring your school supplies and best attention (AM PM! Activity of the Moment/Person of the Moment) and “see” you in September and on the Water Cooler calls!

Cameron English, CPMR
English Technical Sales Southwest
Sr. Vice President/Industry
cenglish@englishsales.com

The Pioneering line – How representatives and manufacturers view
the dynamic relationship and challenge

As manufacturers’ representatives, we are often approached by suppliers wanting to engage us for territory coverage. When these suppliers are doing no residual or existing business, we call this a Pioneering line. The interesting dynamic of this situation is that one party is being asked to make a substantial investment, in good faith, while the other party is only committing compensation after the work has been successfully completed. Most all of the risk falls on the representative’s side of the equation. Typically, the expectation is that the representative will take on the project, with no retainer, stipend, and in return, receive no long-term commitment to the partnership.

I am hard-pressed to observe any other industry where this dynamic business model is expected or standard practice. Lawyers, doctors, accountants, industry standards, all expect either an invoice/advance billing compensation return or they will not engage the client.

How about the representative business? Historically, expectations by Pioneering suppliers are that there will be a 30-day termination option in the contract, despite the fact that the representative may have worked for years to develop the market. We must act as a community to put an end to this expectation!

This begs the question, what risks are we taking on as representatives? I have a feeling many of our suppliers are unaware of the representative’s cost of doing business in today’s world. Unemployment insurance, legal issues, upfront costs of auto allowance, health insurance, office, phone, etc., the list goes on. As representatives, we are investing time, talent and resources, often at great expense.

Let me relate a story about something that happened to my company to bring this to a more personal level. We signed a line, for the sake of this story I will call the supplier “Dynamo Elect.” The sales level was zero. Although they had a few accounts with strong business history, these accounts were held as “house accounts” — no compensation or sales were to be credited for the house accounts.

Dynamo’s products consist of highly custom, technical products. ASP’s were in the $25 to $250 per part range, and could be significantly more. Sales cycles from the start of evaluation to production could typically run six to 24 months. After the first few months, we were fortunate to book a major OEM customer right out of the gate. The resulting business grew to a business revenue stream of upward of $4 million run rate. All good news! Then we added another new high-end consumer customer that started as a shared position and eventually grew to turn over 100 percent of their business. This was a customer that you would have seen their product (medical) in television commercials all over the U.S. This customer added about $1.5 million per year.

We continued to pursue business and programs, we were successful in gaining opportunities at major accounts that were well established and well recognized. Along comes Covid-19, and things slowed down overall. We went through a slow patch of finding new opportunities. In this situation, our response for a supplier partner paying us close to $20K per month is very focused. We started scheduling monthly product reviews, customer new business opportunity reviews, proactive incentive plans for the sales team — all standard “recovery” strategies to find ongoing new customers. We profiled the top 50 targets, set up and delivered several Webex presentations. In short, the situation had my attention. Observing the slowdown in the new business opportunity stream that was now approaching 90 days, I knew we needed to find the next new win. In the meantime, Dynamo hired a “new regional manager.” At first glance, this was a new position, but understandable because it was a challenging period with the pandemic. I could not help but question why they would bring on a new hire in the middle of an economic slowdown? And would only add that we were still experiencing great overall sales performance in shipments and bookings from the customers we had developed. Commissions were stronger than ever, despite the economic decline in the territory overall.

With no notice, Dynamo terminated us.

Here is the good news;

• ETS had a long-term backend termination clause we were to be paid out for 180 days.
• The payments were reduced based on a timing schedule, decreasing 50 percent after 90 days.
• The long-term backend helped a great deal during a very difficult time, despite the sting of getting dumped for what we perceived as a convenient excuse.

Here is the bad news:

Dynamo went back out to the industry, retained all of our developed accounts as house accounts, and hired a new representative. Consider what is happening in this scenario. At this point, Dynamo has benefited long-term from our contribution and is now accessing the new representative’s I.P. at no investment cost of acquisition.

As representatives, what can we take from this example as the moral of the story?
In the case of Pioneering lines, we have to hold to a more disciplined standard of contract negotiation.

