The use of third-party service organizations is growing as manufacturers cut back their sales force in downsizing efforts and retailers look to cut the cost of in-store labor.
g where the costs will be best applied and where core competencies exist," said Bob Sigel, president and chief executive officer of Millbrook Distribution Services. Millbrook has undergone a restructuring of its business. It's name change to distribution services reflects a response to changing needs in the marketplace by now unbundling services offered to its customers. No longer is buying of actual product a prerequisite for these services. "We are now in the business of distributing solutions," said Sigel.
Backed by its parent company, McKesson Drug Co., Millbrook has the economy of scale, the technology and a well-trained labor force to solve the many logistical problems encountered by retailers and suppliers, said Sigel.
Here is what else he had to say about Millbrook's efforts in the third-party area.
Growth of third-Party Organizations
SN: Third-party merchandising service companies are growing and have become a factor in the marketplace. What is Millbrook doing to take advantage of this trend?
SIGEL: We let the traditional service merchandising industry take this business away. We had a paradigm that we could only offer these services for products we sold to retailers that we do business with. We are the guys that understood how to handle products at retail. We pack it out on shelves, do price changes and planograms.
We realized that we can do it effectively, so we started a division called Millbrook Retail Solutions. It allows us to take the 800 people we have in the field and build upon their expertise and transfer their merchandising skills.
Far differently from the traditional third-party service company, we have a tremendous talent pool of full-time people and people that have made this their career. We will sell these services and transfer those skills to other channels and classes of trade. In addition, we'll work with manufacturers and try to make up a void for us in the marketplace.
The factor driving this is the fact that manufacturers are trying to get efficient. Why should they have their own direct sales force when there are representatives out there who can go in the stores and do the detail and represent a number of companies at one time for a much more efficient per store call?
And for the retailers, there are so many items coming through and changes being offered them in how to merchandise. They are insisting on support. They don't want to have to pay for sets and go through the aggravation as the world changes out there.
New items are the lifeblood of business. Although they may be slowing down, there are still hundreds of them that require resets and remerchandising. It's very costly. As activity-based costing has come more into focus, at least for us, we are realizing that resets are extremely costly.
The retail service industry is going to grow. Manufacturers are going to want to outsource. This movement is about understanding where the costs will be best applied and where core competencies exist. Manufacturers' core competencies are not in store service. They can hire people to do that.
The issue will be who in the third-party service arena is going to be strong and capable of the right infrastructure, the right organization and the right skills. It's going to be like the demo companies. If you don't have the talent, then you aren't going to get the kind of performance you want. There's been tremendous growth in the number of companies out there. They've added lots of part-time people, but most have been poorly trained and implemented. That's one reason we've jumped in, because we have competencies to get the training implemented even with part-time people.
MUSICO: From our perspective, it's part of our strategy. There are resources you want to own and there are those resources you want to farm out. Traditionally, we've used outside services. It's our broker network primarily. It comes down to cost. Can you efficiently manage that kind of service and do it cost-effectively in constantly training and educating people in the businesses you're involved with?