Hub You - Consignment -- A Sales Adventure

Once upon a time, many years ago there was a young, ambitious salesman selling flat rolled steel. This energetic young man called on one potentially large account for months and months with zero success. He was going nowhere fast. The only thing he got from the rather large, burly looking professional purchasing agent was frustration. The purchasing agent knew the young salesman was short on experience. The young salesman felt that the purchasing agent actually enjoyed watching him squirm month after month. This young salesman, being enthusiastic and energetic, tried every sales technique he had ever learned. Of course, the scruffy old purchasing agent was familiar with every one of them and had seen them many times before. Nothing seemed to work on this guy. The young man just couldn’t reach him. So, he went back to something very basic that most of us in sales (especially we Baby Boomers) learned from day one. The young salesman reflected on the words spoken by his most cherished mentor, “Build a relationship son. Get the man to like you and he’ll tell you how to do business with him.”

Expectations

Well, the young man tried and tried, but even that didn’t seem to work. He was ready to give up. He was tired of repeatedly hearing that same pathetic purchasing agent’s theme song, “I’m happy with my current suppliers.”

The young salesman was not smart enough, did not have enough scar tissue and was not confident enough to reply, “Maybe that’s because you have set your expectations way too low.” Instead he resorted to his secret weapon, his rarely used prideful technique that only came out when all else failed – He begged. “Mr. Customer, is there anything I can do, anything at all that will convince you to give me a chance to do business with you?”

Have you ever been in the midst of a sales presentation and feel a knockout punch land on your chin? Well, that’s how the reply felt to the young salesman. “Look, we have a partnership with our current supplier. The only way you could ever do business with me is if you gave me our steel for free,” the purchasing agent barked. The young salesman was devastated; He saw the thrill of victory vanish before his eyes, as he tasted the agony of final defeat. He walked away from that call with his tail between his legs. The young salesman was down and depressed. He was in one of those typical valleys anybody who is or has ever been in sales recognizes. The best way to pull ourselves out is to make a buddy call – a call on one of our best customers, based not on revenue but on friendship; one of those frequent calls we make and get criticized for making because the sales volume doesn’t justify the number of times we visit.

“He was a friend,” the young salesman thought. So he told him the story. His friend and customer was sympathetic, understanding and even though he didn’t offer any advice, the young salesman recaptured his spirit. That night as he sat on his front porch reflecting on the day, he thought, “Why not? Why not give him our product for free?” Full of excitement, the next morning he went directly to his boss, the owner of the small privately held company. He convinced the owner of the integrity of his new plan.

A concept was born

The concept of consignment in steel distribution was born. That happened in the mid 1980’s. Consignment was already being used in the fastener industry but I do not recall anybody in the steel distribution industry using it. But, as we, the young salesman and me, his boss, found out, the concept of consignment can work in any industry. It was a tough sell, not so much to the customer, but to me as his boss. But, we did it and it was successful. The prospect this young salesman almost walked away from became our largest account, purchasing over $4 million by the end of the second year. It became a learning experience for both of us and we both profited from it. And the large burly looking purchasing agent actually did become one of the young salesman’s closest friends.

Consignment can become a very effective marketing tool if it is used correctly. The emphasis is on using it correctly. A consignment partnership should not be considered without establishing specific criteria for selecting appropriate accounts up front. This is extremely important to you, the supplier. We call this selection criteria the “Rules of Engagement.”

In contrast to the normal Rules of Engagement in selling, consignment Rules of Engagement are predetermined by the supplier, not the customer. Of course, the rules can be modified with proper approval to fit different situations. However, a consignment partnership must be a win-win relationship in order to be successful.

Rules of Engagement

The specific criteria that need to be determined before a consignment partnership is offered include:

• What is the minimum annual sales volume you are willing to accept?

• What are the minimum annual gross margin dollars you are willing to accept?

• Are financial statements available for your review?

• Is the customer financially secure?

• How much risk/investment are you willing to accept in off-site customer inventory?

Expectations

Well, the young man tried and tried, but even that didn’t seem to work. He was ready to give up. He was tired of repeatedly hearing that same pathetic purchasing agent’s theme song, “I’m happy with my current suppliers.”

The young salesman was not smart enough, did not have enough scar tissue and was not confident enough to reply, “Maybe that’s because you have set your expectations way too low.” Instead he resorted to his secret weapon, his rarely used prideful technique that only came out when all else failed – He begged. “Mr. Customer, is there anything I can do, anything at all that will convince you to give me a chance to do business with you?”