At the contract negotiation, insist on several key parameters:

• Long-term termination payout. If the territory is zero revenue, insist on at least 12 months of compensation credit for all business booked for at least 12 months following the termination.
• Refuse any non-competes that apply to you for the territory after termination.
• Insist on your employees being included in a non-compete, they are off-limits!
• Avoid binding arbitration. It is a travesty that removes your rights to a jury trial, nothing good comes from a judge that has complete authority over the decision.
• If there are house accounts, make it a lock with no future house accounts allowed.
• In Pioneering line situations, there should be no commitment for sharing company contact information, performing QBRs, attending sales meetings, providing monthly reports, etc.
• Demand that all customer activity data are legally required to be provided. Specifically, sales invoices and commissions owed from customer territory activity
• In lieu of any lack of willingness to provide long-term back-end commitment, demand a retainer that will be adequate and commiserate to the level of time and investment you expect will be required.
• Reject any clause that “reserves” the right to discount or change commission rates. Of course, an exception to this would be rates going upward depending upon profitability.
• If a commission rate is going to be negotiated, it has to be locked to the negotiation happening before customer quotation or customer negotiation.

As representatives we are unique entrepreneurs. I defy anyone in the industry to show me a business model where the contracted agent is only paid after the completion of the entire business cycle, exclusively tied to shipments and collections.

Representatives’ willingness to take on a project with no compensation, guaranteed or assured, speaks to the incredible capability and strength of market position for us as business owners.

Mark McCormick, an attorney, agent and founder of IMG Sports Management Group, and one of the most successful Sports Agents in history, (represented sports icons such as Arnold Palmer, Bjorn Borg, Deriek Jeter, Charles Barkley) stated the following about entrepreneurs: “The single greatest mistake entrepreneurs make is not to demand enough compensation for their product or services.”

In case you perceive me to be anti-Pioneering line in philosophy or practice, I want to point out that two of my top five suppliers on my line card started from a zero position. These lines turned out to be well-positioned and literally kept our business alive during the pandemic. I write this article in the hope and intent that we as representatives finally decide to value our capability, time, talent and resources as strategic value. Imagine a supplier trying to bring in a new hire, setting them loose in a territory and expecting them to be of any practical use in this economic environment that now exists. As a representative, your relationships, often long-term and hard-won, are invaluable during an economic period where we have been subjected to limited access.

In talking to a representative friend recently, we were discussing the challenges and the amazing expectations of suppliers that approach us. In conversations with Pioneering lines, we heard the oft-repeated line: “It should be easy, just show our line to your customer when you are making your normal routine sales calls. Our product practically sells itself, easy sell!” We both laughed at this perception about the sales process. His response: “ Well, if it is so easy, you don’t need me. Why not just go do it yourself?”

The missing ingredient for any Pioneering line is your knowledge of the customers in the territory and the market overall. Never forget that as representatives we are not the middleman, we are the front, middle and end, the offense and the defense of the sales cycle. It is a tragic and strategic error to discount our value proposition. In the course of business, when a supplier decides to “just go and do it themselves” or in their case, develop a direct sales model, suppliers are going to see that their investment is upfront, not tied to productivity, full of responsibility and liability and very, very expensive.

Kingsland Coombs, CPMR, CSP
Control Sales Inc.
Sr. Vice President at Large
kingc@controlsales.com

Navigating challenges and seeking opportunities

In calendar Q2 2021, we saw a significant manufacturing expansion, fueled by pent-up demand especially in the industrial, food equipment and automotive sectors. Programs that were on hold during Covid-19 are moving to production and investments are continually being made in new equipment/product designs. The dramatic shift has created component shortages, price hikes and logistics bottlenecks, unlike anything I have seen. The challenges seem greatest for parts and materials related to on-board components, which are seeing lead times that are one and a half to two times the normal levels.

The initial pent-up demand was handled in part by inventory on the shelves at component manufacturers and distributors. Customers with long-term distributor relationships and solid communication on forecast and backlog benefitted the most. Now, the inventory is significantly depleting and book-to-bill ratios are much higher than in recent memory. Component forecasts become complicated when customers double or triple book orders with various sources to try to avoid their lines going down, raising concerns with suppliers of inflated demand. This issue may cause calls for increased investment in component production capabilities to go unanswered. Production expansion may be risky until the demand is vetted.

Component and first-level assembly suppliers are struggling to meet increasing levels of demand. Long raw material lead times, basic materials shortages, rising commodity prices, stressed workforce and transportation difficulties are the major forces in play. Even ground transportation within North America from Mexico to Chicago, for example, has increased two to three times, putting additional pressure on lead times. The added cost is burdened to customers who can’t afford the extra lead time and must pay for expedited, premium freight.

