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Source: Progressive Distributor

by Richard Vurva

Do most customers recognize the value of your services? Probably not.

That's what General Industrial Tool & Supply (G.I.) realized when it took a hard look at the services it provides customers. Like most industrial and construction distributors, this Los Angeles-area company's value extends far beyond simply providing tools and supplies.

For example, services provided on a daily basis include helping companies lower or eliminate inventory carrying costs, reduce delivery times, cut machine downtime, institute on-site inventory management programs, and providing applications expertise in cutting tools, abrasives and other product categories.

But most customers don't recognize the value of those services. Why?

In the past, G.I. salespeople did what virtually all distributors do. They unwittingly sold themselves short by lumping their services into the catchall phrase "value-added".

The problem is that many customers translate "value-added" into "free services." It's all the things distributors do for customers for which they're never billed. They come to expect it.

That has begun to change since G.I. put into practice a value-added documentation program. The purpose is to quantify the company's value-added services by putting them in black and white. (See sidebar, "General Industrial Profit Enhancement Report.")

General Industrial Profit Enhancement Report A recent document developed for a General Industrial Tool & Supply customer showed how the customer could achieve dramatic cost savings by switching from one cutting tool insert to another brand. The old insert cost more and also produced fewer finished parts than the new insert. The document shows that switching inserts would save the customer nearly $15,000 a year. Additional documentation illustrated how, by eliminating insert changes and by reducing cycle time, the customer achieved total annual savings of $31,020.     Price of  Insert / No. of parts per insert = Insert part per cost Old  Brand A $13.50 / 40 = 0.3375 New Brand B $8.80 / 100 = 0.0880     Insert cost per part X No. of parts produced = Total per month Old  Brand A 0.3375 X 5,000 $1,687.50 New Brand B 0.0880 X 5,000 $440.00 Savings per month = $1,247.50 Savings per year = $14,970.00

"To me, selling value is the way I've approached my job since day one," says Jim Miller, a G.I. salesperson for 16 years. "The difference is today, instead of taking for granted that you can cut more parts with this carbide vs. that one, we document it. It has a tremendous impact because they're signing the documentation. They've acknowledged our service level in writing."

The effort has helped transform the company.

"Like many distributors, we realized that we were trying to focus on too many customers and too many suppliers. We were doing more than we could do well," says executive vice president Kathleen Durbin. "Value-added is a tool that makes us focus on something and do it really well."

Documentation candidates
While consumable items such as cutting tools and abrasives are excellent products to demonstrate productivity improvements, other products and services lend themselves well to value-added documentation.

In fact, every time a customer switches from one product to another, it's an opportunity to demonstrate value, says vice president of sales Joan Hoppock.

"When a customer switches, they don't do it because they like the salesperson. They don't switch because they like the brand name better. They switch because they have an economic reason to switch," she says.

The new product might cost less than the old product. Sometimes the new product costs more but lasts longer or produces more finished parts. In other applications, a technological improvement might allow operators to eliminate steps in the production process, saving production time.

Traditional salespeople celebrate the sale when a customer switches from a competitive brand to the brand they stock. Value-added salespeople dig deeper to find out why the customer switched, then develop a paper trail that identifies how the change benefits the customer.

They ask more questions. How many parts did this operation produce before? How many parts do you produce now? How much is each part worth? What is your shop time worth? What did this insert cost compared with what you paid before?

They continually look for new ways to help make the customer more profitable by cutting costs, improving productivity and eliminating unnecessary activities.

"You keep asking questions to find out the true savings for that customer. You may be running at the same speed, but the inserts last longer, so you're not buying as many inserts. You get a better finish, so you can eliminate a lapping step or a deburring step," Miller says.

"Whenever there is a delivery issue, a price issue, a quality issue or any other problems that a customer faces, if we bring in a solution, there's a value to that," Hoppock says.

An important concept for salespeople to remember is to recognize that a productivity improvement is far more valuable to a customer than price savings. The concept requires salespeople to look at things from the customer's perspective.

For instance, Tom Amick is a key account representative who spends most of his time at Senior Aerospace, where General Industrial Tool has a tool crib management program. He recently located a source for thread-ring and thread-plug gauges used to measure threads on machined parts. Without the gauges, the machine faced a shutdown. He located a source that offered a lower purchase price, but it could also deliver the gauges in four days rather than in two to six weeks, which is what the previous vendor promised.

"This represents a sizable savings because it's a part that would have caused them downtime if they couldn't get it," Amick says.

His next step is to find out from a department manager how much two or more weeks of downtime would have cost the company. He realizes that the real savings to the customer isn't the purchase price of the product, it's avoiding downtime.

Richard Branch, factory manager with Senior Aerospace, said it would be impractical to record all of the value-added benefits General Industrial Tool provides. For example, placing bar-coded tool dispensing cabinets on the plant floor puts inserts and drills closer to the production process. A paper dispenser mounted on each workstation eliminates the need for operators to walk to a central storage facility. Other services, such as locating a source for an overhead crane, helped reduce machine setup times from three hours to 15 minutes.

