Spring 2022 – ERA XCOM Digest
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Ellen Coan, CPMR
CC Electro Sales
Sr. Vice President/Education
Communication, collaboration and celebration = successful ERA reps! As we all gathered in Austin and worked together in early March 2022, we listened to each other and took our new knowledge back to our chapters and companies and applied it in our unique way that fits our company culture. We learned our company culture is in our hearts and not the walls of a building as Seth Mattison pointed out. We also recognize we are not going back to “normal” but rather forward on our ever-challenging adventure. We commiserated about supply chain issues and were concerned as we watched the invasion of Ukraine unfold. We joked about whatever generation we are and respected the other generations to find new ways to work together. A new day, a new way! We chose breakout sessions to attend and dig deeper into our daily dilemmas. We ended the conference with Michael Knight’s wisdom and insight. All of this sparked great conversation and a thought-provoking trip home. ERA education will continue to offer its members choices that are applicable in real time.
Many member volunteers join together to create the agenda and the outstanding ERA staff executes the program. It takes a village and this is one strong village!
Beyond the annual ERA Conference, there are so many other opportunities throughout the year to share and listen. Water Cooler sessions take place biweekly, podcasts monthly and an annual virtual ERA sales training takes place in September. You can find pertinent information on the ERA website – www.era.org – on attracting and training interns, territory guidelines, sample contracts, white papers, etc., and more training/certification through MRERF.
ERA is known for fostering education and networking. The newest initiative is networking the newest rep firm employees in the NexGen Special Interest Group. As this group of reps virtually discuss their successes and concerns across the country, they are forming the ERA of tomorrow.
Thank you to all the volunteers at ERA – reps, distributors or manufacturers! We all know the importance of working together and understanding all the goals in every segment of our business. Thank you to ERA for understanding your members and being there with us every step of the way!
Cameron English, CPMR
English Technical Sales Southwest
Sr. Vice President/Industry
Proof of Life
2022 brings a whole new set of economic forces. It is apparent that the challenges of the past two years are now transitioning into a whole new set of concerns about our industry’s economic standing. All of this frames the subject of our viability as an industry profession with the example I wanted to illustrate: I heard recently about a manager in our industry that observed “The rep business is a dying animal.” What this individual does not see are the subtle yet big trends in the market, most of which are favorable to the representative model. I would observe that in the last few quarters, I have seen more suppliers voice an intention to and/or convert back to a representative model. The representative model is not only alive and well, but prospering and growing.
What logical path did I use to come to this conclusion? First, there is an underwhelming lack of available skilled talent in the market right now. Salaries are going through the roof, a lack of people available for solid jobs, a shift in the mentality that people do not want to grind away their life on the travel routine anymore. The fact that representatives have people in place, ready to cover the territory as residing expert consultants, is a strong and compelling reason for direct suppliers to reconsider using representatives. The bottom line is: as costs go up for fixed expense employees, manufacturer’s representatives remain ready, willing and able to perform, all at a variable expense.
Inflation is proven to act as a tax long after companies have calculated their historic cost of sales. In the rep model, commissions increase in an offset for the increase in revenues, a natural net balance formula. Contrast that to the fact that rents, salaries, utilities and all costs related to direct employee compensation overall are experiencing double digit rate increases. The more organizations can buffer inflationary pressure, the healthier those same organizations will fare throughout the economic pressure.
In regards to our ill-informed manager example above, the representative model is poised to experience a renaissance of incredible potential. Just recently, I heard of three separate major and well-positioned market share component suppliers pivoting to a representative model – one electro-mechanical and two semiconductor entities. In each case, the news was highly encouraging – they were going through the process of re-evaluating their sales strategy and were moving towards the representative model and away from the direct approach.
Let’s look at a hypothetical component supplier, using the following model for a smaller to mid-level organization (say $50 to $100 million annual revenues):
Using simple math, in order to equal the cost of sales at an assumed commission rate of 5 percent, covering the cost of one direct salesperson would be the equivalent of $300,000 per month or $3,600,000 per year.
To make things more interesting, let’s look at an example of a logistically challenged territory, much like where my company is located. Southern California has very challenging logistics to cover the four major regions: San Diego, Orange County, Los Angeles and Inland Empire. The challenging Southern California dynamic of traffic, distance, (not to mention the present cost of fuel) and the need to reach the Northern border of the designated region from San Luis Obisbo to 75 miles south of the California border, makes it a very tough challenge for suppliers to deploy a direct sales force. In order to cover the area, a supplier really needs four outside sales representatives.
