Managing channel conflict with extended supply
Wednesday, June 14, 2017
Layer One - Vice President of eCommerce
Since the early 90s, the trend in mid and large size B2B companies has been to consolidate their decentralized procurement groups and streamline their supply chain operations optimizing their buying power, supplier relationships and of course, reduce cost. This optimization typically lends to procurement group/s purchasing product and services for multiple ship-to locations.
As a result, these companies are finding benefits in working directly with manufacturers (vs. Marketplaces and Distribution Channels).
Why? Well consider these seven common business drivers:
1. Managed Service
Companies are trending toward a single managed service that understands their business, builds confidence and trust, and is successful when they are successful. They provide a single point of accountability for their products, services and how they are fulfilled. This helps their customers optimize their supply chain while being easier to do business than the competition.
2. Consolidated Transactions
Imagine having to order the same product for multiple locations. And to get the products delivered on schedule, must coordinate multiple orders with different Distributors closest to each ship- to location. And then be invoiced by each of those Distributors. Turning what should have been a single order into multiple order and invoice transactions leading to higher administration and transaction costs.
3. Quality Information and Data
Working with multiple Distributor or Dealers, the risk of inconsistent product information and data is higher than working with a single point. In addition, Distributors and Dealers may not provide visibility to the manufacturers full product offering. Accountability for data quality and completeness is greater with the manufacturer and leads to a reduction in customer returns, cancellations and exchanges.
4. Consistent, Fixed Pricing
Most mid to large size B2B companies are looking for yearly fixed pricing contracts from their manufacturers that allow for stable forecasted cost. This can be difficult at times when dealing with variable price marketplaces or multiple Distributor locations offering their own promotions. Remember, these customers still have one procurement system where they can only manage one price per product. Invoice reconciliation with negotiated contracts lead to increased costs and channel pricing conflict. In some cases, the customer is even willing to pay more for a product just to obtain consistent pricing.
5. Transparent Inventory
As part of optimizing their supply chain, having product delivered on schedule is part of the equation. Having to follow-up with multiple Distributors or Dealers is costly. These customers want someone to manage their demand in a fashion where they do not need to be concerned about where the product is being shipped from, just that they are receiving it when they need it. In some cases, they are even looking for consignment. But, that is a future article.
6. Continuous Improvement
When these companies enter a long-term pricing contract with a manufacturer, they usually are also looking for a value proposition beyond a buying decision solely based on price. Even when Maintenance, Repair and Operations (MRO) or commodity type product are the focus of the relationship. They are looking for the manufacturer to keep them abreast of advancements in their product and how they can be leveraged to their full extent obtaining the highest ROI and benefits that can be achieved. A manufacturer can coordinate this with their extended enterprise of channel partners in making sure this is achieved.
7. Integrated Systems
To streamline the supply chain, larger companies are looking for real-time integration of their buy-side procurement and purchase requisition solutions with their suppliers sell-side eCommerce solutions. Integrating with the manufacturer verses each of its Distributors (or having them integrate with them) lends to a greater number of integrations and associated IT cost that needs to be managed.
If you are experiencing this or hearing any of the above from existing or potential Corporate/Named Accounts, then read on…
Sell Direct without Channel Conflict
Channel conflict has always been a significant concern for Manufacturers considering selling direct. Especially those operating under a limited distribution model where sales regions are established for each Distributor or Dealer. Selling direct circumvents sales territories and is in direct conflict with limited distribution agreements. The impact may seem lower for mass distribution models allowing channels to sell anywhere. However, selling direct still threatens the heath of these channels impacting product price points, related margins and brand loyalty. So, this leaves many B2B Manufacturers searching for approaches to address these direct requests while reducing channel conflict.
So, what should I be considering if I am one of these Manufacturers?
“Extended Supply Models” allow for direct sales without channel conflict”
What is an “Extended Supply” Model?
Extended Supply Models allow for a Corporate or Named Account to submit a single order to a manufacturer’s agile Ecommerce solution (verses their Enterprise Resource Planning solution, aka ERP). Orders can be submitted manually through a B2C-like ecommerce experience, uploaded from a file, integrated via web services or traditional EDI. There are many manual and automated integration approaches that can and should be offered to support different types of customers.
The order items are then analyzed by the ecommerce solution using a routing engine that segments the single customer order by various criteria, the primary being the ship-to address assigned to each line item. The routing engine bundles line items by shipping address and creates an order for either the closest Distributor to that ship-to location, closest with available inventory, or by allowing the Customer to simply select the Distributor that they would like to fulfill each ship-to location (in advance or ad-hoc). There are many ways to slice and dice order using routing rules, end- result being the manufacturer distributing the bundled items into individual orders to the appropriate Distributors. Like with the customer order, the routing engine can distribute these orders through EDI, Web Services or via an online back-office portal where the Distributors can manually process their orders. In most cases, the Distributor is responsible for shipping, servicing and supporting the product. However, the Distributor invoices the Manufacturer (verses the Customer) when product is shipped. The Manufacturer receives the invoice transactions from the Distributors logging them in the Ecommerce solution via the same means as they were distributed from the Manufacturer. The Ecommerce solution then consolidates these Distributor invoices into a single periodic invoice to the Customer.
Consistent, contract-based pricing is supplied to the Customer with the contract and margin having been determined in partnership with the Distributor based on a competitive situation. The Distributor’s profit margin can then be supplied in the form of a credit memo, rebate or other model. This mitigates the channel conflict and supports the Distributor. It is a win-win situation.
There are many ways to slice and dice “Extended Supply” models and provide additional capabilities. But regardless of the slice, the Customer is provided with a consolidated transaction, consistent pricing, transparent inventory and integrated data. This all provided by an Ecommerce approach and solution that allows the Customer to have an on-line managed service experience allowing them to understand the status of their orders throughout the entire process.
For more information on Layer One Media and Extended Supply Models, contact us.