How distributor evaluation boosts slumping sales

What makes matters worse is grapevine news to the effect that his predecessor was kicked out after working for barely four months and that the company viewed rollout of the new strategy as top priority.

The project is expected to bring about a turnaround in the volume of sales and improve the bottom line amid cutthroat competition.

To begin with, James opts to make personal visits to distributors’ premises to gather information, which reveals that most of the distributors were non existent or had no physical locations.

Others stocked lots of competitors’ products, citing unfavourable trade terms offered by James’ employer.

Fresh recruitment

His recommendation for fresh recruitment of distributors was shot down by the company’s management and instead a thorough marketing campaign was proposed.

With the cutthroat competition that characterises the market, most manufacturers have allocated a lot of resources to conducting all year round product campaigns — without pausing to track how the products reach consumers.

Once goods have been manufactured, marketers rush to dump the products on distributors for sale.

Where the products end up and how they reach the end consumers is a task that is often left to distributors as manufacturers shift their focus to marketing campaigns.

James’ scenario illustrates how emphasis on marketing campaigns without considering how the product reaches the end consumer can have negative impact on sales.

Shockingly, out of the 150 distributors in the company’s records James could only locate 35 who had premises.

This begs the question — how frequent do you make physical visits to evaluate your distributors?

Or even review trade terms?

Every time I ask product managers this question the response suggests that many are yet to understand the essence of distributor evaluation to the overall performance of their companies.

Many firms attest to losing distributors and sales to competitors albeit running multiply marketing campaigns.

The strategy that works is distributor evaluation.

This is a revolutionary business tool offered by credit rating agencies for suppliers or manufacturers seeking to bring a turnaround or boost their sales revenue and the bottom line.

Similar to due diligence, an interested supplier would contract a credit rating agency to conduct an evaluation on its distributors and give an independent opinion on how to review trade terms to boost sales. 

The agency then conducts physical visits to the distributors’ premises, evaluates their performance financially, in terms of sales and product mix, viability of location, and future outlook and compiles a distributor evaluation report for the manufacturer.

A distributor evaluation can assist a manufacturer or a supplier in the following ways.

First, the exercise provides a better and independent platform to capture feedback from distributors on what the manufacturer should improve on to boost sales. 

The feedback may include delivery of goods to distributors, making refunds for undelivered goods, or unveiling malpractices and corruption during the loading of trucks at the factory.

Failure to address such issues causes losses to the manufacturer or distributor.

Second, strategies on combating competition from other manufacturers or suppliers can only be captured directly from distributors.

Distributors act as intermediaries who have the ability to boost product sales.

Aggressive marketing campaigns aside, you might miss some aspects of the competition.

Perhaps another manufacturer supplies similar goods to the same distributor on discount, or he delivers goods to the distributor’s premises, or he offers goods on credit while you supply on strict cash terms.

The insight from distributors will guide you on how to provide margins that allow discount sales to consumers and transport services to enhance reach of goods to end consumers.

A distributor evaluation will also guide you on how to review trade terms.

Most manufacturers have stringent conditions for recruiting distributors, including requiring submission of a bank guarantee of a specified amount, besides cash on delivery terms.

Because of cash flow constraints, many distributors are quick to take credit offers from manufacturers.

As a result, such distributors tend to stock lots of goods from manufacturers who provide trade credit relative to those that prefer cash terms.

With such insight captured from distributors, you will be able to review your trade terms to edge out the competition and boost sales.

Verification of the premises and legal status during distributor evaluation gives you a fair view of the security status of the distributor.

Physical addresses will provide you with location for follow up on your account receivables.

Distributor evaluation also guides you on how to space your distributors geographically to enhance product reach to consumers.

Spacing your distributors sparsely will eliminate unworthy competition between them, allowing your products to penetrate the competition’s backyard.

The exercise will also enable you to eradicate malpractices by distributors.

This could be in the form of dumping of goods by certain distributors within your territory, hence bringing in unnecessary competition.

Besides, some distributors could be enjoying transport rebates from you as a supplier or manufacturer to take goods to far flung regions only to sell the products in the neighbourhood — due to lack of monitoring.

Distributor evaluation also entails financial analysis of your agents, which provides an insight into profitability, liquidity, and solvency trends of the distributors.

Business relations

This information enables you to gauge the probability of the distributor defaulting, the extent of credit to give, and under what terms.

The overall advantage of the exercise is to guide you on whether and how to forge long term business relations with the distributor.

Also, the exercise will give you a view on which distributors to strike off your list, especially those that do not have physical addresses and those that engage in price undercutting.

For manufacturers interested on recruiting new distributors, an evaluation will work to provide an independent selection of viable intermediaries to penetrate the market.

Frequent distributor evaluations, for instance once a year, will enable you to trace the product path from the factory to end consumers thereby identifying and tying up loose knots as well as improving sales.