Many distributors have this question: clearly the company has more people, more vehicles, more products, and sales in the tens of millions, but they always feel that efficiency is getting lower and lower, and the cost-effectiveness ratio is getting higher and higher. Where is the problem? The root of the problem lies in operation and management. In the past, distributors relied on extensive operations, leveraging demographic and market dividends to expand market coverage, and sales tasks could be completed, making money easily. But now, the times have changed, dividends are gone, the incremental market has become a stock market, and grabbing cake has become an inevitable result. Relying on extensive operations with more people and larger volume will gradually disappear from the market. For distributors, it is inevitable to move from extensive operations to refined operations. Only with higher efficiency and lower costs can you gain an advantage in the market and become bigger and stronger.
In the past, discussions about refined operations for distributors were always from the perspective of the distributor's own business, such as inadequate business management, application of digital tools, etc., but these all had certain limitations. "The onlooker sees the game best; the participant is blind." The problems were not deeply explored.
Today, New Distribution specially interviewed Mr. Tu Chao, Chief Expert of Zhoushu Data. From the perspective of a data service provider, how does he view the refined operations of the trade circulation business? Over the past year, Mr. Tu Chao has gone into the front-line market, deeply visited more than seventy distributors of different dimensions, and summarized a set of management methodologies for distributors—"Distribution Evolution Theory"—which deconstructs the core competitiveness of distributors from five dimensions.
This article selects three angles: product selection, logistics, and sales management, to analyze how distributors can implement refined management.
-01- Product Selection
The distributor business model is divided into two parts: one is the information transaction layer, and the other is the commodity circulation layer. The former is the sales action, and the latter is essentially the supply chain. Apart from the sales aspect, one of the core capabilities of distributors in the supply chain is product selection. Product selection is the starting point of the distributor's business and the foundation of success or failure. Currently, most distributors select products based on four dimensions: consumption trends, brand influence, channel fit, and profit structure. These are all fine, but there is another point that few people mention: deducing product selection from the synergy of sell-through. What is sell-through synergy? In simple terms, distributors choose products with similar sell-through cycles and combine them for sales. Why do this? From a cost perspective, the overall cost of commodity circulation is divided into two parts: one is sales cost, accounting for 40%; the other is warehousing and logistics cost, accounting for 60%. When a salesperson visits a terminal, the basic cost of selling 1 SKU and selling 10 SKUs is the same. The sales cost of a salesperson visiting a terminal can be divided into four parts: time costs for transit, display, and sales, plus transportation costs. Among these four cost components, the time cost in transit and transportation cost are shareable. Regardless of the product sold, as long as they enter the store at the same time, these two costs remain unchanged. This means that the more SKUs entering the store at the same time, the lower the shared cost per unit. Through research on a large number of distributors, we quantified these four costs: transit accounts for 9%, display 5%, sales 6%, and transportation 20%, constituting 40% of sales costs. From the above analysis, transit and transportation are shareable, meaning 29% of costs can be optimized. Similarly, on the warehousing and logistics side, the same applies: the more SKUs ordered at once by the same store, the lower the overall warehousing and logistics cost loss. In warehousing and logistics, there are three shareable costs: transit accounts for 8%, payment and acceptance 2%, and vehicle cost 20%. Through quantitative analysis of these costs, it can be seen that the overall shareable cost is 59%, leaving huge room for optimization.
Of course, these optimizable costs are all based on one premise: sell-through synergy. The more SKUs that enter the store at the same time, the more room for optimization. How to ensure that so many SKUs can enter the store at the same time? This goes back to the initial product selection. Only when the sell-through synergy of products is higher, that is, the closer the sell-through cycles of products, can they enter the store at the same time. For example, if product A has a sell-through cycle of 7 days and product B has a cycle of 15 days, this means that in most visit times, you can only sell a single product. Only after a long continuous rolling cycle can a larger unit price emerge, resulting in huge cost losses. Each sale is an accumulation of costs. Conversely, if the sell-through cycles of products are similar, and each time the products enter the store at the same time, then each unit price is larger, and the shareable 59% cost can be maximized, reducing unnecessary expenses. It is also emphasized here that similar sell-through cycles do not require a single category; cross-category can also achieve the same sell-through cycle, such as summer beverages and dairy products. The development of the trade circulation business is gradually transforming from a price difference business to channel and market operations. Sell-through synergy is also a direction for distributors in product selection, which can greatly reduce costs and lead to better business development.
-02- Logistics
Whether distributors or wholesalers, they essentially earn money by moving goods. The higher the handling efficiency, the better the business naturally.
