$34.00 MDM Special Report: Sharing Point-of-Sale Data: Challenges & Opportunities Copyright 2012 by Gale Media, Inc. All rights reserved. Modern Distribution Management and mdm are registered trademarks of Gale Media, Inc. Material may not be reproduced in whole or in part in any form whatsoever without permission from the publisher. To request permission to copy, republish, or quote material, please call 303-443-5060.
2 MDM Special Report: Sharing Point-of-Sale Data Dear Reader: In part 1 of this report, starting on the next page, we look at the obstacles to broader acceptance and more strategic use of point-of-sale data in the channel. Obstacles include distrust, a resource gap for both distributors and manufacturers and distributor-manufacturer market misalignment. In part 2, on page 6 of this report, we examine how sharing point-of-sale data can uncover opportunities for channel partners to operate more effi ciently and grow sales in the channel. But there are hurdles: Using data more strategically requires not only an investment in resources to crunch the data, but also a shift in culture. These articles were originally published in March and April of 2012. Enjoy, Lindsay Konzak Editor MODERN DISTRIBUTION MANAGEMENT Founded in 1967 by J. Van Ness Philip Publisher Thomas P. Gale tom@mdm.com Editor Lindsay Konzak lindsay@mdm.com Associate Publisher Craig Riley craig@mdm.com Associate Editor Jenel Stelton-Holtmeier jenel@mdm.com Editorial Advisory Board John Allenbach SVP, Professional Sales, Apex Tool Group Kevin Boyle President of Industrial Distribution Consulting LLC Ted Cowie Executive Vice President, Elvex Larry Davis President, ORS Nasco Larry Goode President of Goode Advisors Inc. Julia Klein President and CEO, C.H. Briggs Company Stuart Mechlin Industrial distribution industry Doug Savage President and CEO, Bearing Service Inc. Burt Schraga CEO, Bell Electrical Supply Contact Information Questions, comments, article proposals, address changes or subscription service to: Gale Media, Inc. 3100 Arapahoe Avenue, Ste 201, Boulder, CO 80303 Tel: 303-443-5060 Fax: 303-443-5059 Website: http://www.mdm.com Subscription Rates To subscribe to Modern Distribution Management, please call 303-443-5060, email hadley@mdm.com or http://www.mdm.com/ subscribe. Subscriptions are available by online delivery and/or fi rst-class mail. Nine years of archives of MDM are available online to subscribers. Published twice monthly; $345/yr., $365 U.S. funds other countries; $169 each additional subscription to a company ($189 other countries). Six-month and two-year terms are now available. For group subscription rates and site licenses, please contact Hadley Fable at 303-443-5060. Copyright 2012 by Gale Media, Inc. All rights reserved. Modern Distribution Management and mdm are registered trademarks of Gale Media, Inc. Material may not be reproduced in whole or in part in any form whatsoever without permission from the publisher. To request permission to copy, republish, or quote material, please call 303-443-5060. ISSN 0544-6538
MDM Special Report: Sharing Point-of-Sale Data 3 Sharing POS Data: An Exercise in Trust Tension around channel data-sharing is an obstacle to collaboration This article, part 1 in a series, examines the hurdles to a broader acceptance of customer data-sharing in independent distribution channels and how those hurdles may be holding channel partners back from higher profitability due to greater transparency. By Lindsay Konzak Based on MDM surveys and interviews, just a small percentage of distributors and manufacturers across sectors are experiencing significant competitive advantage and market insight as a result of sharing point-of-sale data. Two-thirds of distributors in a recent MDM survey said they share POS data with at least some of their suppliers. Of those that do share data, 60 percent do so with less than 10 percent of their suppliers, likely the largest manufacturers in their markets. Most of these distributors said sharing the data was required and supported by financial incentives. Very few distributors said they perceive direct strategic benefit. In those sectors such as electronics where sharing POS data ranging from providing broad Cost of Goods Sold (COGS) by industry or ZIP to customer-specific data is standard, the prevalence of customer data-sharing is typically driven by which part of the channel holds the most leverage. The degree of consolidation and distribution market makeup exclusive vs. non-exclusive lines, whether manufacturers sell direct, whether distributors have territories or compete globally play a key role. Broadly speaking, MDM found that in most sectors, regardless of whether sharing data from distributor to supplier is standard, the topic of POS data-sharing sparks tension in the channel. Requiring this data is a symptom of distrust in the channel, and it adds to the friction between partners, one respondent to the MDM survey said, echoing many other distributors in the survey. At the core for many is the feeling that the customer is their own, and the customer list is one of their most valuable assets. While the emotions surrounding the sharing of data in the channel can run high, the underlying potential for informed growth is not in dispute. Many distributor respondents to the MDM survey said they would see value in sharing Survey: Sharing Data with Suppliers MDM surveyed its readers about the sharing of pointof-sale data in the channel. The following results were