In our final installment in this series, we examine additional strategic considerations in the salesforce change for Sioux Falls Supply. From our earlier installments, Sioux Falls Supply is a $400 million in sales PHCP distributor with 35 branches and 112 outside sellers. Initial analyses (Parts 3 and 4) suggest that 66 of the 112 sellers are not needed once e-commerce is introduced and used to its fullest.
The previous analyses, while erstwhile, are numeric with value estimates or “swags” driving the allocation models. In this installment, we examine other allocation considerations that are difficult to put a number to but, nonetheless, are important variables in designing a sales effort that works in a digital environment.
Sioux Falls covers extensive geography across the Heartland and South-Central states. There are territories with a significant amount of “windshield” time where call frequency is low. When redesigning salesforces, we recommend that clients review territory geography boundaries for chances to improve the call frequency.
In the case of Sioux Falls, after account call preferences are considered (Part 4), management should look at the remaining accounts to be called on and how resetting boundaries would influence the number of sellers.
Boundary analysis has one primary goal: to reduce travel time and replace it with call frequency. It also is important to remember that if 1,200 calls per year are the upper limit of calls to be made, most territories should be sized to 10 percent to 15 percent less than this, or 1,080 to 1,020 calls per year.
Why? This extra capacity is needed for unforeseen emergencies and new account development within the new boundaries.
Sales Skill Sets and Specialization
Another consideration in developing a sales effort for the digital future is the unique skill sets of the sales effort. Unique skills include in-depth product or process knowledge; sales type including consultative, enterprise, new account or new product sales; and field service technicians who offer “shop-item” or mature product sales capacity.
Sales specialization is more than an acknowledgment of skill sets of any one particular seller. It requires active management, such as:
We often find distributors have sales specialists identified but, too often, the planning and expectations are poorly defined. Consultative sellers who give away the consulting to sell commodity products, field technicians without adequate time and job tracking, and technical sellers without new account goals are common and, for the most part, signal a problem with sales management.
Ability of Sales Management to Adapt
Sioux Falls’ management displays remarkable career longevity. Unfortunately, position longevity in the face of significant business change can be a detriment. In the series, we introduced Sid Kinson, vice president of sales, and Jason Hostrom, vice president of operations. These long-term executives have spent virtually all their careers in traditional distribution full of sellers and branch locations.
Furthermore, until the CEO began the push to digitalize Sioux Falls, they have shown little motivation or interest in moving the firm to a digital future. They are at risk as their skill set has atrophied and, unless they can offer insights into successful change to a digital platform, it would be our recommendation to the CEO that they close out their careers and replace them with execs who have made digital transformations in other firms.
Wholesale distribution is a stable industry where strategy moves and market changes are slow and predictable. Unfortunately, successful digital transformation requires experience away from the old-style branch/sales-intensive firm to an online future with a leaner branch and sales profile. Too many executives are kept on board by the CEO who can’t or doesn’t know how to make this transition. The digital future of the firm is impaired.
Recent distributor surveys find that 70 percent of distributors classify their online efforts as failures; often after investing six or seven figures. Digital failures, from our experience, are two-thirds of the time a result of culture and not software. In short, the existing management of the old school has difficulty in transitioning the firm to a digital future. They too often rationalize, after repeated failed attempts to grow online sales, that online has no future in distribution.
Our series on Sioux Falls’ Supply and its change to a digital future follows common experience in our consulting. Changing the wholesale firm to a digital juggernaut is difficult and much in the way of analysis and planning are needed. Too often, firms simply add technology to launder an order online and feel they are done in their digital efforts. These firms almost always fail in their attempt to drive sales online and grow new online sales.
The most difficult change facing distributors in their online future are cultural changes where managers of long tenure don’t understand how to change the firm to a digital future or underestimate the magnitude of change needed.
As almost three-quarters of distributors consider their digital efforts a failure, there is plenty of need for CEOs and presidents to make changes to the structure of the firm well beyond software purchases and new online position hires. Too often, existing sales, operating and top executives are not moving their firms forward.
As online B-to-B commerce grows at 8 percent per year and three times the current rate of traditional full-service distribution, many firms are losing sales where online orders will be 25 percent of all transactions by 2025 and the industry will be at a tipping point where online success is not an option.
How long distributor shareholders will tolerate poor online progress toward a digital future is not known but, unless they want their share price to drop, the time to make changes is running out.