Breaking down barriers
Distributors and manufacturers need to work together to reduce redundancies in the channel
By Robert M Oberholzer -- Industrial Distribution, 2/1/1998
Today, both distributors and manufacturers are constantly pressured to reduce the redundancies in the channel. This can be accomplished in many ways. Breaking down the barriers between the manufacturer and the distributor is one of the more critical processes that need to be addressed if we truly hope to achieve that goal. Of course, when we speak about "breaking down the barriers,'' we are not talking about bricks and mortar, but the relationship between the distributor and the manufacturer in areas such as faith, trust, cooperation, sharing of information, and teamwork. These critical items must flow back and forth equitably between distributor and manufacturer.Today more than ever we need to meet the customer's needs. We can no longer offer all customers the same services and benefits, but we must now tailor our products and services to meet each individual customer's needs and demands. The customer is no longer willing to pay for services or products that he does not need. We need to create, develop, and design programs to meet his needs, while at the same time reduce all unnecessary costs out of the channel. The customer certainly is not willing to pay twice for the same requirement.
What are some of the areas where we can reduce costs and improve efficiencies? More and more of our suppliers are asking for point-of-sale information. Many distributors feel this is priority information and do not want to share it -- but manufacturers need this information to arrange their schedules and to tailor their products with the features and benefits the customer demands. If they do not know who the user is and where the product is used, they cannot do their job correctly.
On the other hand, the distributor is afraid that the manufacturer will use point-of-sale information to the detriment of the distributor. This is a legitimate concern, particularly if, somewhere down the line, the manufacturer and distributor sever their relationship. Will the manufacturer give this point-of-sale information to another distributor? I would hope not. This would be unethical. To relieve the distributor's anxiety the manufacturer needs to agree in writing that this information will never be used to hurt the distributor. So on this point, both manufacturer and distributor need to address the concerns of their partner.
Another point of cooperation is the reduction of inventory in the channel. Cost of maintaining, handling, and transporting inventory can add a tremendous cost to the product, and our customers are no longer willing to pay for this redundancy. Let's just follow the hypothetical flow of an item from the end of the manufacturing line to installation by the customer. Let's call the item a "widget." When the widget comes off the manufacturer's production line, it will most likely be transported to the manufacturer's main distribution center, to the manufacturer's regional distribution center, to the distributor's regional warehouse, to the distributor's branch location, to the customer's storeroom, and finally to the machine where it will be used. This entire process could take many months.
In the meantime, the widget has spent some time in two manufacturing warehouse facilities, one or two distributor warehouses, and the customer's storeroom. Just imagine the handling costs, the warehouse costs, and the many transportation costs that we have added to this widget. The manufacturer has already reduced some of this cost with smaller production runs, and some customers have reduced cost at the other end with just-in-time inventory practices, but there are still tremendous expenses in this redundancy that need to be addressed. The manufacturer, the distributor, and the customer must all work together to get the widget from the production line to the customer's installation using a much more efficient and cost-effective process.
These are just a few items that need to be addressed. Others include joint sales calls, engineering and design, inefficient communications, inventory return policies, and more.
Let's go manufacturers and distributors! Let's get our act together, reduce these redundancies, and break down the barriers between us. Let's join together as a team to reduce costs, improve productivity, share information, create trust between us, and improve cooperation, which will help our customers and insure longevity for us both.
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