Balancing Stakeholders on the Supply Side
The impact of the supply side in most firms is often far more pervasive and substantive than may first be apparent. In the simplest of terms, the supply side of the business works primarily to manage investment and minimize cost. This includes cost of product, cost to serve, cost of holding inventory and cost of lost sales when product is unavailable. Much of the work is behind the scenes. The focus is often to set the stage for others to succeed. It is to remove obstacles. It is also to discover and capitalize on opportunity. It is to bring to bear the full resources of the vendor community to align and collaborate with company goals and objectives. It is to gain and keep advantage while feeding revenue and share. Some of the work by its very nature must remain confidential. Some of the accomplishments must remain hidden from view.
Working on the supply side is not for the faint of heart. There are a multitude of stakeholders to serve, often with conflicting demands. The role requires a degree of toughness, fairness, balance, consistency, diplomacy, integrity and a drive to deliver optimum results while meeting the needs of each constituent. Making everyone happy is an infrequent luxury. Stakeholders sometimes see the world from their own bias, and the impact of decisions on their particular need.
Inventory represents one of the owner’s largest assets. He or she is looking for a return on that investment. Too much inventory, too much of the wrong kind of inventory or too little inventory can all detract from their return. Forward buys and inventory positions can enhance or deplete earnings based on risk analysis and execution. Here, the role is similar to a stock broker managing a portfolio. Drive growth while protecting the principle. Manage cash, and provide a rate of return (profits) commensurate with other reasonable investment opportunities.
As distributors, you depend on vendors for your livelihood. They produce and market your product selection. To varying degrees, they choose how they go to market and who will represent their products. Distributors in turn are their customers and can also exercise choices as to who they wish to represent. The same needs for revenue, share and profits drive both parties. Distributors who choose to ignore that vendors operate with those same drivers or believe that they only exist to serve at the pleasure of distribution can put their organization at risk. Over time, the balance of power shifts back and forth from producer to distributor depending on market dynamics, and each will leverage that power accordingly. The simple fact is, however, both need each other to succeed, and both have to give and take to hit their respective objectives. The supply side has to seek that common ground, create that collaboration and alignment and work through the tough issues with fairness and integrity.
The Sales Team:
In a perfect world, sales reps want to sell product from a full wagon, have a price that is not subject to being pirated, deliver product on time and undamaged, have it billed correctly and then get paid on time. We all know this lineup seldom occurs. Sales is a tough job, particularly in down markets. There are a host of competitors vying for the same business and a myriad of things that can go wrong. There is also an inevitable tension between sales and the supply side. No inventory system is designed for a full wagon. Stock-outs are implied because inventory values move up geometrically the closer service levels approach 100 percent. Demand flow is always in a state of flux both for the distributor and its vendors. Other parts of the business need cash. Excess inventory generates little return for the owners. Sell prices change daily and may or may not have a relationship to cost. Forward buys, inventory positions and rebates, if fed into the market, can drain profits and break markets for vendors. A supply side challenge is to operate with a full array of best practices in inventory management, operations and cost attainment. Their role is unquestionably to understand the role of sales and help drive revenue, growth and profits. The choices, however, are not always easy, and their decisions can put them at odds with other stakeholders.
The success of your business is to create a value proposition that can profitably serve the needs of your customers. That value proposition meets customer need, arms them with products and services that attract and retain their customer base and reduces or eliminates problems that detract from their mission. The supply side must keenly understand their role in the value proposition and have a drive to offer extraordinary service whenever possible. Moreover, it is important to also understand the specific needs of key customers that may have unique requirements that are reachable without abandoning the basic premise of the value proposition. Sometimes, however, the answer delivered may be a firm “no” if it means stocking large dollars of a specific product for only one customer, or pushing to drive down product cost for unsubstantiated price claims or taking back special orders.
The supply side plays a critical role in your business. In managing assets, costs and risks for multiple stakeholders, its role is to deliver results and solutions in a balanced and calculated fashion. There is often little glory in the job that they do, whether it is in procurement, operations or pricing. There is a host of metrics that can define their performance. Their use helps all stakeholders understand what you expect the supply side to achieve, while recognizing the players behind the scenes for the contributions that they make.
Encourage every stakeholder, and the supply side, to remove their blinders and understand the importance of what each is trying to achieve for the other. Seeking the viewpoint of “other” stakeholders not only provides insight and understanding for all parties, but creates common ground to build consensus and consistent execution. The essence of a team is to know one’s role, the role of teammates, the strategy to win and a celebration of those who make it happen.