May 2006 Volume 45, Issue 4
in the news
Distributor and Manufacturer Relationships
Is There a Perfect Recipe?
by Rosalie Lenone
Editor’s Note: The following article offers two perspectives—one from the Association of Millwork Distributors (AMD) and the other from the Wood Moulding and Millwork Producers Association (WMMPA). The two perspectives are in two different font colors to help you distinguish between the two.
It appears that there are distributors and manufacturers alike paying more attention to their relationships and the path they have taken in recent years. The millwork industry is no exception and, although there are many aspects that have not changed in distributor-manufacturer relationships, some factors have strained relations. These factors include mergers and consolidations, customer demands, broadened channels of distribution, the trust factor and focus on cost reductions.
History has shown that the foundation of distributor-manufacturer relations is built on trust, which can be a significant challenge to manufacturers and their distributors as they sometimes have opposing objectives.
The challenges most often mentioned include:
• Management continuity of the manufacturer vs. the long-term outlook of their distributor partners;
• A lack of clarity on roles of channel partners in the marketplace; and
• Unclear and inconsistent decision-making guidelines used by the distributor or manufacturer.
Because of these missteps, a lack of communication and trust develops and, ultimately, a stalemate will permeate the relationship.
As customers continue to focus on cost reductions, distributors cannot constantly go back to their manufacturers asking for price reductions. Eventually the “well ‘will go’ dry.” Today, with an estimated one-quarter of the costs in the channel being redundant, it is not surprising that many customers are already looking for alternative channels to cut costs; that trend is likely to continue.
If the distribution channel is to remain the channel of choice, distributors and manufacturers have to make it the most cost-effective means for the customer to procure supplies. There are tremendous opportunities to reduce channel costs and the ones that can make it happen will enjoy a truly competitive advantage.
According to recent research, customers have been able to reduce the total cost of doing business with their suppliers, but what happens when they cannot reduce costs further with their distributors? Often they try to go around the distributor and work directly with the manufacturer.
Realizing a Distributor’s Value
Distributor value is derived from offering a collection of complimentary products and integrating them to meet the needs of the end-user thereby providing value-added service in the form of consultation and lead-time management.
Distributors leverage strong customer relationships for the benefit of manufacturer companies represented in the selection and application of equipment or services and by covering markets and geographies through a cost-effective sales organization. Consequently, a manufacturing company that understands how to motivate a distributor network can unleash a surge of focus on their products and programs.
Unfortunately, most manufacturing companies underestimate the value of a distributor network in the overall selling process and do not take the time to identify the drivers of the distributor/company relationship. Consequently, even reputable companies leave a legacy of broken distributor relationships through a lack of proper planning, decision making and a lack of knowledge of the distribution selling model.
So where do we go from here? For more than 42 years, the AMD has provided a forum to unite millwork distributors and manufacturers together to establish and foster relationships. Relationship building between suppliers and customers is an integral part of many organizations. For 43 years, the WMMPA has provided networking opportunities amongst millwork manufacturers. In addressing the issue of distributor and manufacturer relationships, I have asked a respected colleague, Kellie Schroeder, WMMPA executive vice president, to share her and the WMMPA members’ perspectives on how distributor-manufacturer relationships are viewed today.
A WMMPA Perspective
A brief survey of WMMPA manufacturers finds the majority polled reported solid relationships overall with their distributors. The manufacturers were quick to point out they each had several long-time, valued distributors with whom they enjoy working. They also reported having transient distributors, those that flow in and out of their selling circle throughout the year for various reasons, known or otherwise.
A Healthy Relationship
Every relationship has to be a win-win situation. A win-lose or lose-win scenario will not sustain a distributor-manufacturer relationship for any amount of time. Communicating the needs of the distributor to the manufacturer and vice versa must be kept on a continual loop. Suppliers are willing to work with their distributors to create a win-win outcome if they are informed of the goals of the distributor and everyone keeps an open mind.
Manufacturers are now assessing distributors on volume, promotion of product, loyalty and consistency, just to name a few categories. Manufacturers need the volume to keep costs down. Those distributors that want to take weekly shipments instead of volume shipments, but still want volume prices attached, have made some manufacturers admit that it is tempting to buy their own trucks to run their products to the end users. This strategy could work except in the area of pre-hung doors.
Regarding pricing, manufacturers have suffered the business loss of distributors without warning—the lead reason given is price. Those distributors that are so price-conscious and are only looking for the cheapest delivered price are not looking for manufacturing partners or to build relationships; these only feed the “gonna buy my own trucks” mentality.
Another reason manufacturers entertain the idea of one-stepping (skipping the distributor network) is due to an inability to be profitable. The vast majority of manufacturers have not taken this step because they do value their distributor networks and welcome open communication to achieve profitability on both sides.
Why this article and why now? Are we all looking ahead envisioning a dark time when the major retailers may reduce the need for distributors? Are we all acknowledging big-box purchasing strategies have washed over into the distribution channel, especially with the large distributors?
Both distributors and manufacturers are analyzing their business relationships. It is evident that distributors and manufacturers need face time with each other in the immediate future to begin communicating their business goals. I would suggest each side pick up the telephone today.
An AMD Perspective
Those AMD distributors polled shared that they are engaged in a successful working relationships with their suppliers. Distributors emphasized a continuous and open communication with valued manufacturers attributed to longer-lasting relationships. Distributors conveyed they were loyal to vendors and expected them to return that loyalty; yet, there appears to be a degree of distrust between manufacturers and distributors and an uncertainty as to whether this will ever change.
Building a Healthy Relationship
The “two-way” commitment: distributors find that once they began investing more time in their valued manufacturers, manufacturers began investing more time in the distributor. The foundation for business success is initiated by distributors visiting with major suppliers to create a business plan.
Regarding pricing and volume, distributors are questioning whether volume is the only big stick that gets manufacturers’ attention, To gain volume and market share, will manufacturers make all kinds of overtures, concessions and partnerships? Is volume the sole entity that labels a distributor’s credibility with a manufacturer? And, if you’re not one of the big dogs, but are friendly and loyal, do the strong distributor-manufacturer relationships last only as long as it takes to find the next best alternative?
There are distributors that feel the manufacturer needs to cater to the distributor in every way—and that the distributors are the customer, when in fact, distributors must work very hard to earn the manufacturer’s continued commitment and investments so both grow at a rate acceptable to both companies.
This is the true “win-win” deal, and it starts by reversing the distributor’s view of the manufacturer-distributor relationship.With two-way communication between manufacturers and distributors, you are bound to find the perfect recipe.
Rosalie Leone is the executive director of AMD.
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