Therefore, the strength of logistics capabilities plays a crucial role in whether distributors can grow in the channel market. Especially in today's high inventory environment, refined logistics operations are particularly critical for distributors. Currently, most companies in the market adopt self-operated logistics. The advantage of this logistics method is that it is simple to manage and relatively free and flexible. But the disadvantages are also obvious: First, self-operated logistics requires significant investment in infrastructure. Infrastructure investment may cost hundreds of thousands to millions. As a capital-intensive business model, this is very uneconomical for distributors. 1 million in capital can generate tens of millions in business and turn over quickly. Second, vehicle maintenance costs are high; drivers receive salaries, and since the vehicles are not their own, maintenance is not in place, leading to high fuel consumption and wear. Third, the difference between peak and off-peak seasons is large, resulting in high logistics costs. In the off-season, vehicle utilization is low, but personnel wages continue, and idle vehicles still incur maintenance costs; in the peak season, vehicle capacity is insufficient, causing low logistics efficiency, resulting in delayed costs and hidden costs such as affecting customer relationships. Overall, relying solely on self-operated logistics is disadvantageous for distributors, not only due to high costs but also low operational efficiency. Relatively speaking, it is better to introduce third-party logistics on the basis of self-operated logistics. In the off-season, self-operated logistics is the mainstay, supplemented by third-party logistics; in the peak season, self-operated logistics is fully utilized, and third-party logistics is introduced. For distributors, using third-party logistics most obviously can reduce their own operational management costs and asset investment. Investing the money for logistics infrastructure into capital turnover will accelerate business growth. In addition to capital release, there is also maximization of distribution efficiency. The settlement method for third-party logistics is not a fixed salary but calculated by piece or volume, which is equivalent to drivers starting their own businesses; they earn based on how much they deliver. During the research, we also obtained some work information from third-party logistics drivers. The work intensity is very high; they arrive at the warehouse at 5 or 6 in the morning and return home at 8 or 9 in the evening. In one case, a distributor who introduced third-party logistics with per-order delivery achieved an average full load rate of up to 80%. Many companies doing unified warehousing and distribution cannot achieve such a high full load rate. So in a sense, introducing third-party logistics will greatly improve logistics distribution efficiency. Second, the systemic risk for distributors will be reduced. For example, if you originally bought 10 vehicles, there would be risks for 10 vehicles, such as driver accidents or vehicle damage, for which the distributor would bear responsibility. Third-party logistics, through contractual agreements, can avoid these systemic risks. Finally, introducing third-party logistics can reduce vehicle wear and tear. The vehicle is the driver's own property; maintenance, repairs, and fuel are all paid by the driver, so the driver will take extra care. In fact, daily comparisons by distributors can reveal that third-party vehicles are better in appearance and maintenance than self-owned vehicles. Of course, this outsourced vehicle also has disadvantages: no service. Often third-party logistics only handles delivery, but returns and exchanges, loading and unloading, and even simple terminal maintenance are difficult for outsourced vehicles to handle. This will lead to a decline in terminal satisfaction and affect overall sales. But this is not unsolvable. When distributors realize these problems, they can actually use contracts to constrain them. For example, for terminal returns, display maintenance, etc., by quantifying the previous cost of self-operated logistics and converting this cost into additional fees for outsourced drivers, most drivers are actually willing to do these actions.
-03- Sales System
The sales system is a key part of a distributor's business. The quality of the sales system directly determines the enthusiasm of employees. Many distributors do not think deeply when designing their sales systems; they may simply refer to other distributors' systems or follow past experience and directly formulate them. The result is that many distributors' systems lack scientific basis. Three common problems in sales systems:
1) Coarse process assessment
Distributors have a common problem in process assessment: they assess the visit rate of salespeople, requiring them to visit 25-30 terminals per day, but they do not actually assess the behavior of salespeople during visits. This is problematic. Over the past year, we visited a large number of distributors. Comprehensive data shows (traditional circulation channels), excluding rest time, the average working time of salespeople is only 7 hours, and the average time to visit a terminal is 15-17 minutes, of which transit, display, and customer relationship time takes about 14 minutes. In fact, on average, the sales time left for salespeople is only 1-2 minutes, and some stores even have no sales time at all, being driven by the number of visits. Such sales behavior is worthless. If it's just for display and customer relationships, you could hire temporary workers. Where is the value of salespeople reflected? First, promoting new products; second, promoting slow-moving products; third, grabbing prime shelf space. These are valuable sales behaviors. Blindly implementing assessment of visit quantity while ignoring the efficiency of each visit cannot create effective value.
