How distributors should prepare for the bounce back

Australian and New Zealand jansan distributors – in fact, jansan distributors around the world – are dealing with a stark reality that few, if any, thought possible just a few months ago.

As of November 2019, most distributors had big plans for 2020, and many were confident 2020 would prove to be a very lucrative year.

But now, with COVID-19, some distributors are concerned about their future. Although in some areas of the world, the entire jansan industry is bustling, taking steps to keep people healthy, in other parts of the world, business has slowed, in some cases, almost to a stop.

This new reality set in at different times around the globe. In the United States, for example, it was probably March 11. That’s when the National Basketball Association announced it would suspend the season due to the virus. That was an unexpected eye-opener for most Americans.

In Australia, many point to February 25, 2020. That was the day Australian Health Minister, Greg Hunt, said the country was taking a variety of steps to protect human health as a result of COVID-19, including shutting down schools and other facilities throughout the country. These closures have had negative ramifications for the distributors that serviced these educational facilities.

How long these and other buildings will be closed, we do not know. A good sign is that both China and South Korea appear to be reopening their doors and getting back on their feet after a shutdown of only about two or three months. Whether that will be the case in Australia, North American, and around the world, time will tell.

Because most distributors are in the same wait-and-see mode, what certainties can we rely on to help get us through this challenging period? The following are some of the most likely:

  • The pandemic is not over. It will likely impact different parts of the world throughout 2020.
  • Uncertainty is now a certainty. The virus could burn itself out in just a few months or fade during warmer weather and have a winter resurgence.
  • Supply chains will be impacted. Shortages of all types of products, including some cleaning solutions and equipment, will continue throughout the year.
  • The economy will bounce back. We just do not know when. Countries around the globe are investing in their economies to get them running again. Distributors and other companies can expect to rebound, hopefully, by the end of this year.

With an eventual bounce-back all but certain, what should jansan distributors be doing now to strengthen their positions and be at the front of the line when it occurs? Here are four crucial steps all distributors should take.

Be proactive

Just a few months ago, some distributors were planning on hiring more people because 2020 looked so bright.

Now distributors need to make what may be difficult but proactive decisions to scale back expenses. Create a new budget based on different revenue expectations, such as reductions of 20 per cent, 30 per cent, or even 50 per cent.

Determine if hiring plans should be placed on hold. Identify which current positions can be eliminated if necessary, at least for the next several months.

Are salary reductions needed? How about reduced workdays? Decide now and take the necessary steps to make it through the rest of the year. Waiting to do this can prove costly.

Analyse cash flow

Distributors must prepare for the possibility of some problematic months ahead and having positive cash flow can be crucial.

Accordingly, contact suppliers and ask about renegotiating the terms of your agreement, delaying payment on supplies or equipment to adjust for cash flow, if necessary. Contact landlords as well to inquire about their flexibility.

Do this now. Usually, if such issues are addressed before an emergency occurs and a plan has been put into place, calmer heads will make more well-thought-out decisions.

On the other side of the spectrum, tighten accounts receivables. If you have not already, offer clients discounts if invoices are paid within 10 days and enforce interest charges if invoices are not paid in 30 days.

Plan for the what-ifs

As the economy begins to bounce back, we may be looking at an entirely different business landscape and marketplace. You need to anticipate “what-ifs” and make a plan to deal with them.  Consider the following what-if potentialities:

  • Your company may need more staff. Will you be able to hire back former workers or hire new workers to fill new positions?
  • One or more of your current suppliers may not make it through the downturn. Do you have alternative suppliers with similar products should this happen?
  • A competitor goes under or decides to liquidate. How can you take advantage of this situation? Purchase their current inventory? Begin servicing their former clients? Will you have the funds or a bank line of credit available to do so?
  • Customers begin calling for specific products and ask they be delivered as quickly as possible. What will you do if your suppliers do not have these available, or there are delays?
  • Your suppliers experience delays in international shipping. Do you have domestic suppliers waiting in the wings?
  • There is a sudden weakening of demand for specific products or a category of products. Can orders for those products be canceled? If they have already been delivered, can those products be returned to help protect cash flow?
  • One of your largest customers unexpectedly goes into bankruptcy. Do you have a diversified customer base or enough savings to carry you until you can recruit new clients?

Make a strategic plan

When times are good, many distributors find they are so busy keeping up with product demand they have no time to take a close look at how their businesses are operating. As you prepare for businesses to re-emerge, use this time to look at how different departments within your company are operating.

Does each department have the appropriate number of staff?

Will your sales force need to make changes in the way it works with clients? For example, should you incorporate an online dashboard system that would help customers select the most effective products? Expect consultative selling strategies to become increasingly important as the bounce-back begins.

Who are your best customers? Consider not only who generates the most revenue but also such factors as time allocation, gross margins, and customer payment patterns. For instance, a large customer may purchase the most supplies.

Yet, on closer examination, the product discounts you have been offering them may not be justified based on the amount they are spending. Or possibly they require more attention than other customers, or simply take too long to pay.

Typically, distributors find the 80/20 rule plays a significant role in profits. Eighty per cent of your revenue comes from twenty per cent of your customers. It may be time to eliminate those customers that are simply not profitable or worth the time and effort.

Flexibility is the name of the game right now. Distributors must expect the unexpected and realise anything could happen. We know the economy will bounce back, and hopefully that happens sooner rather than later.

In the meantime, preparation is key. The stronger your company is to move forward, the higher the gains when the bounce-back occurs.

Michael Wilson is vice president of marketing and packaging for AFFLINK.

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