from distributors who responded to the survey. Do you share POS data with your suppliers? No: 35% Yes: 65% If yes, with what percentage of your suppliers do you share data? All: 9.4% About 75%: 6.3% About a third: 25% Less than 10%: 59% POS if market information were returned by the manufacturer to help them plan and make better decisions. And many manufacturers noted the potential for using the data more strategically. POS data can be used to align resources against opportunities for growth, benefiting both the distributor and manufacturer, says Mike Marks of Indian River Consulting Group, co-author of Working at Cross-Purposes: How Distributors and Manufacturers Can Manage Conflict Successfully. Point of sale is going to be a giant game-changer for a lot of people. But there are many hurdles to jump to get to a place where the rule not the exception is
4 MDM Special Report: Sharing Point-of-Sale Data a channel relationship that goes beyond just sharing POS data and instead views data as the foundation of a collaborative approach to the market. Hurdles to broader acceptance of POS data-sharing and more strategic use of this data include a high level of distrust in the channel, a resource gap for both distributors and manufacturers, and distributor-manufacturer market misalignment. The Trust Factor With few exceptions, trust is the major reason distributors are reluctant to share customer data with their suppliers. And the level of data being requested can have a significant impact on the level of trust. When customer-specific POS data is requested by manufacturers, distributors are much more sensitive and trust becomes even more critical. Distributors are concerned that manufacturers will use that information to bypass the distributor and go direct. Or that manufacturers will hand off the data or leads from the data to competing distributors something that has happened to some of the distributors who responded to the MDM survey. There is also concern that the manufacturers will not have tight controls surrounding who at the companies have access to the data. Because of this, some manufacturers have made it a point to limit access to customer-specific data before it is aggregated. Even if distributors share POS data broadly, distrust caused by these concerns still muddies the waters. Every manufacturer and every distributor has dealt with salespeople who are less than the best representatives of the brand, says Kevin Boyle of Industrial Distribution Consulting LLC and former vice president of channel management and distribution for adhesives manufacturer Loctite Industrial Group. That is what can make or break the trust factor very quickly. It s a matter of the management of the manufacturer establishing the tone, and developing and maintaining a code of ethics and professionalism for their company that helps them develop trust. It isn t something that happens overnight. In the MDM survey, one distributor outlined three requirements he needs to share data: a confidentiality agreement, an incentive commensurate with the value of the information, and proof that the supplier is using the information to build business with his company. Some association guidelines for the sharing of end-user data include a bill of rights. Marks says that such a document is based on the premise that the distributor s data is owned by that distributor. As part of the confidentiality agreement, the manufacturer must protect the information and agree not to use it against the distributor. If they violate that agreement, they agree to arbitration to determine the level of damage done to the distributor. From the distributor s point of view, Marks says, the manufacturer should have no problem signing such a document if they are planning to use the data to help them. But while this seems straightforward, disputes over the use of this data by manufacturers has led to lawsuits in the past, underscoring how seriously these issues are taken. Incentives to Share End-user data provides value to manufacturers. Aside from more tactical uses compensation or special pricing audits, for example distributor POS data can provide the best view of the landscape for manufacturers, especially if distribution is their main channel to market. As markets diversify, technology improves and manufacturers seek more visibility to improve efficiencies across the board, expect to see growing demand for more data from distributors. That POS data is critical to that vendor really being able to run and manage their business more effectively, says Mark Geene, a founder of ChannelInsight, a third-party service that facilitates the collection of data from distributors for manufacturers. Because of the value manufacturers get from the data, Adam Fein of Pembroke Consulting, author of the 2007 edition of the National Association of Wholesaler-Distributors Facing the Forces of Change, wrote that distributors should expect to be appropriately rewarded for sharing point-of-sale data. In the MDM survey, many distributors said that information about their markets would be or is more valuable than financial incentives, which are usually centered on discounts, rebates or special pricing agreements. In fact, some say it may cost distributors more to provide the data than they get back in the form of financial incentives. Distributors say they want to be able to compare market share and growth, as well as opportunities with the aggregated data manufacturers receive from distributors.