Have you ever been in the midst of a sales presentation and feel a knockout punch land on your chin? Well, that’s how the reply felt to the young salesman. “Look, we have a partnership with our current supplier. The only way you could ever do business with me is if you gave me our steel for free,” the purchasing agent barked. The young salesman was devastated; He saw the thrill of victory vanish before his eyes, as he tasted the agony of final defeat. He walked away from that call with his tail between his legs. The young salesman was down and depressed. He was in one of those typical valleys anybody who is or has ever been in sales recognizes. The best way to pull ourselves out is to make a buddy call – a call on one of our best customers, based not on revenue but on friendship; one of those frequent calls we make and get criticized for making because the sales volume doesn’t justify the number of times we visit.

“He was a friend,” the young salesman thought. So he told him the story. His friend and customer was sympathetic, understanding and even though he didn’t offer any advice, the young salesman recaptured his spirit. That night as he sat on his front porch reflecting on the day, he thought, “Why not? Why not give him our product for free?” Full of excitement, the next morning he went directly to his boss, the owner of the small privately held company. He convinced the owner of the integrity of his new plan.

A concept was born

The concept of consignment in steel distribution was born. That happened in the mid 1980’s. Consignment was already being used in the fastener industry but I do not recall anybody in the steel distribution industry using it. But, as we, the young salesman and me, his boss, found out, the concept of consignment can work in any industry. It was a tough sell, not so much to the customer, but to me as his boss. But, we did it and it was successful. The prospect this young salesman almost walked away from became our largest account, purchasing over $4 million by the end of the second year. It became a learning experience for both of us and we both profited from it. And the large burly looking purchasing agent actually did become one of the young salesman’s closest friends.

Consignment can become a very effective marketing tool if it is used correctly. The emphasis is on using it correctly. A consignment partnership should not be considered without establishing specific criteria for selecting appropriate accounts up front. This is extremely important to you, the supplier. We call this selection criteria the “Rules of Engagement.”

In contrast to the normal Rules of Engagement in selling, consignment Rules of Engagement are predetermined by the supplier, not the customer. Of course, the rules can be modified with proper approval to fit different situations. However, a consignment partnership must be a win-win relationship in order to be successful.

Rules of Engagement

The specific criteria that need to be determined before a consignment partnership is offered include:

• What is the minimum annual sales volume you are willing to accept?

• What are the minimum annual gross margin dollars you are willing to accept?

• Are financial statements available for your review?

• Is the customer financially secure?

• How much risk/investment are you willing to accept in off-site customer inventory? Thoughtful Recruiting for Your Stamp or Scrap Biz
You just signed up for a scrapbooking or stamping direct sales company. You now start on the recruiting "train". It's not required, but it seems to be the "thing to do". You hold workshops or parties and all through the workshop, you "sell" the idea of joining your company with the idea that if you can get people to sign up, you'll be home-free - making money on THEIR sales - WooHoo! Sounds like a good plan, doesn't it? Well, maybe not. Nothing can potentially kill a good business faster than recruiting. Huh? I'll say it again, nothing can potentially kill a good business faster than recruiting.Let me show you how:You sign upYou sell $200 a month to Customer AYou make $50 a month from the sales you make to Customer A.Through your effective recruiting efforts, Customer A signs up to be a consultant but is really only in it to get the discountCustomer A still buys $200 a month on average of products - only now, she buys them from the Multi-level company herself Customer A enjoys her 25% discount off of the products she sells to herself. You now make 3% off of her sales as her "upline"You now make $6 a month off of customer AYou lose $44 a month in revenue...End of story. Keep in mind that the company doesn't lose anything. They gain another one of you who will "lather, rinse and repeat". Pretty soon, everyone is buying directly from the company and there are no "customers" left. Not to mention that now the company can sing the praises of the fact that they have X number of consultants, when in fact, a large percentage of those "consultants" are just the former customers of another consultant who was too good at receel for free,” the purchasing agent barked. The young salesman was devastated; He saw the thrill of victory vanish before his eyes, as he tasted the agony of final defeat. He walked away from that call with his tail between his legs. The young salesman was down and depressed. He was in one of those typical valleys anybody who is or has ever been in sales recognizes. The best way to pull ourselves out is to make a buddy call – a call on one of our best customers, based not on revenue but on friendship; one of those frequent calls we make and get criticized for making because the sales volume doesn’t justify the number of times we visit.

“He was a friend,” the young salesman thought. So he told him the story. His friend and customer was sympathetic, understanding and even though he didn’t offer any advice, the young salesman recaptured his spirit. That night as he sat on his front porch reflecting on the day, he thought, “Why not? Why not give him our product for free?” Full of excitement, the next morning he went directly to his boss, the owner of the small privately held company. He convinced the owner of the integrity of his new plan.

