Distributors and wholesalers Fire the biggest customer app subs The need to unde
ID: 418330 • Letter: D
Question
Distributors and wholesalers Fire the biggest customer app subs The need to understand the economics of a distributor's different customers and customer segments was made very clearly in the case of one distributor which in sales terms was successful but was struggling to make an operating profit. Its cash flow was sinking to the action was needed to save the business. nur Analysing the contribution by customer showed that the distributor's bigge customer, who accounted for over 25 per cent of its sales, was in fact making a negative contribution. In other words, the distributor was paying for the privilene serving its biggest customer-not a healthy way to run the business. Action was taken to identify the cost drivers that were hitting the contribution (extended credit, multiple ship-to points, pre-sales support) and the customer invited to change its demands or to accept that it should pay for them. These were tough negotiations but the distributor management team's backbone was stiffened by the thought that failure to confront the situation would leave them without a viable business. The customer refused to accept new terms so the distributor bit the bullet and terminated the trading relationship. The sales, management and other resources in the distributor that been focused on its previous biggest customer were rapidly redeployed to build up other, more profitable customers and find new ones. Within a month, the distributor's profitability improved and cash flowed back into the business. To put the icing on the cake, its fired customer returned with requests to supply (lower-volume and higher-margin) products that it had been struggling to source reliably elsewhere making it now one of the distributor's more profitable customers. It was a salutary lesson, but it had taken a cash flow crisis before the management team were prepared to undertake the right action. higher than average and the worst 20 per cent below. This is a signit range (ie 40 per centl andExplanation / Answer
Fire the biggest customer - may correct some times.
The given case discussed the un-acceptable practices followed by the distributors to acquire more orders from a specific customers. For this, these oferred orders to them at much lesser price than others, and provided good margins to them. But still they are not satisfied and expecting beyond this level. So, the distributor is rejected the orders from the customer, even though he place huge orders. One thing must always remember by business parties, because of our actions and activities, both the parties or all the parties must gain something, and win-win situtaitons must be there. But here the issue is lose - win situation, where the situation is lossing some margin by the distributor and gaining some additional margin by the customer. In this kind of environment, the firms can not run their businesses for a long time.