Representor Spring 2020 - Executive Commentary

Reps and distributors — our industry’s ‘canaries in the coal mine’

by Walter E. Tobin
ERA CEO
wtobin@era.org
T: 617-901-4088

I promise you that this article will NOT mention the dreaded “you know what” as, frankly, I am sick of seeing EVERY article written or every news story on TV to be about this scourge and what it means to all of us … we all need a break …

Instead, I will focus my attention on how we can best manage our way through these tough times and who best to help us get THROUGH THIS and get OUT on the other side: the manufacturers’ reps and the distributors — our canaries in the coal mine!

How have they ALREADY played this role?

First: New opportunities and new designs are the lifeblood of our customers. The reps are now seeking out new ways to “meet” with the design engineers who are also working out of their home offices, using various video conferencing services to maintain the momentum of design-in activity. The work of our customers’ design teams goes on. They seek out and NEED help in advocating the best-in-class total solutions for their particular projects. Thus, the level of design activity is an early indicator of our customer’s health. The reps and distributors are both continuing to see an increase in the requests from the design teams at their customers for continued support in this area.

Second: Our customers have already begun to ramp up their demand for many different categories of products – perhaps due to a fear of constrained supply and/or increased demand for their products.

Many of our customers play a crucial role in medical-related products/services and need to ramp up to meet this new demand. The distributors are experts on supply chain logistics who manage extremely complex forecasting tools received from thousands of their customers and then aggregate them into their own forecasts to their many manufacturers. Thus, the new demand forecasts are coming in from a multitude of different customers across many different industries. No one is better at managing these demand signals than our distributors. Each one of them is watching these demand signals closely and positioning their orders on the manufacturers to support their customers and to maintain their own buffer inventory.

So, when you look at the overall supply chain, it all starts with the manufacturer, who designs and introduces new products to the market through their rep network and channel partners, and ends with the customer. Both the rep and the distributor work together to get these new devices designed into their common end-customer. The rep and the distributor working together on new designs and on supply chain management are a powerful team. The rep brings a long and deep knowledge of the territory and the customers. The distributor brings their knowledge of their customer base, many of whom are in the “long-tail” of customers, who need the same support as large customers. Thus, the combination of the rep and distributor is the best team to support both the manufacturers and the end-customers.

Over the past few years, several manufacturers have terminated their rep network and moved to a direct sales force, populated perhaps by direct sales members and managed by regional managers who are chartered with covering the “big accounts” and perhaps relying on their distributors to service the “long tail.”

In times like these, they may be less able to cover their direct customers due to time and territory limitations. This direct sales force is a fixed expense on the manufacturer’s P&L. As these uncertain times continue, this expense could become a major focus of the CEO as they deal with ways to reduce selling costs. Their reps were a variable cost of sales and not a part of any fixed sales cost.

Customers are now trying to do designs and supply chain management from home via FaceTime, Skype, Zoom, GoToMeeting, etc. They want to maximize the benefits of each new way of interacting while minimizing the number of these calls. The rep has many different manufacturers to update them on during a single video call — work on new designs, new products from several different manufacturers and perhaps propose a total solution versus a socket-by-socket process. Each interaction can cover several different manufacturers by a trusted rep who has known their customers for many years.

The rep model is based on a variable cost of sales. The rep gets paid by the manufacturer when the product gets shipped to a customer, usually from a distributor. There is no fixed cost of sales. However, as many of the manufacturers are shut down, it is incumbent that the manufacturer does all it can to continue to review the different POS reports from the distributors in a timely manner to process commissions as best they can during these unique times. Several manufacturers are working with their rep network to process ~50 percent of the past six months’ average monthly commission over the next 90 days to compensate their reps for their continued design-in work. They can do a complete reconciliation of the commissions owed when normal times resume.

The rep model has an opportunity to “step up” here with their customers, to not miss a beat in working on new designs, to continue to partner with the distributor on supply chain risk mitigation, to keep things moving along and keep their customers ahead of the competition, and to provide this real and tangible benefit to our industry.

In addition, the customer may now see the real benefit of a real person servicing their needs. The internet is a huge source of information for sure, but it cannot be intuitive in suggesting the BEST solution for YOUR need without the history of your company or product portfolio — the rep can!

This is certainly a huge tipping point for the rep model. It is times like these that offer an opportunity for folks to demonstrate the value they bring to the table. A good rep, aligned with a strong distributor, can go a long way to allow our mutual customers to not miss a beat.

Over the past few weeks, our canaries have seen NO LETUP in design activity, just a need to conduct it differently. They have seen an INCREASE in demand for many products to support not only the medical market but other related segments to hedge any shortage of products.

Stay close to your reps and distributors! They are both a true and real barometer of what the market is going through now and where it is going.

Keep your skates sharp and help direct the puck to where YOU want it to go.

And listen to our canaries!

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