A concept was born

The concept of consignment in steel distribution was born. That happened in the mid 1980’s. Consignment was already being used in the fastener industry but I do not recall anybody in the steel distribution industry using it. But, as we, the young salesman and me, his boss, found out, the concept of consignment can work in any industry. It was a tough sell, not so much to the customer, but to me as his boss. But, we did it and it was successful. The prospect this young salesman almost walked away from became our largest account, purchasing over $4 million by the end of the second year. It became a learning experience for both of us and we both profited from it. And the large burly looking purchasing agent actually did become one of the young salesman’s closest friends.

Consignment can become a very effective marketing tool if it is used correctly. The emphasis is on using it correctly. A consignment partnership should not be considered without establishing specific criteria for selecting appropriate accounts up front. This is extremely important to you, the supplier. We call this selection criteria the “Rules of Engagement.”

In contrast to the normal Rules of Engagement in selling, consignment Rules of Engagement are predetermined by the supplier, not the customer. Of course, the rules can be modified with proper approval to fit different situations. However, a consignment partnership must be a win-win relationship in order to be successful.

Rules of Engagement

The specific criteria that need to be determined before a consignment partnership is offered include:

• What is the minimum annual sales volume you are willing to accept?

• What are the minimum annual gross margin dollars you are willing to accept?

• Are financial statements available for your review?

• Is the customer financially secure?

• How much risk/investment are you willing to accept in off-site customer inventory? Check Your Paradigm At The Door
Since some people might not be sure what a paradigm is, let's just define it a little before we start, and then we'll talk about the relative sizes of Texas and New Jersey, and why you don't inspect cattle wearing high heels.Although the term "paradigm" can take on different shades of meaning depending on the subject and the people involved, the basic point of view is that a paradigm is the pattern within which you live, think, and operate. Since so many of our actions and reactions are based on the paradigm we are operating under, you can see how there is a possibility for a gross misjudgment on someone's part if their paradigm is incorrect or skewed. In other words, if your paradigm is one that assumes you are in danger, you may jump when a friend comes around a corner. On the other hand, if your paradigm says that everybody is your friend and you are safe, you will smile in greeting when that same friend comes around that same corner. It makes you wonder how many crimes get committed in Hollywood because the witnesses think it might be a movie!A paradigm can be fairly broad or narrow, and there can be different, and sometimes overlapping, paradigms for things like school, home life, friends, and work...which is why I got in a fight with a woman in Pennsylvania.I was a federal purchasing agent in charge of purchasing fuel for some National Guard units in Texas. I had the need to purchase some fuel outside of the normal system, and to do this, I had to get permission from an office located in Pennsylvania. It was pretty cut and dried in my eyes, so I made the request through channels, and I was surprised when it got shot down!I called the woman who had refused to grant permission and politely explained our need. The Texas Army National Guard was having Summer training at Fort Hood, Texas which is in the central part of the state. At the end of training, a large convoy of military vehicles of all types were going to be returning toss, the owner of the small privately held company. He convinced the owner of the integrity of his new plan.

A concept was born

The concept of consignment in steel distribution was born. That happened in the mid 1980’s. Consignment was already being used in the fastener industry but I do not recall anybody in the steel distribution industry using it. But, as we, the young salesman and me, his boss, found out, the concept of consignment can work in any industry. It was a tough sell, not so much to the customer, but to me as his boss. But, we did it and it was successful. The prospect this young salesman almost walked away from became our largest account, purchasing over $4 million by the end of the second year. It became a learning experience for both of us and we both profited from it. And the large burly looking purchasing agent actually did become one of the young salesman’s closest friends.

Consignment can become a very effective marketing tool if it is used correctly. The emphasis is on using it correctly. A consignment partnership should not be considered without establishing specific criteria for selecting appropriate accounts up front. This is extremely important to you, the supplier. We call this selection criteria the “Rules of Engagement.”

In contrast to the normal Rules of Engagement in selling, consignment Rules of Engagement are predetermined by the supplier, not the customer. Of course, the rules can be modified with proper approval to fit different situations. However, a consignment partnership must be a win-win relationship in order to be successful.

Rules of Engagement

The specific criteria that need to be determined before a consignment partnership is offered include:

• What is the minimum annual sales volume you are willing to accept?

• What are the minimum annual gross margin dollars you are willing to accept?

• Are financial statements available for your review?

• Is the customer financially secure?