Using four sales representatives as a reasonable assumption for coverage, we would now need four times the number of affording a typical salesperson – or $3,600,000 (see Chart 1) x 4 = $14,500,000 total annual sales. Southern California is a strong POS and direct market, estimated at somewhere between 18 to 22 percent of the U.S. total S.A.M. for electronics components. It is very possible that many companies have this level of sales. If you are not one of those, this applies even more so to you. Looking at this from a simple cost of sales viewpoint, Chart 2 shows volatile sales in the territory, with an average of $214,000 over 12 calendar months, with total sales of $2.57 million.
The direct model (in orange) shows a cost of $1,043,000 for the year.
The representative model (in blue) based on 5 percent would equal $128,000 in commissions for the year. (Did I mention this is a variable expense as well?)
One could question the assumptions or logic made regarding the territory and could question the cost model I presented. Still…the gap between costs for a direct sales force versus a representative model is dramatic. The crossover point where direct costs become insignificant will only occur in cases where the sales revenues are very high. As shown above, more than $20 million would be necessary to warrant a direct sales force of four people in Southern California. Can you trim these numbers? Yes. I would only add that salaries are going up fast, and things like health insurance and other costs are right behind.
You may want to point out that cost is not the only factor. Control of the sales force, flow of information and the ability to impose high levels of expertise are all reasons for motivating a supplier to embrace the extra costs. I would almost agree with some of that as a motivation to consider direct versus rep, and would only point out that the new systems and information technology can easily bring high levels of technical competence and or communication as well.
One of the things we have learned is that the last two years have basically created a level of independence for direct field sales representatives that in many ways resembles the representative landscape. The new format is for employees to work out of their home office, report virtually from the field, set up sales presentations from the field and work outside of the confines of the factory facility walls. What does this resemble? An increasingly independent sales force.
If you are building a new or expanding sales team in a territory, and you do not have a substantial current revenue stream, why would you plunge headlong into the high fixed costs of a direct sales force? The proof of life may very well be in the fact that there is a strong trend for suppliers to wake up to the fight to manage costs with the option of sticking with existing ERA representatives. When performing a “make versus buy” or direct versus rep strategy, the question should be: how effective will this sales force be in accomplishing the growth and development of the territory?
In summary, what do you think are the driving factors in deciding to “go representative?” Cost of sales? Influence and reach in the industry? Ability to drive growth? A representative strategy is becoming more and more attractive in today’s dynamic reality. It is time we stopped thinking about the way things were, and look at what is happening in the market. Customers want hyper-responsive support, and a manufacturer’s representative is very often closer to the customer than anyone else can be.
Kingsland Coombs, CPMR, CSP
Control Sales Inc.
Sr. Vice President at Large
I am pleased to announce some updates to the ERA White Pin and its relaunched internship program.
If you have not heard already, Mark Motsinger will be stepping down as White Pin chair. His dedication to the cause and his leadership was immeasurable and he will be missed. However, he will always be available to us as a resource, so his brainpower is a phone call away.
The White Pin management will transition to me, with the fundamental purpose of White Pin unchanged. It will remain dedicated to recognizing and embrace ERA members who have put in their service at the national level. White Pin emerged years ago as an education platform and, going forward, we will relaunch this ambition with the ERA White Pin internship program. This program will be under the ERA XCOM umbrella with Ellen Coan, senior vice president of education for ERA, as its formal adviser, and me working directly with Ellen and the ERA staff.
We still start the program slowly and focus on only a few interns for 2022 as we try to perfect the model. The goal is to launch the program formally by end of March as we know the window for internship applications is closing quickly.
ERA White Pin will subsidize a small number of Summer 2022 rep internships, typically 8-10 weeks. Depending on its success, the program will ramp up for 2023. Reps will need to submit applications to qualify for the subsidy. Reps who are interested in the program are encouraged to contact the placement offices of their local colleges and universities. ERA will provide the content to aid in the process.
ERA has developed an application form for rep companies to be used to describe the need and requirements of their intern position. The application form will include:
• Brief description of the rep firm
• Brief description of the intern position project or position/duties
• Goal of intern hire (temporary help, looking to fill open position, give back to community, etc.)
• Identification of local colleges or technical schools to target
• Preferred academic majors
• Skills or qualifications; education requirements
The application will be reviewed/vetted by the ERA committee.
Recruit and hire the intern
Rep firms can work with the ERA as needed to create the job post. ERA will help the rep firms vet and select applicants.