2) Complex commission calculation
Commission design among distributors generally falls into two situations: one is completely extensive assessment, directly based on sales amount, paying a percentage of sales; The direct problem caused by extensive assessment is that salespeople, in order to achieve sales targets, heavily stock terminals. Short-term hidden dangers may not appear, but over time, serious returns and exchanges will occur. At that point, the salesperson may have already resigned, leaving a mess behind.
The second is so-called refined assessment, based on different SKUs, different commission levels, or tiered commissions, etc. For example, product A has a 5% commission, product B has a 10% commission, or sales amount tiered: 100,000 gets 5%, 200,000 gets 10%, 300,000 cap gets 15%, etc. Both assessment methods have significant problems. The extensive assessment is not worth mentioning; it is completely unacceptable. Salespeople will do nothing but stock and push sales. As for the so-called refined assessment, based on different SKUs and different commission levels, in the process of visits, as calculated above, salespeople only have 1-2 minutes for sales actions at the terminal. In this extremely short time, the number of SKUs a salesperson can promote is extremely limited. Generally, a single salesperson is responsible for 200-300 SKUs. A salesperson remembering more than 200 SKUs is questionable; even if they remember, the number of SKUs they can promote is limited. We conducted a statistic: for distributors with sales below 50 million, the average effective SKU sold at the terminal is 19. The final result of this assessment method is that the difference between the number of SKUs purchased and the number sold becomes increasingly large, and most SKUs become invalid, meaningless.
3) Behavior value is irrelevant
The value of salespeople's sales behaviors at the terminal is divided into two types: one is transactional value, as the name implies, behaviors that salespeople should do in daily work and do not generate incremental value, such as visiting stores, display maintenance, and including the "sale" of fast-moving products, etc. The value generated by these basic tasks is transactional value. The other is sales value, such as promoting new products or high-profit products. These actions that directly bring increment and profit to the business generate sales value. There is a misunderstanding here: many distributors overemphasize transactional value, but in fact, transactional value cannot directly generate increment and profit. It is not that transactional value is unimportant, but rather that both should be equally valued, with perhaps a slight emphasis on sales value.
Solutions:
1) Reduce the assessment of visit quantity and increase the assessment of store conversion rate. Pursuing visit quantity is meaningless; quantity does not represent sales. Blindly pursuing quantity will only lead to salespeople not having enough time to make sales actions, naturally resulting in no sales. Distributors can change their assessment strategy to assess the visit conversion rate of salespeople. For example, reduce the daily visit count to 20, but require a visit conversion rate of over 90%. In fact, market data feedback shows that distributors with sales above 50 million can achieve a visit conversion rate of 96%.
2) Rolling tiered commission
The core viewpoint here is: the performance of the current month determines the commission of the next month. Take sales commission as an example: Divide the commission levels into A, B, and C, such as A—1% sales commission, B—3% sales commission, C—8% sales commission. The gap between levels should be set relatively large. If a salesperson completes 500,000 in performance this month, the commission method for next month is level C, 8% of next month's sales; If 300,000 is completed this month, the commission method for next month is level B, 3% of next month's sales; If less than 300,000 is achieved, the commission method for next month is level A, 1% of next month's sales. Similarly, the sales of the second month determine the sales commission of the third month. The gap brought by this sales commission ratio is very large. If salespeople want to always get the highest commission, they must ensure good performance every month. If they have stocking behavior, it will inevitably show problems in subsequent months, and the commission will drop sharply, which salespeople do not want to see. Through this rolling tiered commission method, where the current month's performance determines next month's commission, salespeople are pushed to move forward proactively, effectively avoiding order retention and greatly improving sales enthusiasm.
3) Value determines assessment method
For transactional value work, binding rules can be adopted, incorporating these tasks into the basic salary as daily required work. If the prescribed actions are not completed, the corresponding part of the salary is deducted, or even dismissal. For example, if a salesperson does not do display, the corresponding salary amount for display is deducted. For sales value work, guiding rules are adopted, using corresponding KPI assessments to tell salespeople what they should do and what they should not do. The method should be simple and direct, such as directly rewarding a certain amount of money for selling a box of new products.
Final Thoughts:
The future distributor will definitely not be defined as an individual industrial and commercial household or a small business, but rather grow into a truly visionary, potential, and respectable enterprise. The process from 0 to 1 has basically been completed by distributors; from 1 to 10, becoming an enterprise, refined operations are the basic prerequisite. It can be said that refined operations are the hallmark of the trade circulation business moving from simple to complex, from present to future.
If the tip is adopted, a reward of 400-2000 yuan will be paid.