Grow Your Distribution Channel Inventory

Grow Your Distribution Channel Inventory

Mark McGready

Mark McGready
Director of Strategic Analytics, SPARXiQ

Your local distribution channel exists for three main purposes: to promote and sell your products, help train customers and answer questions, and provide locally available products. These are the basics. Consider the time and resources you spend training distributors how to sell and how to stock your products. More often than not, the stocking part is the least supported.

Transform Your “Reactive Inventory” into a “Proactive Inventory”

Many manufacturers have a habit of letting distributors manage inventory on their own, trusting their experience and the systems they have in place. Most of the time that’s a good enough idea. After all, distributors are successful because they’ve figured out how to keep the right products in stock. However, there are two challenges with relying on distributors to manage their own inventory:

 

1) They have to manage the inventories of dozens of manufacturers without understanding how your individual products should be sold and supported.

2) They only know what is happening within their own business.

These challenges make it difficult for manufacturers to get traction with their distributors when they want to expand their business. The model is fixed to support what they’re already doing, but it’s not proactive for what they could be doing. Inventory requires repeated sales for an item to be stocked, which means you need repeated customers willing to wait on your particular item again and again before it’ll be considered a stock item.

Of course, this isn’t how inventory should work. In other industries, buyers typically review a manufacturer’s offering, identify the items they believe there will be demand for and put the product in stock. A reactive inventory that responds only to historical demand is one that’s missing out on opportunities. Proactive inventory is the norm in retail, particularly for any industry with a steady stream of new products.

inventory stock

This is the inventory challenge manufacturers face. In an effort to maximize efficiency and provide just-in-time service, both manufacturers and distributors end up compromising growth potential as a result.

When reviewing your distribution channel, identify how much of their revenues and orders are for infrequent transactions and it becomes apparent that they’re playing the role of order-takers rather than order-makers. Once you understand just how much of your revenue is linked to this order taking model, estimate how much more success you could have if your channel supported a stronger inventory position.

Help Your Distributors and They’ll Prioritize Your Products

Manufacturers must take a more proactive role in their distribution inventory. This means using your product knowledge to make better recommendations and your market experience to ensure distributors have the right range of products. It also means you must stand by your distributors and protect them from unwise inventory investments. Not doing so is similar to not teaching your distributors what your product does, or not marketing your products to your potential customers. It is a fundamental path to success, yet too many manufacturers either think channel inventory is something they shouldn’t – or can’t – influence.

The truth is distribution needs this help. As long as you’re providing value, and have enough confidence in your recommendations, every distributor will welcome your approach to help them be more successful with your line. And, if a distributor prioritizes its manufacturers, it’ll prioritize those that help them become successful.

Too many manufacturers tend to rely on installed market base or their previous track record of success. However, markets always have new challengers and “up and comers” coming after your share. In turn, competitors are always trying to expand into new markets or products.

When you think about your channel strategy and put together training, pricing, and marketing plans, ask yourself if you have a stocking plan as well.

As long as you’re providing value, and have enough confidence in your recommendations, every distributor will welcome your approach to help them be more successful with your line.

Develop an Inventory Engagement Strategy

Getting involved with your distributors’ inventory goes beyond knowing what’s sold today and confirming they’re stocking appropriately. Proactive inventory engagement reveals where your distributors’ gaps are and identifies where you can expand their current success.  

By taking this approach, you can work with your distributors in a whole new manner, collaborating on operational excellence and inventory optimization. Improved stock levels allow you to support other business initiatives by making sure you’re staged for success in advance, rather than hoping inventory catches up with your plans.

Having the right tools that facilitate inventory engagement helps you meet your growth objectives. Explore our InventoryGPS solution here. If you’d like help forming an engagement strategy, feel free to contact us.

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