• How much risk/investment are you willing to accept in off-site customer inventory? Freight Brokers
Freight brokers are described quite simply as people who bridge the gap between a shipper (those that will need to transport goods) and a licensed and reliable logistics provider, in this case, truckers.Categorically, freight brokers are called transportation intermediaries. In other words, they are the middle men who ensure a shipper gets reliable movers to do the job and help the carriers to get in touch with customers and earn money.These brokers do not necessarily own the carriers that they supply to their shipper clients. They also source them out to logistics companies. However, some carriers are encroaching on the freight brokerage business to maximize opportunities. Still, most companies prefer to employ the services of freight brokers who have a vast network of carriers and can provide them at the best price.The freight brokerage industry began in the early 1970s, when as businesses expanded worldwide, logistics became a vital part of that growth. Strict guidelines and requirements imposed by the government at the beginning discouraged many from becoming brokers. Today, control has loosened a bit, and the business is thriving.Freight brokers often play an important role in one of the shipper’s important aspect of the business: the timely and uninterrupted delivery of goods. Some companies ask their brokers to schedule the shipments for them since they are at the best vantage point to set all the requirements.The success of a freight-brokerage business largely depends on the depth of shippers’ and carriers’ networks it has. Most brokers started working as carriers or shippers. There, they learned the ropes of shipping goods and established strong contacts. The freight brokers rely on their ability to ensure the delivery of products in their perfect condition at the time specified by the clients. To become a preferred broker, they have to gain the confidence of their clients.ent partnership should not be considered without establishing specific criteria for selecting appropriate accounts up front. This is extremely important to you, the supplier. We call this selection criteria the “Rules of Engagement.”

In contrast to the normal Rules of Engagement in selling, consignment Rules of Engagement are predetermined by the supplier, not the customer. Of course, the rules can be modified with proper approval to fit different situations. However, a consignment partnership must be a win-win relationship in order to be successful.

Rules of Engagement

The specific criteria that need to be determined before a consignment partnership is offered include:

• What is the minimum annual sales volume you are willing to accept?

• What are the minimum annual gross margin dollars you are willing to accept?

• Are financial statements available for your review?

• Is the customer financially secure?

• How much risk/investment are you willing to accept in off-site customer inventory?

Answers to these preliminary questions need to be established in addition to others that may pertain to your product and industry.

An Assessment of the Consignment Partnership

Even today in many industries, consignment is on the leading edge of custom designed cost reduction programs. Initiatives focus on total cost, not price, in order to move to the next level of partnering, surpassing expensive JIT programs that have high administrative costs and service risks. The major objective of a consignment partnership is to reduce costs by eliminating inventory and duplicate effort, as well as reducing shrinkage and lowering transaction and handling costs. It is also effective in reducing scrap, rework, equipment downtime, lead-time and over production.

As consignment becomes recognized in the marketplace as the “way of the future,” caution should be exercised due to the lack of experience and misconceptions by the competition.

Misconceptions include:

1: Consignment is a Supplier Program
Consignment does not start with a company/supplier seminar where you ask the customer how much he wants to stock on his floor. Consignment is complex, requiring supplier professional expertise, state of the art technological MIS and a true commitment of a joint partnership throughout both organizations.

2: Consignment is Just Another Program/Project
Because consignment is a total organizational philosophy on both the customer’s part and the supplier’s part, implementation extends beyond the purchasing department. Consignment requires organization, education and training, especially with front line supervision and labor on the shop floor.

3: Consignment is Easy and Can be Implemented Quickly
Consignment is not easy although consignment customers may think so. However, you can make it easy because of your years of experience, expertise and support from your IT department. Consignment requires organizational change and, in some cases, physical plant changes. Cultural transition barriers can extend the process. Sustaining the continuous improvement philosophy of consignment is critically dependent on organizational transition.

Implementation of consignment requires a plan, an implementation team, a commitment from both parties and staying power to build a partnership seeking continuous cost savings.

How do you know if consignment is right for a particular account?

First, determine which accounts may or may not be eligible for consignment. At a minimum, you should consider the following:

• Financial stability. Since consignment involves the physical transfer of inventory to your customer’s location before he has paid, you should be sure that he will remain solvent throughout the program. Financial reports are the preferred method of validating stability.

• Minimum level of revenue desired. This needs to be determined to justify the investment not only of inventory, but of other resources to manage the program.

• Minimum volume level on items. The consignment program involves a level of overhead that may not be supportable on low turnover items.

• Integrity of customer. No matter how thorough your consignment agreement, all such programs involve a high level of trust between parties. How easy are they to do business with?

It is very important, then, to complete a diagnostic review. The diagnostic review, initiated by your sales support team, is the first step in preparing for consignment. The review involves your entire organization and represents a complete and thorough assessment of the customer’s current operating environment. It provides the base of reference for all future consignment activities. It is primarily a data collection and operational analysis effort which defines the consignment opportunities and the challenges that must be met for implementation. It includes an assessment of:

• Operations

• Material Flow

• Material Storage

• Organization

• Market Requirements

The diagnostic review results in a thorough understanding of the barriers, constraints and opportunities to implementing the consignment partnershi

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