MDM Special Report: Sharing Point-of-Sale Data 5 We see a benefit when manufacturers aggregate the data they collect from around the country and come back to us with some kind of game plan, says Evan Gilbert, sales manager for Quality Mill Supply Co., a four-branch industrial distributor in Indiana. For example, customer categories Quality Mill Supply is not reaching but could or information on cross-selling opportunities to existing customers. Geene says that distributors need to embrace transparency in the supply chain. The smart ones are embracing it as a business opportunity versus trying to protect it, he says. Unfortunately, the data does not always return in a meaningful form to the distributors. The monumental waste of point-of-sale data is that there s no feedback loop. It s feeding insight into a black hole, Marks says. If manufacturers don t put processes and objectives in place on what they want to accomplish when they collect the data from distributors, in the end the data is valueless, says Mike Strickland, principal of G. Michael Strickland and Associates LLC, a consulting firm focused on growth planning for manufacturers. Strickland previously was the vice president of professional sales at Danaher Tool Group and has worked for manufacturers including Black & Decker, Moen and Pentair. If you re not willing to share that data you have collected with your [distributors] then you re only doing half the job, he says. You re getting the benefit but they re not. Quality Mill Supply s Gilbert says that once manufacturers show distributors how data can make both parties more profitable, distributors may approach the task of sharing data less like a chore and more like collaboration. I m hopeful because I ve seen firsthand how powerful the data can be, he says. The Resource Gap Why the data is often not processed at an aggregate level by many manufacturers and returned to the distributor in a useful form is for the most part a question of resources. It requires time, dedicated resources and money to be able to produce that kind of analysis and actionable intelligence. What s more, once analytics are returned to distributors, there is no guarantee they have the resources to do anything with it, both distributors and manufacturers say. It s a challenge for manufacturers to get distributors to do the heavy lifting on new accounts, says Larry White of Interlynx Systems, which serves as a third-party service that processes and standardizes POS and other data from distributors for manufacturers. Just because I identify it, doesn t mean it turns into new business. However it does start the conversation, he says. And for those distributors who have been the beneficiary of feedb ack from manufacturers based on the POS data provided, the barrier to trust has fallen and the willingness to share data increased. Why? Because it gives distributors a better idea of what the information is ultimately used for. At the end of the day, the more information they share, the more we ll grow our business because we ll learn, says Eric Max, vice president of sales and marketing at The Genie Group, an electronics distribution marketing group with 96 members. The Genie Group also serves as a master distributor in the industry. When they do share, we both benefit from that. Just providing some feedback can go a long way. You have to take the first steps, says Robert Blair, former president of CARQUEST Auto Parts, who has also held leadership positions in other major automotive aftermarket distribution companies. But too many don t bother. They think it is Mt. Everest.
