Dan Blacharski – January 27, 2015 – Manufacturing Business Technology – Managing extended sales channels — the distributors and resellers who deliver products to end customers — has been a largely intuitive process, relying on ‘hip pocket’ estimates, lacking in visibility and accountability, and too often isolated from central enterprise supply chain planning.
When accurate, near real-time channel data is not abundantly available, sales and inventory fall one or two steps behind true customer demand. And there can be devastating results — including poor channel intelligence, delayed incentive payments or overpayments, and occasional massive write-offs caused by excess inventory stuck in the supply chain.
Better visibility through Channel Data Management (CDM) helps overcome all of these challenges, makes better use of underutilized channel intelligence, and effectively connects the sales channel with inventory and manufacturing processes, giving a 360-degree view of a global business that was not previously possible.
There should be more to ensuring top performance from distribution channels than just a sales manager’s intuition. True visibility into channels means understanding who is buying the product, why they are buying, and what needs to be done to sell more.
Experienced sales executives talk about "knowing the customer," traditionally meaning taking them out to lunch and remembering their kids' birthdays. All that is still valid — but today's best practices go far deeper. The relationship between the customer, the reseller, and the distributor is what drives sales.
The enormous quantity of automated channel data available today enables better decision-making on inventory and manufacturing, minimizing costs, and optimizing revenues and profits. With device activation data tied to POS data, it’s possible to know where the end user is located, and the exact levels of inventory shipped into the channel but not yet activated.
Channel intelligence driven by hard data — rather than sales instincts — delivers a substantial ROI in terms of improved inventory, better planned manufacturing, and avoidance of inventory mishaps. Manufacturers now accumulate a wealth of point-of-sales and channel data which can facilitate deep insight and greater market intelligence.
Demand signals from the field are finely tuned at the store level for retail chains or the branch level for resellers and integrators. When this data is not adequately analyzed and leveraged, companies miss out on opportunities for more informed decision making, and too often make avoidable mistakes.
The high technology industry has recorded large inventory write-offs for obsolete products that were pushed into the channel without sufficient demand. With granular POS transitions and data-driven channel management, these companies would have been alerted to the overstock situation sooner, thus preventing inventory buildup in the channel.
Manufacturers spend between 10 and 30 percent of total sales revenues in channel incentives. The cost of these claims-based programs can soar out of control. Incentive claims are notoriously inaccurate, and routinely submitted in different formats, requiring manual reconciliation of sales data and claims. This process is painful for channel partners because it delays their payments. It is also quite expensive for manufacturers to process complicated incentives claims.
Using commission-grade POS data, claimless incentive programs can automate previously manual processes, increase the accuracy of incentive calculations, and accelerate payments to partners. All of these result in an overall reduction in cost for manufacturers and their partners.
Top resellers and distributors frequently have advocates in sales that are reluctant to question incentive reports from top performers for fear of alienating them. Scrutinizing reports from top tier partners becomes taboo — the sentiment in sales is “if they are performing, why tamper with that?” There are two downsides to this approach — first, top performers will be eventually be overpaid, since underpayments are usually flagged by the partner, but overpayments aren’t. Second, opportunities to improve sales performance are lost because of delays in processing and paying claims.
"Our customers are experiencing big benefits by moving to claimless channel incentives," said Ken Edwards, Vice President of Professional Services at Zyme Solutions, a provider of automated channel data management solutions. "They collect channel sales data at the close of business on Sunday, and by Monday morning they have deep visibility into sales from the previous week, incentives earned by partners, and areas where they can drive better performance."
Tying together the collection, validation, and enrichment of data with claimless processing is a major advantage to the new world of channel performance management.
SEC rules requiring companies to report on channel inventory have been in place for over a decade, but the technology to enable more accurate management has been available for only a few years, from companies like Zyme. In today’s era of big data, the amount of information flowing in from the channel has become a flood, and a channel management program designed to capture and take advantage of that high volume can help companies avoid building up excess inventory, losing control of incentive program costs, and alienating productive channel partners.
Even the largest, most tech-savvy companies can experience inventory problems due to a lack of channel visibility. Search the Internet for the term “inventory write-off hardware company,” and see a long list of global brand names that have posted $100M to $900M of inventory write-offs, including Microsoft, RIM, and HP.
These avoidable inventory disasters are surprisingly common, with many companies making write-offs or high discounts on inventory — and consequently degrading their brand — because they didn’t have visibility to prevent inventory from backing up in the channel.
A data-driven channel management system, backed by big data from the channel, can serve as an effective early warning system. For example, if manufacturing orders enough materials to build a billion dollars in product, but the channel data indicates demand for only a half billion dollars, an intelligent system would allow the company to make decisive moves to avert the huge write-offs suffered by many high profile companies — those that have not had the benefit of true channel visibility.
"Inventory level alerts are the key to identifying these situations at the store and branch level,” said Zyme’s Ken Edwards. “Manufacturers can set parameters to identify potential stock outs or aging inventory anywhere in their extended channels."
The return on investment from channel data management is clear. Revenue opportunities can be realized more quickly, and manufacturers can prevent losses before they occur.
Since as much as 20 percent of incentive rewards are commonly overpaid or paid to the wrong account, there is a significant cost reduction potential that comes from eliminating leaky incentivizing.
A data-driven channel management program solves the need for deep and instantaneous information to give manufacturers a more complete picture of the sales channel, inventory requirements and how that drives the manufacturing and supply chain processes.
Dan Blacharski is president of Ugly Dog Media.
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