What supplier reps need to know about the distribution business
I was speaking to a colleague in the material handling business the other day about our research in the book, Working at Cross-Purposes, and he remarked, “This book should be part of every factory or material handling supplier rep’s training program.”
When I asked why, he talked about the lack of understanding of how distribution works: “Reps don’t understand what goes into the day-to-day running of a distributorship.” Our study indicated that the rep was a critical cog in the ongoing supplier/distributor relationship. The truth is, how the supplier rep or the supplier rep’s employer views the distributor’s role in managing the channel sets the tone for the entire relationship. If the rep sees the distributor as an extension of the supplier’s sales force, he or she is not likely to spend much time learning about the distributor’s business. Conversely, if the rep sees the distributor as a legitimate channel partner, he or she is likely to learn about what makes the channel partner successful, understanding that if the distributor is successful, the supplier has a better chance of being successful.
As you might expect, many of our research subjects thought it would be nice if the rep were better prepared to manage the relationship effectively. Unfortunately, the executives we interviewed felt that most of the reps weren’t all that well prepared. In this article, I will talk about the importance of understanding distribution as a business and focus on means to successfully manage the relationship. If the local rep understands these means, he or she will be more effective in his or her job. If the local rep is more effective in the job, the distributor will sell more of the rep’s product. Effectively managing the relationship is the quickest way to improving distributor productivity.
Understand the Distribution Business
Our research provided many powerful examples of how effective or ineffective manufacturer reps are in the management of the relationship. Unfortunately, if one were to put together a spreadsheet with one column on the left headed “Effective” and the other on the right “Ineffective,” the column on the right would extend beyond the column on the left. There were many more examples of ineffective behavior by supplier reps. This ineffective behavior had a tremendous negative impact on the relationship.
|There aren’t many distributors who can be successful selling one supplier’s line; if they were, the supplier would have a just cause for “going direct.”|
More often than not, this ineffective behavior stems from a lack of training and knowledge. Supplier reps, for the most part, do not understand distribution. They are taught about their company’s business, then sent out into the field to make “calls” on distributors without relationship management skills. They see the CEO or owner of the distributorship driving a nice car, belonging to a country club and sitting in the corner office and think of only one thing: This executive is making too much money, and it’s our money.
Instead of seeking to understand the role of distribution in the channel, individual reps are more likely to impose guidelines and rules that make sense in the world of manufacturing. These rules or guidelines hold little validity in the world of distribution. The reps either don’t understand (or forget) that distributors are intermediaries that perform a cost transfer role. They don’t understand that distributors wouldn’t exist if manufacturers could perform the same role at a lower price. They don’t understand that distributors serve many masters, from other suppliers to a massive amount of customers of all shapes and sizes.
Following are a few functions that distributors perform that every supplier rep should understand:
- Distributors serve as market makers by acting as selling agents for suppliers and buying agents for customers in geographically defined markets.
- Distributors fill a cost-transfer role through various elements of physically distributing products.
- Distributors can add value through product customization because they physically possess the products.
- Distributors act as banks, playing a large role in financing the growing economy.
- Distributors provide post-sale service and support.
- Distributors fulfill a very valuable information transfer function.
Help the Distributor Be Successful
Once the supplier rep has a better understanding of the distribution business, he or she can begin to understand that the more successful the distributor is across product lines, the more successful the distributor will be managing the rep’s particular line. There aren’t many distributors who can be successful selling one supplier’s line; if they were, the supplier would have a just cause for “going direct.”
Any help the rep can give the distributor will be paid back in more ways than a rep could ever imagine. Reps often have key inside information about products that the distributor could offer that would add to their success without actually diluting the supplier’s sales. If a supplier rep is perceptive, he or she will know that introducing these products to the distributor will only enhance the relationship. Realizing that distributors need a wide variety of products to sell to their customers will help a rep solidify his reputation as a business partner.
Don’t Forget, There Are Legitimate Cross Purposes
Business partners often operate in a world of cross-purposes. Remembering that the supplier rep’s priorities and those of the distributor are often at cross-purposes and publicly acknowledging this fact will help the rep strengthen the relationship. Even though these are legitimate, they can be a source of irritation. The more the rep understands the distributor’s business and how a distributor makes money, the more these cross-purposes can serve as a springboard to a stronger relationship. For example, a point of gross margin is often meaningless to a manufacturer, but the difference between a profitable line and a money-losing line to a distributor. Asking for “manufacturer-like” discounts or rebates doesn’t make sense in the world of distribution. In spite of that, many distributors are often asked to “participate” in programs that make no economic sense.
|Supplier reps see the CEO or owner of the distributorship driving a nice car, belonging to a country club and sitting in the corner office and think of only one thing: This executive is making too much money, and it’s our money.|
When supplier reps make unreasonable requests that expose ignorance in how cross-purposes work (or, in this case, how the distributor makes money), there is a dampened ability to influence the distributor, and the relationship suffers. Understanding cross-purposes presupposes understanding the true economics of distribution. This should be included in the manufacturer reps’ training under “Distributor Management 101.”
Keep MBAs to a Minimum
Minor but aggravating requests (MBAs) often become very serious sources of aggravation for both suppliers and distributors. So don’t overload the distributor with MBAs. MBAs are those minor, and usually aggravating, requests from the supplier that eat up a distributor’s limited resources and time, without providing a financial return. Examples of these are territory audits and reports that, as everyone knows, never see the light of day. Other examples include requests to take in products for resale that have no redeeming market value. The customers don’t want the products, the consumers or end-users don’t want the products, and they either are sold at a significant cost (below cost or with a large sales incentive), or simply take up space in the warehouse.
Be Respectful of Distributor’s Time and Workloads
Supplier reps must realize that they aren’t the only arrow in the quiver, the only master of the universe. Distributors serve many masters, from suppliers to customers. If a supplier rep wants a dedicated sales force, go hire one; otherwise, realize you are only as important as your bottom line contribution. If your goal is to get more attention from the distributor, add more value and profit to the bottom line while removing many of the aggravations.
In summary, the material handling supplier reps are so important to the quality of the relationship between the supplier and the distributor that they can make or break it. The more the supplier rep knows about the material handling distributor’s business, the more effective he or she can be in guiding the relationship in ways that benefit the supplier or manufacturer. To put it simply, manage the distributor as you would a customer, and you will have a business partner for life.
|Meet the Author
Tim Horan is principal at Indian River Consulting Group, located in Melbourne, Florida, and on the Web at www.ircg.com.