Adam J. Fein: The productivity imperative for wholesale distribution

Technology will play an increasingly important role in this improvement.   In a Pembroke Consulting and Progressive Distributor magazine study of senior industrial distribution executives, we found that improving employee productivity was the most important business outcome from their technology spending.  The productivity rationale trumped all other concerns among small and mid-size distributors. 

The executives in our survey correctly perceived the opportunity provided by technology.   Total compensation – salaries, commissions and benefits – is the single largest component of annual operating expenses for wholesale distributors, representing 60 to 70 percent of total operating expenses.  Compensation costs in wholesale distribution are increasing twice as quickly as product prices in many industries, creating profit pressures for all intermediaries.  Healthcare premiums are a major culprit behind recent increases in compensation costs.

Wholesale distribution has been at the forefront of using technology to reduce repetitive, low value-added activities.   The largest internal productivity improvements in distribution industries have come from substituting information technology for repetitive human processing activities such as order processing, billing, inventory control, delivery route scheduling and warehouse management. 

Customer self-service technologies are another cost-effective way to boost the productivity of sales and service personnel, especially when used with customers whose level of spend does not justify labor-intensive interactions.   (See Customer self-service comes to wholesale distribution)  

For example, C.H. Briggs Hardware Co., one of the largest independently owned hardware distributors, identified its unprofitable customers and analyzed why it was losing money on each one. One customer placed multiple orders each day, increasing transaction costs and lowering profits to an unacceptable level. Rather than losing the account, Briggs’ salesforce demonstrated how much the customer could save by ordering on the company’s website once a day. The customer saved time and stopped receiving multiple orders and invoices, while Briggs was able to lower its transaction and fulfillment costs so much that the account became profitable.

The productivity of the average outside salesperson can also be increased. Automation can help salespeople devote less time to tasks contributing to their main objective of driving revenue and profits through selling. E-mail and electronic reporting will cut down on the time salespeople spend on repetitive tasks. Routine administrative activities, such as following up on sales credits, will be automated.   Wireless handheld devices provide salespeople with the ability to access information, answer questions, or retrieve customer information throughout the sales day.

Our Facing the Forces of Change: The Road to Opportunity study found that wholesale distribution executives expect to redeploy their salesforce toward more prospecting and away from dealing with existing customers.  However, these productivity improvements will only come if the salesforce is comfortable selling through new technologies and can teach customers how to gain information, place an order, or solve simple problems themselves.  For example, a wholesale distribution sales rep could teach customers to access the wholesaler-distributor’s website for product information, special marketing promotions, and account information.

Looking ahead, productivity will only grow if distributors can cost-effectively apply technology.    However, technology alone can neither remedy customer satisfaction problems nor replace a clear business strategy or provide specific business requirements. 

Wholesale distribution executives should be sure to have fact-based answers to the following questions before making their next technology investment:

• What problem are you trying to solve with this technology?   What will happen if you do not solve this problem?
• What quantifiable productivity improvements will your company gain from this technology versus continuing to perform tasks manually?
• Will this technology allow us to automate or eliminate internal activities that add costs to our business but do not deliver value to customers or suppliers?
• How, if at all, will this technology help you to serve customers better?   Will it reduce error rates? Will it improve our self-service capabilities for customers? 

Fact-based answers to these questions will help a wholesale distribution company reap the full productivity rewards from their technology investments.