Because customers are more concerned about securing component supply than maintaining current prices to keep their production lines going, component suppliers have successfully passed on their added costs to customers. We have seen increases ranging from 4-10 percent. Despite a significant pushback about raising prices on existing orders, some suppliers have successfully cited rising materials costs during the extended lead times. Customers have also been extending PO coverage over 12 months in many cases, with detailed release schedules, and committing to non-cancelable, non-returnable (NCNR) terms to assure supply. I have seen some suppliers not accepting blanket orders without scheduled releases citing that they can only focus on customers with known schedules. Factory allocation is in motion with many suppliers.

We do not see improvements in the supply chain yet. In fact, it may get worse before it gets better.

A unique example is we have a large equipment manufacturer that cannot obtain many of their required on-board components for upcoming equipment builds. So, to save heavy inventory costs while they wait for these components, they pushed out orders for those components and first-level assemblies that they can obtain within the originally planned time frame. On one hand, there is tremendous expedite pressure on our PCB component suppliers, and on the other hand, there is order pushout pressure on our first-level assembly suppliers on the same program. Not all suppliers are impacted in the same way.

That all said, there are still many positives for reps to focus on in this environment. For instance, we have opportunities to design our lines into existing BOMs typically outside our normal reach. Engineering managers are tasking engineers with finding secondary and tertiary sources, even putting new projects on hold to do so. Also, we can demonstrate our valued customer knowledge by working closely with our principals and distribution partners to coordinate forecasts and advise on inventory buildup being very upfront and forthcoming of the risks/rewards. Success in this collaboration helps all involved. Duplicate or inflated backlog, frequent schedule changes and last-minute cancellations can hurt customer/distributor/supplier relationships. As reps, we need to be willing to jump into the trenches and help navigate these challenges.

2021 could end up being the strongest year of growth we have seen in the past several years. While many challenges are facing us, if we manage the tensions of this unusual business environment proactively, we will all reap the rewards.

Ken Bellero
Schaffner EMC
Sr. Vice President/Manufacturers
ken.bellero@schaffner.com

After the pandemic: Are your employees making the decision to jump to the next career opportunity?

As the pandemic clouds lift, the percentage of Americans leaving employers for new opportunities is at its highest level in more than two decades and the electronics industry has been no different.

Many electronic manufacturers, distributors, reps, and more importantly, customers, have seen more of their workforce quitting their jobs in 2021 than at any time in at least the two decades.

In April, the share of U.S. workers leaving jobs was 2.7 percent, according to the Labor Department, a jump from 1.6 percent a year earlier to the highest level since at least 2000.

This has already added to the daily struggle we are all facing with raw material delays, factory production slow-down and logistics nightmares that many U.S. companies face while trying to keep up with the current economic recovery.

The wave of resignations marks a sharp turn from the darkest days of the pandemic when workers craved job security while weathering a national health and economic crisis.

In April, the share of U.S. workers leaving jobs was 2.7 percent, according to the Labor Department, a jump from 1.6 percent a year earlier to the highest level since at least 2000.

This shift by workers into new jobs and careers is prompting many employers to raise wages and offer promotions to keep hold of talent. The appetite for change by employees indicates many employees are feeling confident about jumping ship for better prospects, despite elevated unemployment rates.

While a high quit rate really hurts employers with greater turnover costs, and in some cases, business disruptions, labor economists said this turn or change typically signals a healthy labor market that is usually more suited to the employee’s skills, interests and personal lives.

In a March survey of 2,000 workers at one financial organization, one-quarter said they plan to soon look for a role with a different employer. According to HR professionals “People are seeing the world differently.” “It’s going to take time for people to think through the question of ‘How do I detach where I’m at and reattach to something new?’

We’re going to see a massive shift in the next few years.”

In my opinion, many workers who want a change now will have plenty of options available to make that change. Some sectors, such as electronics manufacturing and leisure and hospitality, are getting a boost from government stimulus packages and enthusiastic consumer spending. Employers are on the lookout for workers who are eager to make a move and prime to entice these promising candidates.

In a recent post on LinkedIn, a high-profile North American electronics manufacturer said, 65 percent of the employees identified as high potential received promotions or new roles in 2020 in order to keep them with the company and prevent losing them to other more lucrative opportunities. One trend some employers are seeing is high turnover among the newest employees, many of whom started remotely and have never met coworkers in person. The turnover is highest among that group because many do not have direct personal ties to their jobs based on only working from home.

