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Published: June 16, 2005

 
 

Making the Most of "Feet on the Street"

2. Gain a firm grasp of the outsourcing vendor’s expenses, overhead, and deployment models. In the U.S. today, a handful of national vendors — Acosta, Crossmark, and Advantage Sales and Marketing among them — and a larger number of regional firms manage the typical outsourced merchandising staff. These vendors all employ large forces of mostly part-time sales associates who visit food, drug, convenience, and mass-merchandiser stores. These associates are generally paid less than the in-house merchandising staff, and since they represent and promote a variety of clients during every store visit, the cost of running a large sales force is spread out over more products. But the vendor’s overhead and other indirect costs and fees can erode the value that managers gain from lower labor charges.

In addition, the choice of which outsourcing models to implement must be made wisely. There are three principal models:

  • Syndicated or “continuity” coverage: A manufacturer hires a single outsourcing vendor, one that handles services for many manufacturers, for multiple projects.
  • Project or retail coverage: A manufacturer purchases the vendor’s services for one project at a time.
  • Dedicated or exclusive resource coverage: A manufacturer contracts with an outsourcer to manage merchandising solely for that manufacturer, which increases focus and flexibility but comes at a higher cost.

Several companies have successfully developed an outsourcing strategy that mixes the three outsourcing models in different combinations depending on the channel. For example, one consumer company built a powerful and highly efficient merchandising force by combining “dedicated” coverage in the mass-merchandiser channel, “syndicated” coverage in the grocery channel, and “project” coverage in lower-impact channels such as drugstores.

3. Build outsourcing management capability. Manufacturers are often surprised at the sophistication of the services vendors offer them. Many vendors have invested heavily in technology and can customize how they report the costs of every promotion and visit, with capabilities that are often better than those of the in-house merchandising departments those vendors have replaced. In many cases, outsourcing makes it easier for companies to become more disciplined with their merchandising budgets, trading the fixed cost of an in-house sales force for the variable cost of vendor-provided services.

But these benefits accrue only to manufacturers who have a management team that can work with vendors in a disciplined, comprehensive fashion and support high standards of retail effectiveness. This capability is the critical factor in reducing costs without losing effectiveness. In our experience, a sustainable vendor management capability is based on four building blocks:

  • Processes: Manufacturers must build advanced retail cycle–planning processes. Cycle planning manages the scheduling and mix of merchandising resources, a process that serves the needs of vendors and manufacturers alike. Vendors require accurate estimates of annual, quarterly, and monthly coverage requirements. Monthly cycle scheduling forces manufacturers to lock in commitments well in advance of execution dates. Further, the cycle-planning process is dynamic; it reflects changing account team requirements and can accommodate changes that must be made in response to competitors’ activity.
  • Organization: Typically, the retail merchandising organization shrinks to reflect its new role, organizes by channel (or geography) to parallel the outsourcer’s organizational alignment, and rebalances its staff to include a planning coordinator and analyst resources. In one case, a manufacturer replaced an in-house sales staff of more than 20 people (who were supporting an in-house, dedicated merchandising force of more than 200) with a highly skilled and experienced staff of 10. To ensure accountability, successful manufacturers directly link performance scorecards to vendor compensation and establish incentives for their own managers linked to merchandising profitability.
  • Analytics: High standards of retail effectiveness require in-depth assessments of segmentation, deployment modeling, and target setting. Analyses of account and outlet segmentation data help focus resources and increase incremental volume. Deployment modeling combines the segmentation results with a detailed understanding of the in-store activities that generate the most value.
  • Systems: The data collected by merchandisers during store visits (often compiled on the spot using handheld and laptop computers) feeds the analytical engine that supports the cycle-planning process and enables the measurement of vendor performance. It also helps manufacturers to better understand the availability and visibility of their products in a particular location.
 
 
 
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Resources

  1. Paul Hyde, Edward Landry, and Andrew Tipping, "Making the Perfect Marketer," s+b, Winter 2004; Click here.
  2. Steffen M. Lauster and J. Neely, "The Core's Competence," s+b, Spring 2005; Click here.
 
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