"It's difficult to put a value on some of these activities," Branch says. "But in many cases, they result in dramatic production improvements. It benefits us tremendously. It's like having another employee working for me doing all of the legwork."

Change never comes easy
The transition to value-added documentation didn't occur overnight. Although salespeople intellectually embraced the concept, they didn't immediately put it into practice for two reasons. No. 1, doing research to support value-added documentation takes time away from traditional activities that fill a salesperson's day. When you're juggling an account load of between 100 and 150 customers, it's hard to devote much time to any single account.

The second reason was salespeople had no financial motivation. They earned a small cash incentive for turning in a documented value-add, but it didn't work well because the program was ill-defined and lacked a good measurement system.

The program began to take off when two things happened. First, the company slashed each salesperson's primary account base to between 30 and 35 accounts. Doing so allowed them to spend more time with customers that generated the biggest sales and profit volume.

Hoppock knew she had to take dramatic steps to get salespeople to change their behavior.

"Even if salespeople knew intellectually that the customer was taking up more of their time than the benefits derived from that account, they had a very difficult time giving up customers," she says.

Her sales staff reacted the way you'd expect them to react. They fought the move.

"It was damned tough to give up accounts," admits Miller. "Even the small accounts, you don't want to give them up. They're your meat-and-potatoes guys who generate $2,000 every month. You might grow them to $5,000 if you spend some time with them."

Salespeople ultimately recognized that in order to devote more time to their bread-and-butter accounts, the ones spending $15,000 to $20,000 a month, they'd have to let go of smaller customers.

"The 80/20 rule applies," says salesperson Shane Shakarentz. "You get 80 percent of your business from 20 percent of your customer base. You'll get much better results by focusing on the 20 percent. That takes time, but the results are amazing."

Make it mandatory
The second change that got the ball rolling was to require salespeople to turn in at least one value-added document each month in order to qualify for a major portion of their base pay.

"This is a time-consuming process. You have to be totally on task," says vice president of operations Karen Boyle. "From starting the value-added to doing the documentation, there are a series of steps you must go through. You have to be totally in touch with the customer."

All salespeople know they add value to the customer. Moving from liking the idea to actually doing it is a difficult transition. Until it became part of their job requirement, salespeople tended to put the program on a back burner. Other tasks always seemed to take a higher priority.

"Documentation takes effort. You have to stop and quantify results. You have to continually ask questions. Each job has different parameters," Miller says.

Salespeople now embrace the program and believe it sets them apart from their competitors, most of whom spend the majority of their time chasing after me-too sales.

"This program is long overdue," says Shakarentz. "In our industry, you have to be able to give your customer something more than price. Price alone is not a selling tool. This program allows you to go in and evaluate a situation and see how you can improve things and put that into documentation."

Enlist vendor support
Vendors are proving to be valuable allies in the value-added effort. They bring the obvious benefit of technical knowledge and expertise, but they also help in more subtle ways. For instance, when the company first approaches a customer about the program, some are reluctant to share information the salesperson needs to complete documentation. They're often more willing to share details about what they've been paying for a product with the vendor than with the distributor salesperson.

"They have an easier time giving information to the vendor because they believe the vendor will use the information to come up with the best product for them and save them money or time or improve their productivity," Hoppock says. "Sometimes we'll ask the vendor to pull the customer aside to get the information we need."

Reluctance to share information disappears after the customer sees the documentation.

"Once they see what we're doing with the information, and that we're helping them, they're much more cooperative in the future," Hoppock says.

Value-added opens doors
After presenting the value-added document to customers, salespeople ask them to sign it, which frequently opens up new opportunities to demonstrate value. For example, one customer, an automotive aftermarket manufacturer, outsourced a grinding and milling operation. The department foreman believed the job could be done more cost-effectively in-house, so he asked Miller to make a recommendation on the tooling requirements.

Miller brought in two vendors who helped analyze the application and recommended a new process. The end result: The manufacturer cut production costs by $80,000 annually and had the documentation to prove it.

"The next time I visited the plant, there were four more jobs listed on their board that they wanted me to take a look at," Miller says. "To this day, I'm one of a few vendors who can go anywhere in that plant. I have carte blanche access."

Often, value-added documentation is passed to other people in the company, giving the salesperson recognition above and beyond his or her traditional customer contact.

Documentation leaves a paper trail that reaps benefits long after the event took place. Several months after Boyle gave her first value-added presentation to a major client, she went back to the company to discuss a much larger project. Recognizing her name, the company controller's eyes lit up and he said, "You're the company that saved us $30,000, aren't you?"

This article originally appeared in the May/June '01 issue of Progressive Distributor magazine. Copyright 2001.

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