The newly released book by Mike Marks, Tim Horan and Mike Emerson of Indian River Consulting Group, Working at Cross-Purposes: How Distributors and Manufacturers Can Manage Conflict Successfully, has the premise that “win-win” is dead or never existed between suppliers and distributors. What is your opinion? How do you see the supplier-distributor relationship evolving over the next five years compared to how it has evolved the last five years?
– Al Boston, CEO
AK Material Handling Systems (Maple Grove, MN)
Jack Phelan: I see no change in the supplier/distributor relationship. Some suppliers will sell through distributors only, and others will have a direct sales force as well as distributors. In either case, one of the key elements of success for the relationship typically revolves around the supplier’s sales representative.
A good sales representative will carry the torch for both parties and serve them well. This usually results in success for both the supplier as well as the distributor.
Duncan Murphy: There is a very important influence not mentioned—the customers/end-users. How we deal with their expectations and requirements will affect the supplier-distributor relationship more than anything else. Cost must be taken out of the distribution channel and value added in. Cost cannot be shoved onto another channel partner’s shoulders, and business processes must be updated to add value. Customers are looking for solutions. Therefore, traditional relationships are, at best, fragile unless we jointly provide what customers may not even know they need. This focus on a joint solution becomes the brand and will cement supplier-distributor relations. Where it is missing will serve as the impetus to find new channel partners. When it is there, customers will be retained, value added and wealth created for all.
Chuck Frank: The key to success is communication. Fortunately for us, we have been asked to participate on the Distributor Advisory Council or Distributor Advisory Board for our preferred partners. This provides the opportunity to understand firsthand the struggles that may exist between both parties, both real and perceived. The one constant with our preferred vendors is the commitment to be proactive in our discussions, goals and objectives, and action plans. It is an ongoing challenge to keep our partners happy, but that’s part of running a business. I feel strongly manufacturers will continue to work closely with distributors. We remove a fair amount of risk and overhead from their organizations. It is our job as distributors to provide value propositions not offered by the manufacturers, keep the lines of communication open, and focus on never surprising one another.
Kevin Katona: The authors polled 154 wholesale-dealer executives, 71 of whom said that they had ended a major supplier relationship within the last five years. The 54 who were willing to talk about it and 11 suppliers on the other side of those separations formed the basis of their study. If we take 54 people who recently went through a divorce and ask them about marriage, we may come to the conclusion that marriage is dead, but 54 happily married people are likely to give much more positive responses.
Certainly, each party is looking out for its own best interest, but I have a hard time with the phrase “win-win is dead.” To survive in the marketplace, we must focus on meeting our customers’ needs rather than on selling our products. If we fail to deliver good value to our customers, they will take their business elsewhere. In that same light, we as distributors must meet the needs of our suppliers and deliver good value to them, or they will take their business elsewhere. We can only know those needs through good communication with our suppliers. Unless both parties receive enough economic benefit from the relationship, it won’t survive for very long. This is win-win.
To answer the second part of your question, more change is coming. The Internet has affected distribution and will continue to do so. There will be corporate consolidations that will strain current relationships and create conflicts in distribution territories. Changes will be inevitable, but if you stay focused on meeting the needs of your suppliers and on delivering good value to them, you’re likely to have a good win-win relationship.
Ron Rechenbach: I feel that the relationship between suppliers and distributors has changed dramatically over the past few years. Both suppliers and distributors expect and demand value from each other. The days of a supplier visiting a distributor as a “milk run visit” are over.
On-site meetings between suppliers and distributors are more organized and purposeful than before. Excellent existing relationships will be maintained and strengthened. Loose business relationships will either go away or become strengthened, with most of them going away. The common characteristics of an excellent relationship between supplier and distributor include loyalty, commitment and frequent communication.
Dave Reder: In my experience, it is imperative to have a win-win relationship between suppliers and distributors. It takes work and open communication and trust at all levels of both organizations to understand and agree on each other’s goals and initiatives. However, for any long-term relationship to exist, it needs to be good for both parties. Over the next five years, I see more of the same. Suppliers and distributors need to work hard on the relationship. One change that will cause pressure is that more customers will want to deal directly with manufacturers to eliminate the distributor and lower costs. The distributor needs to work hard to add value to the customer.
Stan Sewell: The things that create value for a manufacturer are inherently different from the value drivers for a distributor. For instance, supplier factory shipments and dealer aftermarket absorption rates are critical for the growth of the respective businesses. So at the outset both parties are at cross-purposes, which usually negates a true win-win scenario. However, they still share a vested interest in the mutual success of the other partner. As the book suggests, it is helpful to recognize these differences and look for common ground to mitigate the conflict that results from these cross-purposes. I certainly agree with the authors, who list three criteria to foster successful manufacturer-distributor relationships: mutual trust of partners, honest and candid communications, and mutual continued growth. Both players need one another to be innovative, well capitalized, strategically and operationally focused, and capable of attracting and retaining the best people. In the next five years, stronger supplier-distributor relationships will prosper and evolve to include shared approaches in areas such as inventory management, customer segmentation, strategic planning, IT, CRM, employee development and financial risk/reward sharing on target accounts. While there will always be a dynamic tension between manufacturer and distributor, the most successful partners will succeed by recognizing the need to help one another achieve their respective value drivers for profitable growth.
Ken Shaw III: I do not believe that win-win is dead or that it never really existed. Whether you believe this or not depends on the relationships that you have with your suppliers and the amount of effort that you put into those relationships. The relationship between the manufacturer and distributor is a delicate one whose success is intimately tied to the ideologies of the participants. If these ideologies are not aligned, then the relationship is going to be a difficult one.
Both the supplier and the distributor need to have confidence in their partner and trust that each is working toward the same goal—providing a superior solution for the end-user. The expectations of the supplier and the distributor need to be communicated clearly, from the president of each company, throughout the entire organization. The supplier and the distributor need to be aware of the fact that neither one can survive without the other. When we lose sight of the common goal, the relationship begins to suffer. Distributors need to have realistic expectations of suppliers and understand that there will be obstacles that will need to be overcome for the partnership to survive. How we handle these obstacles will determine the quality of the relationship.
Jerry Weidmann: The critical issue in the manufacturer-distributor relationship is alignment. Are the core values and strategies of the distributor in alignment with the manufacturer’s brand and strategy? Is the way the distributor goes to market consistent with attainment of the manufacturer’s objectives? When there is alignment, the relationship will generally be viewed favorably by both parties and should lead to increased sales and market share for the manufacturer. When the alignment is poor, sales and market share will stagnate and, ultimately, the manufacturer will change distribution.
The key to effective manufacturer-distributor relationships is communication. For a relationship to prosper, each party must understand the goals and objectives of the other party. Where the values conflict, there must be understanding, resolution and compromise. If alignment is not attainable, the relationship should end.
Distribution is evolving and is in a constant state of flux. The breadth and quality of products offered by each manufacturer is changing. Customers are changing. The Internet is leveling the playing field between large and small manufacturers. The next five years will change more rapidly than the last five years. As changes occur, each manufacturer and each distributor make changes to their brand and distribution strategy. Change can create misalignments. It is incumbent on both manufacturers and their distributors to keep in close communication. If a manufacturer changes its vision of distribution, the distributor must be aware and must adapt its delivery system. Distributors and manufacturers can prosper to the extent they communicate and establish a coherent, albeit imperfect, alignment, leading to increasing sales and market share for both parties.