Resource Guide for Manufacturers When Choosing a Distributor

how to pick the right distributor

Choosing a distributor for your product is a key facet to ensuring the success of your business in the marketplace. In order to choose the ideal distributor, it’s imperative to carefully analyze how they operate, their sales and marketing capabilities, financial stability, knowledge of your market and more. Use this guide as a resource to determine how to find the right distributor for your brand.

Who are they & how do they operate?
You’ve made a list of potential distributors, now you need to find out important information about each one to determine the perfect fit. You need general information that will identify who they are and how they operate. Asking these questions will help you learn about them, their business practices, their team and their level of experience and commitment.

Here are some of the most important questions you should pose:

  • What are your annual sales & what is your sales break out by key operating unit?
  • What are your company sales trends versus the previous year? How about the last 3-5 years?
  • What are your margins?
  • How many employees do you have?
  • Who are your key personnel? (Ask for career biographies on each)
  • How do you manage a client? Do you have Brand Managers?
  • Are you confident about my company, my product and my chances for success?
  • What would be your plan if you received our business?
  • What are your pharmacy, food service and small store coverage capabilities?
  • Who are your largest competitors?
  • How do you see the evolution of the market?
  • How do you measure success?
  • How many of your employees will be touching our business?
  • What are some trade references?
  • What will you be doing differently in 2015?
  • Why are you the best?
  • What is your company’s mission statement?
  • What is your top management succession planning?
  • How do you train your people?
  • What incentives do you offer your sales people/top management?
  • Is there CEO Involvement?
  • Is there enthusiasm for my brand?

General Red Flags to look for:

  • Too big to focus on your product
  • Working with your competitors – you’re looking for a partner, someone who will be vested in helping you capture market share

Other concerns

It’s important to evaluate how enthusiastic each potential distributor is to take on your brand and how involved they intend to be. Did they prepare a presentation to showcase their ideas on marketing and distributing your product? Are the CEO and top management involved? How aligned are they with your vision?

Supply Chain

It’s vital to consider these factors when interviewing potential distributors. A break in your supply chain can result in lost sales, a decrease in your market share, the inflation of your costs and the stalling of production and future distribution. Depending on your product, be sure to find out all you can about their capabilities, performance record, etc. Use these questions to make sure the distributor you are considering is capable:

  • How many warehouses do you have?
  • What are your locations & chilled capability?
  • How many trucks are in your service?
  • What is your order delivery cycle?
  • What are your average days like?
  • Are there inventory turns?
  • Are you EDI capable?
  • What are the order fill/case fill measures?
  • What is your on-time delivery rate?
  • What is your order process?

Supply Chain Red Flags to look for:

  • Too few inventory turns to properly serve your needs
  • Too long of a delivery cycle time can decrease your competitive edge

Technology

When evaluating the technological capabilities of a potential distributor, think about the importance of their computer system and how well it can help them achieve the functions you need for your product to be successful.

  • Can you provide me with an overview of your computer system?
  • How many handhelds do you have for salesmen?
  • What software do you use/have?

Technology Red Flags to look for:

  • No or not enough handhelds available means that this distributor is not up to date on today’s technology
  • Outdated computer system & database capabilities

Financial

It goes without saying that you want to team up with a distributor that is financially stable. Ask about each distributor’s financial reputation, their credit history, etc to determine if they are a good fit. If possible, run a Dun and Bradstreet. Questions to ask are:

  • Do you have any collections or bad debt?
  • Do you have days outstanding?
  • What are your terms with trade and clients?
  • What is the cost to serve customers/principals?
  • How do you handle deductions?
  • What is your policy about damaged goods?
  • Are you financially stable?
  • How do you determine your margin/commission structure?

Financial Red Flags to look for:

  • Bad credit report
  • Cost to serve too high, not profitable

Sales

The difference between strong and weak sales support could make or break your success. Will you have your own dedicated account representative? Does this person have knowledge of your product category and how best to market and sell it? Do they have a support staff to ensure the sales process runs smoothly? Find out the answers to these questions:

  • What is your overall sales process?
  • What is your management style and how do you prioritize?
  • What are your shelf standards?
  • How do you evaluate sales representatives?
  • How many sales reps vs. merchandizers do you have?
  • What is your sales organization strategy?
  • What are your coverage frequencies?
  • What is your special sales coverage capacity?
  • How many stores/day for retail sales representative?
  • What is your key account management system?
  • What is your category management process?

Sales Red Flags to look for:

  • Not enough sales support team members to drive your business
  • Little or no knowledge of the local market
  • Weak sales history or not enough experience with similar products

New Item Launches

Your new distributor needs to have a strong strategy for launching new products. They should also have a tracking system in place to access the success of the launch. Ask these questions and have each potential distributor share the details and results of their top launches.

  • What is your launch process?
  • How long does it take to launch?
  • What does it cost to launch a new line?
  • How do you measure the success of a new item?
  • How to you track a new item launch?
  • Can you provide me with examples of your success stories?

New Item Launches Red Flags to look for:

  • No examples or success stories to share
  • No focus on educating sales staff on new item to be launched
  • Cost to launch too high/above industry standards

Clients

It’s important to know who each potential distributor is already serving, how long they’ve been serving them and the category into which each of their clients falls. You want a distributor that has knowledge of your product, and either has clients in the same category or has served clients in the same category.  Here’s what questions you need to ask:

  • Who are each of your clients?
  • How long have you been serving each?
  • How large is each client?
  • Who are some references from these clients?
  • Which clients have you gained/lost in last 18 months?

Client Red Flags to look for:

  • Already serving your top competition
  • The brands they serve are hard to find
  • No strong presence in the market
  • High turnover rate of clients over an 18 month period

Legal

Ensuring the agreement between you and your distributor is fair and acceptable is key. And knowing how they handle contracts, fees and responsibilities is a clear view into how they will perform and adhere to your contract. Be sure to ask for this information:

  • What do your contracts with clients look like?
  • How do you determine fees?
  • What are the length of contracts?
  • Who handles import/export requirements?

Legal Red Flags to look for:

  • Broken contracts in their history
  • Unwilling to customize your contract for your specific needs
  • Contracts that are vague (need clear description of their duties, responsibilities and expectations & yours)

Choosing a distributor for your product can be exciting and stressful at the same time. Be sure to follow this guide when interviewing potential candidates. Before meeting, have each interested company provide you with an overview of their capabilities; this helps identify any that are clearly not a good fit. For more information on how to choose the right distributor click here.

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