6 MDM Special Report: Sharing Point-of-Sale Data The Untapped Potential of POS Next frontier of sharing data in the channel could pay big dividends This article, the final in a 2-part series, analyzes opportunities for distributors and manufacturers to use point-of-sale data more strategically to identify and capitalize on opportunities in their markets. This article also discusses the biggest constraint to capitalizing on POS: It requires a large investment in technology, culture and collaboration to do it correctly. By Lindsay Konzak In general, a gap still exists between what many distributors and manufacturers would like to see done with the point-of-sale data that is collected and shared in the channel and what actually occurs. The sharing of customer data often has limited impact on overall sales and profitability growth, according to Steve Smith, CEO of GCommerce, a cloud-based solution that facilitates the transfer of data between partners in the channel. There s a lot of misalignment in the supply chain, Smith says. There s a real general apprehension about what a collaborative supply chain looks like. While many manufacturers say they want to use the data more strategically, most aren t doing so currently. Instead, the primary use of the data including everything from Cost of Goods Sold (COGS) to customer-specific POS data is for sales compensation or for special pricing audits. Most distributors who responded to a recent MDM survey on the topic said they either didn t know why manufacturers requested the data or didn t know what they did with it. Many distributors said they shared the data because it was required to receive financial incentives or to carry a line. On the other hand, many distributor and manufacturer respondents to the MDM survey said they saw potential for using POS data more strategically to identify and capitalize on opportunities in their markets. POS data can take the supplier-distributor relationship to the next level by providing a solid foundation for tackling the right markets, increasing operational efficiencies and improving the allocation of sales and marketing resources. We are all looking for ways to increase sales and take cost out of the business, said a manufacturer respondent to the MDM survey. The ability to make informed decisions will help us both achieve these goals. The Next Frontier for POS According to the MDM survey, compensation and special pricing audits are the most common uses for POS data. When a manufacturer uses POS data to compensate its sales reps, that can be good for the channel, according to Kevin Boyle of Industrial Distribution Consulting LLC and former vice president of channel management and distribution for adhesives manufacturer Loctite Industrial Group. Sharing POS to assist the supplier s comp program helps us gain trust with supplier reps in all territories because they know they ll get credit and compensation for the work they do, says one distributor in the MDM survey. But there is opportunity to take the use of POS data to the next level, Boyle says. The ultimate goal of sharing POS data should be to make more informed business decisions. Turning it into revenue is the name of the game, says Evan Gilbert, sales manager for industrial distributor Quality Mill Supply in Indiana. Even manufacturers who are named by distributors as leaders in the sharing and use of POS data tell MDM they want to do more they say the opportunities to drive growth with more transparency in the supply chain are great. It s easier said than done, perhaps, but many companies in other industries Wal-Mart being one of the leaders have transformed how they do business as a result of sharing point-of-sale data with channel partners. BDI, Cleveland, OH, shares COGS data with about 170 suppliers. Rick Copfer, vice president of sourcing for the industrial distributor, says the distributor shares the deeper customer-specific data with just a handful of those suppliers. While distributors may not always get market information back from suppliers closing the loop, so to speak Copfer says that the sharing of data does benefit distributors in that it makes the entire supply chain more productive. Many manufacturers, for example, use the data to ensure they have the right inventory in place to meet demand. Or POS data can help them determine the best place to invest resources for growth, meaning less waste overall. Today everything is about managing the
MDM Special Report: Sharing Point-of-Sale Data 7 entire supply chain, he says. This is not about a point in time or transactions only between two business partners. It s about trying to increase the efficiency of the entire channel from the raw material providers to the producers, manufacturers, distributors and the end-users. Opportunities How can manufacturers and distributors use this shared data more strategically? Some ideas noted by manufacturers, distributors and industry experts interviewed by MDM include: Measure the success or failure of specific sales and marketing initiatives. With customerspecific point-of-sale data, manufacturers and distributors can determine whether sales and marketing efforts are paying off. When a manufacturer and a distributor work collaboratively, they typically increase sales, Boyle says. That s a good thing. But the strategic part of (sharing data) is being able to drill down and find out, yes, we increased sales, but did we increase sales where we were targeting to increase sales? It also allows you to allocate marketing resources more effectively going forward. Uncover gaps. POS data can be used to