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The two major challenges facing businesses include making products and finding customers to buy them. While many companies successfully do both, companies that have limited resources may be better off focusing on making the best possible products in the greatest quantity. Those companies may be better off leaving the selling to distributors and adding as many distribution partners as they can cover with their current level of production. These companies can then focus on optimizing increased levels of production by encouraging distributors to sell more of their product and ordering products more regularly. Such distributor initiatives allow increased unit production at lower cost and result in greater market share for the company producing the goods.
Step 1
Add distributors until you are confident that they will collectively be able to handle current levels of production, as well as regular and planned increases throughout the partnership. Make sure that your distributors are aware that you are planning to increase production and that they are comfortable with your plans. Use customer surveys to check how familiar your distributor personnel are with your products and offer training if necessary. Check that your distributors are aware of the strategic positioning of your products and that their sales strategies coordinate well with your plans. Weed out and replace distributors that don't fit with your expansion plans, your training requirements or your strategies.
Step 2
Evaluate how much different increases in unit production will reduce unit costs. Choose the percent increase that will result in the lowest unit production cost. Establish a new distributor price based on the lower unit production cost. When setting the new price for distributors, pass on all the savings if you want to aggressively increase market share. For a less aggressive approach, assign some of the savings to future expansion or to profit and pass on the rest. Advise your distributors that the lower price is available to them if they increase their orders by the required percentage. Evaluate distributor performance to see if the lower price level was adequate to acieve the targeted market share and unit production increase. Check for performance differences among the distributors and replace those that do not perform to expectations.
Step 3
Review your plant's production load and calculate the savings if the load was steady, at an optimal level, for a whole year. Include saving from avoiding overtime, the resulting decrease in down time and lower warehousing costs because of just-in-time deliveries. Calculate the savings as a percent of unit cost. Establish a new distributor price level with the percent savings. Advise your distributors that they will receive a discount equal to the percent saving if they order the same total quantity as in the previous year but in regular monthly installments. Offer financing to encourage hesitant distributors. Once your plant loading has stabilized with the lower unit costs, repeat the evaluation for lower unit costs from higher unit production, possibly with new facilities. Further increase market share and unit production in this way.