Remote work also has expanded the recruiting pool for rival companies and technology firms, making employees with digital skills ripe for poaching by employers nationwide.

I believe there will be longer-term trends at work in the job-switching dilemma that still lie ahead of many. Safety used to be stationary and now job security and safety means movement. The more people move, the more they begin to feel that they are known and the bigger their business network becomes. This will open doors to new careers and jobs that will be more and more rewarding in the end.

Many of us in this industry will continue to struggle with this issue well into 2022 and will have to encourage our companies to take notice of their employees and not only provide better financial growth, but also an environment where the workforce feels comfortable and has the desire to grow their career with your organization.

Craig Sanderson
Sager Electronics
Sr. Vice President/Distributors
csanderson@sager.com

Picking up some parts that fell from the distribution center shelf!

It is just fantastic to have reached the halfway point in the year 2021. What a year it has been so far! Unlike any other. Distributors have seen incredible activity from customers and even more adjustments from the component suppliers. Suppliers are seeing record orders and also many are experiencing record shortages. Systems are being stretched. The supply chain is truly stressed. What a different year from 2020, which had its own very serious and unique challenges.

Did you see the announcement from the ERA regarding its 2022 ERA Conference? Seemingly, far off on the horizon, next year’s in-person conference will be here before we know it. After an incredibly successful virtual ERA Conference earlier this year, ERA decided to make the move to reunite and reconnect in 2022. Looking forward to seeing many of you there again in Austin, Texas.

It appears that customers have recognized what has been happening in the supply chain as they are placing purchases at record levels for a much longer horizon. Who would ever fault them? OEMs and CEMs need to meet their customers’ requirements and distributor on-hand inventory and inventory pipeline is needed now more than ever.

In the Spring 2021 issue of The Representor, we noted a number of developments during 2020 that forced us all to pivot to adjust. I was thinking about a “reset” for 2021. Well, you can forget about a reset. After the past six months, it is more like a revolution!

Listened to the ERA podcast with Walter Tobin, CEO of the ERA and John Drabik, Senior Vice President Sales and Product Marketing – Americas at TTI Inc. (These two were very good. Does anybody not want to speak with Walter?), I loved hearing John admit that when he started at Kemet, he had no idea what a capacitor was! Lots of knowledge and experience with these two on the podcast, both experts at distribution, the industry, customers and John’s experience working for suppliers such as Kemet.

Speaking of ERA podcasts, at the time this article was written, Walter also was recording a discussion with Phil Gallagher, CEO of Avnet. Phil, who is widely acknowledged as a “great guy,” and Walter, also widely acknowledged as a “great guy,” having a discussion together. I can’t wait to listen to that one. Save the outtakes!

In other news … Want to ship a 40-foot container via OCEAN from China to Los Angeles? As of mid-July, that will cost $9,681. That is an increase of 229 percent from one year ago. But even more impactful is that from 2010 to March 2020, the average rate for a container from Shanghai to Los Angeles was $1,800. By the time you read this, the cost will be more than $10,000.

My very first “job” at Sager was as a pre-teen. Occasionally, I would be in the office and to keep me out of trouble, I would be sent to the warehouse. There, I would be given a broom and was told to sweep the floor. Too young to officially be on the payroll, I was paid a penny for every part that I swept up. Still picking up parts of our business here today.

Also, something that you never thought about … until now — resin.

Texas is one of the largest exporters of resin, plastics and other petrochemical products. You probably knew that.

During the “polar vortex” storm in February 2021 in Texas, the production of 75 percent of polyethylene (PE), 62 percent of polypropylene (PP) and 57 percent of PVC was forced to shut down. The one-week shutdown resulted in 230 million tons of PE and 180 million tons of PP being lost. While recovery may be targeted for later this year, the impact will probably be felt for a much longer time.

I forgot to add that in addition to the scheduling of the 2022 ERA Conference, scheduled Feb. 27 – March 1 in Austin, Texas, the ERA Conference Committee also selected a conference theme — “A New Day, A New Way.” This theme truly reflects ERA’s and the Conference Committee’s common desire to support each other. The committee, led by Conference Committee Chair Bryan White, CPMR, of Catalyst Unity Solutions and Vice-Chair Lori Bruno of Luscombe Engineering of San Francisco, is off to a great start.

Finally, I hope to see you in Las Vegas in August for EDS!