Rep firms will also post the job on their website and social media and look for referrals from industry, friends and family.
Rep firms will then review resumes, interview and hire. Rep firms will have the intern undergo the normal onboarding process (complete the required government paperwork, pay taxes and follow any safety regulations or other labor laws, provide workers’ compensation coverage, etc.)
It is recommended that the rep firms execute an internship agreement, documenting the expected start and end dates of the internship (aligned to the academic calendar), along with a statement that there’s no promise or guarantee of employment once the internship is over.
Rep companies will have full responsibility for the internship, with support provided by the ERA.
The ERA will host virtual meetings for the summer internship class. The virtual meetings will bring the interns together for training and discussion led by ERA member volunteers (similar to the Fall ERA training sessions). Possible virtual meeting topics will include: the rep model and entrepreneurship; distribution overview; electronics components industry growth proposition; sales prospecting; using value to fill pipeline; how to profile an account and first-time buys; utilize search engines for lead generation; leveraging data in sales – Excel, Power Point, PowerBI; consultative selling foundations; six essential rules of sales negotiation; and career paths in electronics components sales.
The internship program can benefit all parties involved. It fulfills the White Pin group’s commitment to help attract college graduates to the rep model to keep the industry fresh and relevant. Rep firms can develop a potential hire. ERA can use the program as a marketing tool, while leveraging its expertise in virtual meetings and training. Ultimately, it is the ERA White Pin Group’s goal to create a national class of Summer 2022 (and beyond) rep interns to further advance the field.
Sr. Vice President/Manufacturers
This past week I had the pleasure of attending what will be remembered as the first “in person” live event in the electronics industry since the initial outbreak of COVID two years ago. What an excellent way to create that feeling of a “new normal!” Once again, the ERA Executive Conference Committee put together an informative and enjoyable educational and social networking extravaganza. It was a pleasure to once again reach out and touch a human in our industry and not be forced onto a small video screen on our computer monitors.
The interaction of all who attended was outstanding. It was if we had all been thrown into a time machine and sent back to a day when there were no worries of a nasty contagious virus, face masks, social distancing or restrictions. (Everyone I encountered was completely respectful if anyone felt uncomfortable). But it was obvious that everyone who made the brave decision to attend the event was ready to interact and reconnect with so many friends and colleagues that seemed so distant just a few weeks ago.
It was absolutely refreshing to listen to some excellent speakers live on a stage in a huge ballroom with so much great information to share with over 500 of the attendees. The breakout sessions were right on target as far as topic and presenters. Everything just seemed to come together once again and provide all of those attending with a much-needed boost of energy, motivation and happiness. Many thanks to all who were involved in putting on the best “coming out” party this industry has ever witnessed!
As we all headed back to our daily responsibilities though, the ongoing issues in the manufacturing sector remain real and frustrating. Many are still experiencing huge order volumes along with the many delays due to raw material supplies and logistics backlogs. For many of us (including our rep and distribution partners), this has become a constant battle. Struggling to keep the customers informed of every step of the situation along with trying to supply them with the necessary products to fulfill their production schedules has really added a great deal of stress to our daily lives in this industry.
My advice to my reps and distribution partners is to take each day one at a time. Give the customers only the honest information that is available that day. Do not make empty promises just to keep them happy, because in the end it is very likely this will not be fulfilled in a timely manner.
We must all keep a daily balance of information that can be passed along to our customers while holding back the things that would be better left between the manufacturers, reps and distributors. This in the end will help avoid the conflicts that usually arise from false promises. This communication process between the three constituents really needs to be strong and most importantly, consistent. Reps need to have a good understanding of each of their principals’ struggles, lead times, level of expedites and the right contacts that can help during a very difficult situation. I think holding a weekly video call with the regional or distribution managers is a good way for all reps to always be in the loop on the latest developments.
Day to day, the logistics frustrations seem to just get bigger and bigger, and all electronic manufacturers struggle with getting products out of their factories and into the right channel. At the time I am writing this article, the Russian invasion of Ukraine has added even more challenges to an already difficult logistics process. This war has disrupted many of our normal operations overseas and has not only added more costs, but also increased the transit time for many of the lanes out of Asia and Eastern Europe. Therefore, constant communication is the key to making sure you always have the latest information available to supply to your end customer. From a Schaffner EMC point of view, I always appreciate when I hear that our rep organization reaches out to our regional managers to stay on top of the latest news and changes as they relate to getting our products out of the factories. I believe the direct line of communication has helped to keep most of our customers content with the overload of bad news that is shared every day.
