Road Warriors Continued

During the past seven years, Counterpoint has touched on some controversial topics—such as “SI3,” “Conflict Diamonds,” and “Returned Merchandise”—that generated significant response from JCK readers.

To my surprise, however, response to the September 2004 Counterpoint, titled “Road Warriors,” puts it at the top of the list numerically and close to the top in terms of passion. (“SI3” still ranks No. 1 on the passion scale on both sides of the argument.)

The response to “Road Warriors” reflects an interesting change in the jewelry industry—the change in attitude toward salespeople. This change is manifest in two ways: first, in the transfer of business risk from business owners to the sales function; and second, in the fact that salespeople now are viewed as independent contractors as opposed to employees.

The transfer of risk from the firm to the salesperson is demonstrated in several ways. To an increasing degree, credit risk is transferred to the sales function. The apparent logic is that the salesperson knows or should know the creditworthiness of a particular retailer. However, granting credit is a management function and, in my view, not one that should be delegated to a salesperson, whether an independent contractor or an employee. Management has the resources—personnel, experience, up-to-date data, and contact with JBT and/or D&B—to verify and decide the creditworthiness of a retailer. Some manufacturers have implemented payment programs in which the sales force gets paid when the retailer pays them. In the manufacturing community, the average length of time for “sales outstanding” is roughly 60-120 days. Add to this time frame a production time of 40-60 days, and you have a situation in which a salesperson is potentially without income for 100-180 days.

I’ve also noticed that a growing number of jewelry firms in the United States appear to be launched by newcomers to the country. Whether from Israel, India, China, or some other part of the globe, these firms look at sales as a function that can be outsourced. It’s a way to transfer the cost of Social Security taxes, insurance coverage, and other administrative expenses to the salesperson.

As so many in the industry talk about developing more of a marketing orientation for manufacturers, it is incomprehensible to me how the function closest to the customer—the retail jeweler—can be outsourced, denigrated, and penalized financially. The sales function is an integral part of the marketing function of any business, but especially so in the jewelry industry where relationships between buyers and sellers are so important.

In the face of the cost-reduction perspective pushed by finance gurus, it might be wise for jewelry manufacturing owners to remember that humorous—but accurate—definition of the accounting function: “The accountant is comparable to someone sitting in the rear seat of an automobile looking out of the rear window trying to tell the driver where to drive.”

fdallahan@reedbusiness.com