Survive and prosper – a distributors model
01 September 2009
Author : Tim Fryer
It might be tough, but there is still opportunity out there if the strategy is right
Just in case it has escaped your notice, it has been a pretty tough time out there for a lot of companies. Distributors, typically surviving on tight margins and so needing to maintain volumes, are amongst those particularly hard hit, so when Alpha Micro Components reported a successful last quarter I asked Managing Director Christos Papkyriacou to spread the secret. It is a lesson in identifying and concentrating on strengths and understanding the market, as Christos explained. I thought his comments below would be of interest to all people involved in company strategies, whether in distribution, design or manufacturing. Here are his thoughts on how to tackle a recession:
“As an independent franchised distributor of electronic components set up in the last recession we are in the fortunate position of truly understanding firsthand how to survive a downturn. With 15 years’ experience in the market, we are specialists in design-based distribution and have recognised over the years that our in-house engineering team is one key aspect that differentiates us from the crowd.
The last 18 months have been a difficult period for many companies within the electronics industry, yet at Alpha Micro we have just experienced our best quarter in nearly two years. We believe our strength lies in the value add services we provide. By offering design assistance to our customers we can help them speed up the design process and tailor our engineering solutions to fit their applications, rather than pushing a ‘one size fits all’ approach. This design-based method means we can deliver both finished products as well as specific add-ons to improve functionality that our customers can incorporate into their existing offerings. Many of the customers that approach us lack the know-how or have the engineering resource available to implement some of these developments in-house. Other distributors keen to adopt this kind of approach, need to ensure that a quick turnaround time is top of the agenda. By delivering to tight deadlines and offering customers a faster turnaround, it is possible to improve customer satisfaction and guarantee their continued business. Setting up an in-house development team is costly. As a niche distributor we are filling these gaps wherever possible.
The distribution market has changed drastically in the last decade, as has the nature of the sale cycle. As any niche distributor will tell you, the sales cycle in this market can be very long – sometimes taking up to a year to secure an order. As with many buying decisions in today’s economic climate, the sales process seems to be taking even longer and by assisting customers with technical solutions we try to speed up this process as best as we can. This approach helps the customer to get to market quickly and also helps to reduce our sales cycle, which in turn results in a quicker return on our engineering investment. The positive quarter we have just seen at Alpha Micro stems from all the hard work everyone within the company has contributed to the sales efforts throughout the course of the last year. We are feeling really positive about the upcoming quarters, but like other distributors out there, it is essential to keep up the sales momentum in a bid to buck the trend of falling sales that others are experiencing.
At Alpha Micro, we believe the key to running a successful distribution channel is to streamline one’s business. By keeping things simple, without over-complicating processes, distributors can stick to their core areas of expertise and excel. One of the things we have done to rationalise the service we provide is review our existing business practice. We have invested in bespoke CRM software and VoIP telephony which permits our remote teams to be linked seamlessly into our systems and to monitor and improve success rates even when the team is “out in the field”. Spreadsheets can be very subjective and time-consuming to manage and analyse and in many cases leave space for error. We have found that our new way of working has ensured higher efficiency and has resulted in increased productivity and sales.
It goes without saying that companies should review their strategies and approaches on an individual basis. What works for us, may not work for others. We do believe that the current financial turmoil does not have to be a bad thing; it can be a good opportunity for customers and distributors alike to review their practice and install new methods to cut costs and improve efficiency. Cutting costs is not just about cutting staff, it is about working smarter and more efficiently. The most valuable assets we have within our business are our people, so it is important that our people spend their time in areas where the business will see the best return. Although the market has been tough we seem to be making good headway and are currently growing our team.
Businesses can also benefit from selecting UK-based manufacturers. When you factor in shipping costs and exchange rate fluctuations, certain products can be built more cost effectively in the UK rather than going offshore. As a UK distributor and VAR we have a vested interest in supporting home grown products and more companies should make an effort to seek out and support UK manufacturers; but only if it makes sense for their business. The drop in the exchange rate earlier in the year saw many companies facing up to 30% increase in the cost of goods that were manufactured offshore. Volatile fuel prices also have an effect on the cost of importing goods and when you factor in the price of your carbon footprint, it can very often be more cost effective and friendlier to the planet to use a local contract manufacturer. Very often, building locally can result in price stability and less risk of price increases due to outside forces. Distributors have an important role to play in helping to promote and support the UK manufacturing base. Without UK manufacturers, UK distribution will simply die.
Distributors should also address the types of product lines they carry in their portfolio to ensure that they meet the demands and requirements of their customers. We have recognised the continued demand and growth for wireless technologies but make a conscious effort to review new product lines on a case-by-case basis. We are often approached by new and existing clients when they have a design issue they need to resolve. As we are a niche distributor, we do not and cannot accept every business opportunity that presents itself. We carefully qualify opportunities and focus in on the areas that best fit our business. Distributors looking to offer quality service should look to do the same. Just because a company has an order to place does not necessarily mean it is the right deal for you. We pride ourselves on specialisation at Alpha Micro and to ensure this is not lost we have to remain selective to stay true to our position as a niche distributor. It takes a certain amount of strength to turn down business, especially during the current financial climate, however all parties involved will benefit if an effective partnership is recognised from the off.
Our plan is to continue to offer the right products to our customers. For the foreseeable future our focus remains on our existing main franchise lines, to maintain our strong expertise in our specialist areas and preserve our status as a high quality niche business, something we have worked very hard to achieve.
The financial turmoil has been a worrying time for all but by planning in advance and preparing for the possibility of a recession, we have managed to buck the economic trend and continue to sail through the turbulent times. By sticking to what you know best and having the strength not to accept every business deal that comes knocking on the door, distributors of all sizes can respond to the true needs of customers by acting as an extension of the supplier’s team.”
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