Improved relations, persistent flaws
Ties are better overall, but I.D.A. and ASMMA members say more trust and selling value are needed
By Ken Brack -- Industrial Distribution, 9/1/1998
Communication among manufacturers and distributors is improving but rocky relations still exist in key areas. Whether it's lowering channel costs, providing adequate marketing support or selling added value to end users, both sides often disagree on the goals and solutions.Despite disagreements, the overall relationship appears to be a healthy one anchored by a continuing strong economy. A survey by Industrial Distribution probing the state of manufacturer-distributor relations finds that I.D.A. and ASMMA members hold similar favorable views. When asked to rate the relationship, 84 percent of distributors and 87 percent of manufacturers describe it as good or excellent.
That amounts to a marked change from just five years ago, when a major report found the relationship was floundering. The study by the National Assn. of Wholesaler-Distributors Distribution Research & Education Foundation was seen as a wake up call to the industry.
Since then, manufacturers report seeing more improvements in their ties than distributors do. Nearly seven of 10 manufacturers say relations have improved since 1993 while eight percent see a downward trend.
Meanwhile, only half the distributors say their relations with suppliers have improved and nearly one-quarter of the respondents say ties soured during the past five years. The survey is based on 105 manufacturer responses and 58 from distributors.
Both sides say communication has improved greatly. "There's never too much. Just like marriages,'' Bob Purdy, sales director at LeapFrog Technologies, Inc., a manufacturer based in Altoona, Pa., wrote in one response.
In written comments and follow-up interviews, however, some executives say action is needed soon to address significant flaws in the relationship. Those include:
* Build mutual trust. Distributors believe some suppliers do not understand their business and fail to demonstrate loyalty, setting up new distributorships in their territory, for example.
* Define markets and sales goals together and do joint strategic planning. Sixty-two percent of manufacturers believe their distributors are doing strategic planning to enhance business, but many indicate they want to see more done.
* Train more product specialists/ salespeople and manufacturer's reps with applications know-how. This is a common complaint from both sides.
* Sell beyond the price. Some manufacturers say too many distributors' salespeople continue to be order takers focused on acquisition costs only.
* Clarify marketing expectations. Nearly 40 percent of I.D.A. members believe their suppliers expect too much in marketing functions. Conversely, 54 percent of manufacturers are dissatisfied with the effort to bring products to end users.
"Since no one can accurately predict the future, the dynamic state of the manufacturer-distributor relationship is fear,'' says Brad Mountz, vice president and general manager of Mountz, Inc., a hand and power tools manufacturer in San Jose, Calif. He is also a member of the ASMMA/I.D.A. value-added task force and serves on ASMMA's joint partnership enhancement committee.
"The distributors fear the action of the manufacturer can have a negative influence on their business such as taking orders direct or supporting other channels that create competition," he says. "The manufacturers' fear stems from lack of control in influencing the customer to buy their brand, ill-trained sales staff and brand switching by distributors."
Pros and cons
The survey also reveals some positive trends.
* About one-third of distributors say their suppliers improved business ties by being more flexible on pricing and sharing more information.
* Nearly 60 percent of manufacturers say distributors beefed up their marketing of products. About 40 percent of manufacturers point to other improvements like distributors' willingness to share more information.
* Seven of ten distributors rate the technical support and product knowledge received from manufacturers as good or excellent.
Disagreements continue to reign in areas like integrated supply agreements. As might be expected, principals on both sides criticize some of their partners as being slow to reduce costs and pricing.
Kent Oldenburg, national sales and marketing manager at Oil-Dri Corp., says some distributors focus too narrowly on cutting material costs as the key to their vendor-managed inventory contracts. He says distributors should identify suppliers who participate in so-called total productive maintenance plans and provide OSHA training, for example, which saves money in the long term.
"There's a lot of good talk'' about reducing acquisition costs by allowing a distributor to take over purchasing and "become intimate with the maintenance of the plant,'' he says. "What I don't see though is distributors working with suppliers ... We're not enjoying a reduction in suppliers to the distributor.''
On the other hand, some distributors say suppliers should establish uniform pricing policies to make integrated supply work better.
Gerry Beard, president of Ace Supply, Inc. in Indianapolis, Ind., a general-line distributor, says a published integrated supply pricing policy would let smaller distributors know the competition they're up against. He credits one abrasives and specialty fluids manufacturer with coming up with a clear three-tiered discount system. But Beard says he had to threaten replacing other suppliers before they placed his company on the first tier as part of an integrated supply deal.
"It's much cleaner'' with a published pricing policy, he says. "You feel you are dealing with a quality company. If you don't feel like they're shooting you straight, you can't share.''
Building trust, promoting products
Chip Wernig, president of Lane Supply Co. in Denver, Colo., a specialty distributor of abrasives, saw blades and other products, says trust and honesty are sorely lacking from a major supplier. He believes it stems from not understanding his company's marketing strategy.
Lane Supply's major supplier set up a new distributorship in his region and disregarded his firm's marketing plan, Wernig says. As a result, "we've been forced into taking on someone else's lines. The bottom line is the relationship we've had with them has changed so dramatically...but we're not going to lose market share.''
How much effort distributors make to promote products is another bone of contention. Some manufacturers are choosing to sell direct and establish virtual stores on the Internet to fill what they see as a marketing void.
Mark Glasser, director of sales and marketing at Trico Manufacturing Corp., a small lubrications equipment company, believes some distributors spend more time managing accounts than selling. "Maybe five or 10 years ago they spent more time selling. I don't believe today they're going to end users saying, 'Here is a product that can improve productivity.'' '
Modern Abrasive Corp. in Spring Grove, Ill., hired factory reps to go out and determine customers needs. "Essentially they are doing the work for us because the distributors' salesmen weren't able to or wouldn't,'' says vice president Mark Salmon. "I think it's because they didn't have the product knowledge.''
Others like Wernig say much of the blame rests with manufacturers themselves. John Curtis, vice president of operations at Dijet Inc., a cutting tool maker in Plymouth, Mich., says that to bolster selling, suppliers should assume a larger role developing technically skilled salespeople -- after training their own reps. Many distributors and suppliers alike agree that a large part of the problem is an industry-wide shortage of specialists and applications engineers.
"It all kind of flows down," Curtis says. "If distributors are not successful selling their product line, it's obvious there's been no real effort (by the supplier) to work with the distributor. I've found you establish a personal relationship with the distributor and then follow it up with training.''
Finally, one distributor says the relationship is plagued by a communication breakdown.
"We're the supply chain. They call us that...but we've never had one (supplier) ask us the question, 'How can we do more business out here?' '' says Donn Cropper, president of The Angle Companies in Elmwood Park, Ill, which sells cutting tools, abrasives and precision instruments. "We're supposed to be a marketing arm-sales arm. The links exist but the chain is not interconnected.''
In one case, Cropper says a supplier never informed his company of its sales expectations, then terminated the contract without stating why.
"We're not, as an industry, working together to achieve common goals,'' he says. "If we don't communicate better, the consolidation we as dealers are going through now is going to affect the manufacturers. They are not going to be bullet proof.'' I
Editor's note: This is adapted from an article that ran in ID's ASMMA/I.D.A. Spring convention guide.
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