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A bonus program that focused salespeople on premier vendors and cost-savings documentation re-energized Quality Mill Supply.

Good salespeople are like tightrope walkers. They strive to maintain a proper balance between being price competitive and providing customers with high-quality products and services at a fair price. When salespeople lean too far in one direction, they lose their balance and can suffer serious consequences.

A few years ago, Dave Salathe, vice president of sales for Quality Mill Supply headquartered in Franklin, Ind., felt that some of the company’s salespeople were becoming too heavily focused on matching the competition’s lowest price. As a result, they weren’t being rewarded for their knowledge and expertise in carbide tools, cutting tools and abrasives.

“We were adding lines left and right, and we were becoming the me-too player in the marketplace,” Salathe says.

Despite being in business since 1944 and having a sales staff with an average tenure of 17 years, many customers viewed Quality Mill Supply as just another supply house. Sales and profits suffered.

To turn the market perception around, Quality Mill instituted a bonus program that rewarded salespeople for focusing on two specific objectives. They could earn a higher commission on everything they sold if they boosted sales of products from a select group of premier vendors, and if they produced at least four documented cost savings reports for customers per quarter.

Working closely with a handful of premier vendors instead of spreading their efforts among hundreds of suppliers helps salespeople gain expertise in applying specific products.

“When you’re dealing with a finite number of manufacturers, you can focus on the actual value that particular manufacturer brings to the customer. We’re selling knowledge rather than price,” Salathe says.

Documenting cost savings takes the customer’s focus away from product price and replaces it with an emphasis on improving performance and productivity. Since initiating the bonus program, sales of products from premier vendors increased by between 20 percent and 35 percent, and the company’s overall sales grew by about 15 percent.

In recognition of its efforts, Quality Mill Supply earned the 2005 Value-Added Distributor Award from the Industrial Supply Association.

Picking partners
A cross-section of Quality Mill Supply employees helped select the premier vendors that would be asked to work more closely with the company’s four branches. They used about 20 selection criteria, including the quality and experience of each company’s field sales force, willingness and availability to go on joint sales calls, their investment in research and development, delivery and service history and the ease of doing business with that company.

“We met with each vendor and said these are our criteria and these are our expectations,” says Tim Wallace, Bloomington, Ind., branch manager.

Many, but not all, of the premier vendors are fellow members of Affiliated Distributors.

“This focus has improved our relationships with our premier vendors,” says Wallace. “It’s easier for us to get marketing support and we’re going on more joint calls with premier vendors than in the past.”

Template improves ease-of-reporting
To make it easier for salespeople to generate cost savings documentation, Salathe developed a template using an Excel spreadsheet format to calculate cost savings. The reports summarize savings in a variety of areas, including spot buys, tool crib purchases, inventory reduction savings, and application and process improvement savings. (Click here to see sample template .)

“It’s helpful that some of our premier vendors have documented cost savings programs of their own that enable our guys to capture cost savings. It’s nice to be involved in companies with those programs in place,” adds Salathe.

Some salespeople turn in the documentation only because it’s required. Others complete more than four reports per quarter because they recognize their value to the customer.

A quarterly summary prepared for one customer showed total savings of more than $20,000. Slightly more than half of the savings resulted from consolidating purchases through premier vendors, which resulted in better contract prices. In the past year, the customer realized more than 13 percent in annual cost savings and reduced its supplier base by two-thirds.

In some cases, however, customers pay more for a product that lasts longer, which generates an overall cost reduction. For example, Quality Mill recently convinced one automotive industry manufacturer to switch to a higher quality, more expensive brand of impact wrenches that were more reliable than the tools the manufacturer previously used. (Click here to read case study .)

“Some of the process improvements are difficult to measure, so we can’t put a price on them. We just tell the customer what projects we’re working on with specific engineers. It’s important to put it down in writing so they know what we’re working on,” Wallace says.

Wallace adds it’s also critical for salespeople to get the cost savings reports into the hands of the right people.

“If you give the report to the guy running the machine, he doesn’t really care. But if you get it to the finance guy or the purchasing manager, you can earn feathers in your cap,” he says.

Salathe says working more closely with premier vendors and requiring salespeople to turn in documented cost savings reports has helped Quality Mill Supply salespeople maintain balance.

“This approach has helped us focus our value to the customer and separate us from the competition,” he says.