Channel Management is a huge opportunity to increase sales and have great eyes and ears in the market place. But inconsistent Demand planning and lack of integrated supply chain practice with the channel lead to less value in the relationship.
In our interviews with firms that rely on the channel we have found disparate practices. But those that have invested in more precision, more support, and better processes, are quite enthused about the improved results that they are achieving with partners.
As we discussed in Part One, managing channels is not just orchestrating events, but rather a set of holistic programs that provide more precision in the method and management. One area where brand companies and manufacturers can improve is the supply chain and forecasting practices within their channels.
For many firms that sell through channels, the sheer distance from the end market makes accurate demand planning a huge challenge, one that many have ‘given up on.’ In addition, they use antiquated methods to stimulate demand or create unnecessary pricing discounts — blunt instruments due to lack of demand planning processes and market visibility.
The farther we are from the end customer’s purchase/consumption date, the longer the supply chain cycle time, the more challenging the forecast. If we are too far afield, we miss orders, miss profits, lose customers and maybe lose the company. Yet one up/one down forecasting is the model, and suppliers often don’t trust the forecasts. So, how about the supplier managing the demand process? Managing your channels to manage your forecast accuracy.
Demanding Demand
In Demanding Times, Bill McBeath talked about the need for aligning demand and supply — sales and operations planning. ”If the demand and supply are not coordinated, then the manufacturing plant may be building more inventory while marketing is reducing price to get rid of inventory, a Sales and Operations Misalignment. Sales and operations planning is meant to break down these walls between operations, sales, marketing and finance in order to align supply and demand, but typically suffers from inaccurate input forecasts and long (monthly) cycles resulting in stale plans that don’t incorporate the latest information.“
First, it behooves companies to have a structured view to how they design the interfunctional decision making, such as we see in Figure 1 (right).
Aligning process is a practice.You get better at it with time, as the insights come. Let’s look at some learning to engage with channel.
Common Mistakes/Common Opportunities
Who’s the Customer?
One practice that we often see, especially in hardware firms or component firms, is defining the channel partner as the ‘customer.’ Although it is true for so many that, due to the nature of your product, you are looking up a stack of assemblies and it appears a long way to the end market, that market might not be as far away as you think. In fact, the end consumer of your product is ultimately driving the sales, though you may have little knowledge or contact with that segment of the market.But to ignore it or not try to analyze it in an analytic way would be a huge mistake.
This often happens with raw material providers. But fad and fashion or changes in value can rapidly dry up a market.And for many channels, substitution may be easy, with little risk to switching. So, mastering the end market and creating brand awareness of the uniqueness of your product, though appearing to be a commodity, would be wise. Your device may be used in automotive, but there might be a market for it in transportation. As the auto market depresses, the question arises as to how to capitalize on a growing end market instead, through other partners, other nuances in the way you sell, package, etc.Many of our customers are embedded technologies that partner with other of our partners. And it is interesting to listen to the OEM vs. the embedded devices, vs. the VAR, vs. consultants/application providers. For the embedded device designer, these are all constituents that they need to manage and satisfy, but who is the customer? The Customer is still XYZ Company that will use the final solution in their business.
This tedious little lecture may seem oh so obvious, but it makes a huge difference in forecasting and business growth! Lessons have been learned by the big box merchants, that the brand companies know better about the long term impact of their products in markets; rather than particular stores that may be good at a tactical short term demand signal, but have little understanding of the value or application of a particular product.
Product Life Cycle
For many markets, getting the new product introduced correctly is a onetime chance. Often the channel partner is the last to know, with last minute announcements. Once the product is ready, manufacturing throws a big party to announce and train on the product, and poll for sales numbers — not a great NPI strategy. Often, wild pronouncements are made on the future sales of such products, but the sales are not delivered. This particular set of behaviors is often what leads to the cynicism in channel programs.
The solution is more collaboration, from design through the life of the product, so that the strategy forecast has not only their insights, but also the commitment of the channel to sell the volumes. Then the partners have time to prepare and ready their team, and gain the needed insights at the customer level in order to mount the right kind of sales efforts, whether new sales, upgrade, or replacement within their customer base.
Start When You’re Young!
Often younger or smaller firms feel that these approaches are not for them. Au contrarié! “When we started working more closely with our channel partners, stimulating more demand, through unique marketing programs geared to specific partners, sharing leads and managing the overall sales process in a consistent way, we found we got better results,“says Tim Pavela, CEO of OmniID and Foster City, High Tech brand and manufacturing company.
Young companies, that sell components through a larger VAR, can also ‘draft’ on the programs of their larger and closer to the market partners.When discussing the innovative partner program of the VAR, Motorola, with the smaller component provider, they stated, “With Motorola driving better training and performance in the channel we can all benefit, and it improves the market for all of us.”
Stretch It Out!
Most of the great practices in Demand Management should be applied (Figure 2, above), just stretched across the network of channel partners, but applying precision and security — non disclosure — in the relationship.
Issues such as price erosion can be avoided with better market visibility: why are customers buying or not, and how we can improve the offering, if needed.
A bit more thinking about how this applies to demand practices with some precision (based on sales performance numbers, ultimately) can allow you to enhance your business planning process across the channel.
- Architect your channel (we will come back to this in Part 3) so that you understand the unique structure and drivers in your outbound channel market
- Discover markets together — understand the unique channel and market requirements that might require specific campaign, product package, fulfillment and aftermarket services
- Work with the channels throughout the product life cycles for feedback
- Create strategic forecasts based on industry and end-user segments
- Share this model with channel partners
- Create a go to market sale and market planning process with each channel partner
- Proactively drive sales — don’t wait for the channels to bring you the business
- Insert yourself in the sales process as the ‘expert’ so that you can influence the deal or at least have better insights into ‘how the process is going”
- Conduct regular forecasting meetings to review accounts and results
- Learn from above and get better
- Automate the process
Over time you will be able to manage each relationship with precision and understand what products they sell best. If they are struggling with certain products, be able to build training programs around these, or segment your channels based on the markets and capabilities of each partner.
Resources:
Demand Management- A Structure View
Demand Management for Manufacturers
Demanding Times-Next Generation Demand Management
To view other articles from this issue of the brief, click here.