spark conversations about gaps in the market or opportunities for cross-selling. It may also alert the manufacturer of a potential problem or shift in the market that needs to be addressed. Or it may provide a better understanding of overall market conditions. To be able to take in and manage and use the data and move the dial while business is occurring that to me is the holy grail of where you want to be, says Mark Geene, a founder of ChannelInsight, a thirdparty service that facilitates the collection of POS and other data from distributors for manufacturers. Determine where to allocate resources. Postal code data can help manufacturers and distributors decide where to put salespeople. Measure the effectiveness of your sales force. When used for strategic measurement purposes, you can tell how effective that salesperson is at specific accounts where you told him to go, Boyle says. Track and understand pricing. All of a sudden as a manufacturer I can take three distributors and figure out where they have competitive overlap, says Mike Marks of Indian River Consulting Group, where they are bidding against each other. I can figure out how much of the pricing is market-driven and how much is just my distributors competing with the product. Having a better understanding of the drivers of prices in the market will allow for more efficient pricing practices, Marks says. Manage inventory. Mike Strickland, principal of G. Michael Strickland and Associates LLC, a firm focused on growth planning for manufacturers, says the sharing of POS data can provide insight into whether demand at the end-user level is matching the demand for inventory from the manufacturer. Strickland has worked for manufacturers including Danaher Tool Group, Black & Decker, Moen and Pentair. Having more visibility into demand at the end-user level may help suppliers detect downturns or upticks sooner, resulting in less disruption. I would much rather a distributor have the right inventory than have a bunch of inventory that isn t selling, Strickland says. The Data Challenge One big constraint to using POS data more strategically is the investment needed to collect, clean and crunch the data in-house. The job is a big one, and with few exceptions, has only been undertaken by the largest manufacturers. The challenge goes beyond the technology. Unless you develop a rigor around it, and it becomes part of your organizational culture, it s not going to succeed, GCommerce s Smith says. It takes a lot of discipline to run a business that way and to run it differently. Strickland agrees: You have to make a concerted effort to have someone in-house to manage the data. It s difficult. And it s not just the manufacturer. The distributor also has to put resources in to share the data. What s more, determining what s vital in the sea of data that is sure to result from such an initiative is critical, says Robert Blair, former president of CARQUEST Auto Parts, who has also held leadership positions in other major automotive aftermarket distribution companies. There s so much data available today that you can get lost in the weeds. You want to distill it to the vital, Blair says. Clean data is an important piece of that puzzle. Kevin McGirl of sales-i, a cloud-based and mobile application designed to help distributors, manufacturers and end-users share data, says transactional data has five common shortcomings. It s unfriendly, delivered in crude reports, files or spreadsheets requiring refining by the recipient; out-of-date, reflecting purchases made more than a month ago; unsecure, sometimes sent by email; incomplete, sometimes excluding purchases made by channels such as e-commerce; and difficult to scale because it is
8 MDM Special Report: Sharing Point-of-Sale Data often manually generated for a specific supplier. That s where services like sales-i, Interlynx, ChannelInsight and others come in. If you make it easy for the distributor to do it most will do it, says Larry White of Interlynx Systems, a third-party service that processes and standardizes data from distributors for manufacturers. Interlynx allows distributors to provide the POS data in any form they want. It then puts the data in the form that the manufacturer needs. We do all that work on the data upfront so that the distributor has an easy time of complying, he says. That s really important. Some associations have also played a role in their respective sectors driving standards for data-sharing, with the goal of more efficiency in the channel and making it easier to comply. A Slow Transition Due to improving technology and growing scale, sharing POS data with channel partners is not going to go away, according to Marks. The shift to a more strategic approach to sharing and using POS data to make more informed decisions will be a slow one however, he says. Blair says that manufacturers who are able to use point-of-sale data strategically in collaboration with distributors will gain a sharp competitive edge. If you didn t have access, it would hurt your business that s what your data should represent, Blair says. Data is like the quarterback of the team. It s the best way you have of differentiating your service offering and the value of what you provide (to channel partners). Copyright 2012 by Gale Media, Inc. All rights reserved. Modern Distribution Management and mdm are registered trademarks of Gale Media, Inc. Material may not be reproduced in whole or in part in any form whatsoever without permission from the publisher. To request permission to copy, republish, or quote material, please call 303-443-5060.