Neither the distributor nor the manufacturer will benefit from a win/win partnership until there is an understanding of each other’s roles. In order to create a more successful material handling partnership between the two parties, the manufacturer must accept the fact that the distributor is his customer. It is the distributor who is absorbing the risk when investing time (and money) in pursuit of the sale. It is the distributor who writes the check made payable to the manufacturer. It is the material handling distributor who is responsible for the design and installation of the product. The distributor is the manufacturers’ customer.
The relationship between the manufacturer and distributor must be stronger. Manufacturers must refocus their priorities and place an increased emphasis on customer satisfaction. With an increased understanding of the distributor’s role as a customer, both manufacturer and distributor can each grow stronger as individual businesses and as partners.
In order to sell the manufacturers’ product, the end-user assumes that the distributor will provide customer service. The end-user expects a quality product. Today the end-user is often making a purchasing decision based on price.
The manufacturer has an opportunity to partner with the distributor in his efforts to win the sale, by providing a discount that is fair and commensurate with the volume of the project sales and annual sales volume.
Where is the manufacturers’ allegiance to his partnership with the distribution channel? The mere fact that an end-user, located in the distributor’s backyard, sends an RFP to the manufacturer, bypassing the distributor he typically buys from, does not mean that the end-user is insisting on purchasing directly from the manufacturer. It does mean that it is a buyer’s market and the buyer is attempting to reduce his costs in any means possible.
The manufacturer often dictates a policy of maintaining equal distributor discounts throughout the channel. On the surface that policy seems fair. In reality that policy can, in fact, cripple the sales volume of the distributor who wishes to invest his resources, time and money in maximizing the sales of the manufacturer’s product.
Distributor A, whose sales volume averages $2,000,000 annually, uncovers an end-user’s need and over a period of six months, invests time, people and other resources in an effort to capture the work. Distributor B, whose sales volume averages $200,000 annually, hears about the project and, working from his home office, diligently puts together a quote for the project. He has invested several days in gathering the required information. Both distributors will pay the manufacturer $400,000 for the product. Both will limit the markup of the product in an effort to be competitive.
Distributor B does not have the resources to completely satisfy the end-user, the manufacturer ends up with the black eye. So who won in this transaction?!
A single digit markup affords Distributor B a nice profit. Unfortunately, Distributor A cannot even break even by charging the end-user this type of markup.
Look at the bigger picture. Distributor A invests time and people in order to market the manufacturer’s products. He is willing to take on the risk of working for months to write proposals which help to sell millions of dollars of the manufacturer’s products. The discounts provided Distributors A and B should not be equal. They should each be provided discounts based on their performance.
Perhaps the material handling manufacturer will be best served after he decides if he prefers to supply 50 distributors who average $200,000 in sales, or 25 distributors who average $400,000 in sales. It seems to me that the logistics associated with supplying fewer distributors present a more favorable situation for the manufacturer.