Last but certainly not least…I would like to once again thank the ERA, the Executive Committee and all of the members, for the unexpected and surprising Tobin Bridge Award that I received at the ERA Conference in Austin. It was certainly an honor and a very humbling experience for me to be receiving an award of this level from my colleagues in the electronics industry. I will be forever grateful for the kind recognition and the importance that this award represents because it really means everything to me.
Please feel free to reach out to me anytime at Schaffner (email@example.com) if you have any questions or concerns about your involvement with this great organization. My door, phone and email are always open!
Sr. Vice President/Distributors
Time to spring forward!
Time to spring forward – however, I cannot help but look back. The ERA just concluded their 58th ERA Conference. What an event! More than 550 people attended this live event held in Austin, Texas. As has become the hallmark of the ERA Conference, the speakers and their content, the breakout sessions, the networking and the awards were all impactful. Participants in the conference all leave the event with a high degree of knowledge, energy and a better understanding of the forward-looking direction of our industry. You should recall that the ERA Conference was last held as an in-person event in February 2020, but pivoted to a virtual event in 2021. More than 800 people attended the virtual 2021 ERA Conference. The momentum from the 2021 virtual ERA Conference was impressive as more than 250 new attendees came to the 2022 ERA Conference. What a tribute to the ERA Staff of Erin Collins, Karin Derkacz, Ama Derringer, Kathy Green and Clare Kluck, the Conference Committee volunteers, the Conference Committee Chair Bryan White of Catalyst Unity Solutions and Vice-Chair Lori Bruno of Luscombe Engineering of San Francisco and the ERA CEO Walter Tobin.
Looking forward, the past year of 2021 was a year unlike any other in the history of the electronics industry. The increased demand from OEM and CEM customers collided with the supply chain, labor, manufacturing, logistics and weather issues to drive component demand to very high levels. The question of the day is: will it continue? Alternatively, as suggested by some, will it fall off a cliff? It’s hard to be sure, but one thing is for sure: distributors will have invested in a significant amount of inventory and the OEM and CEM customers will rely even more heavily on distribution for support. Customer order backlog at distributors and distributor order backlog at their component suppliers remain at significant levels. Component manufacturers’ lead times continue to be long and will possibly stay that way over the balance of 2022, as many of the factors cited above will continue. All of these factors have had the following effects: OEM and CEM customers are taking measures to avoid the delivery issues experienced in 2022, and distributors are reacting to the lead times by ordering significant amounts of inventory to counteract the extended lead time and address increased customer demand. What are the customers’ measures that they are taking? Customers are extending their forecast visibility well beyond historic lead times. In addition, customers are placing purchase orders with scheduled deliveries into 2023. There is anecdotal evidence that OEM and CEM customers are possibly stockpiling inventory as a measure to counteract the long lead times that many component manufacturers are currently experiencing. It is clearly an example of supply and demand, the economic principle that usually governs our inventory. Currently there is not enough supply to meet the current demand.
Historically, after such a cycle, the next cycle will be an oversupply while demand will be reduced. The question is when will that occur? With supplier lead-time still very long, and no true indicators of improvement, I suggest that it will be more than a year before the current situation changes. Until then, OEM customers continue to develop new applications, new products and new industries. In addition, potential growth in near shoring is a factor, which is a positive sign for North American markets. Distributors continue to strengthen their marketing efforts and continue to support OEM and CEM customers with technical support, supplier management and addressing logistics and inventory support, which is as important as ever. Component suppliers continue to develop NPI and increasingly rely on their distributors and reps to manage the OEM and CEM customers in a world fraught with supply and demand challenges.
Another significant development over the past 18 months has been the creative and solid approach that rep firms have employed to strengthen their engagement with customers. The reps’ pivot to virtual engagement has kept the rep organizations in touch with their customers. Their investment in tools to bring enhanced value to each virtual meeting has positioned them to continue to be a trusted partner for their customers. Reps are providing tools such as audio-visual equipment to better display products during a technical call, providing training and industry trends to customers and distributors, and developing and employing marketing communications tools to expand their reach and enhance the delivery of content developed for customers. Even adding a link to their emails that enable customers, suppliers and distributors to contact the reps for an impromptu virtual meeting has enabled them to increase their value during this time of limited in-person meetings.
Therefore, it’s time to spring forward! I trust that we all will continue to meet the exciting challenges our industry provides each day. Over the past two years, I have never faced as many challenges that were unheard of until now. Yet, together we have met many of these challenges and I look forward to many more. Thanks for the teamwork.