A test of loyalty
Survey finds distributors are more pessimistic about channel relations than suppliers
By Ken Brack -- Industrial Distribution, 4/1/1999
Manufacturers are more optimistic than their distributor partners about how channel relationships will fare in the next five years.In an exclusive survey by Industrial Distribution, distributors show less enthusiasm than their suppliers about the state of relations. While 92 percent of the manufacturers contacted rated it as excellent or good, only 74 percent of distributors felt the same way. And six percent of distributors rated their relations as poor, an opinion not shared by any manufacturers.
The survey involved 106 NAHAD members, evenly split among distributors and suppliers.
To improve the relationship, many participants suggest improving communication -- which suppliers say includes receiving better feedback from distributors about end users and changes in the market place. Suppliers also want distributors' salespeople to obtain more product knowledge and communicate it better, plus form alliances to reduce costs.
Distributors call for more direct contact between suppliers and their salespeople, joint planning and more training by manufacturers.
In follow-up interviews, several officials said loyalty has dramatically evaporated on both sides of the channel. Some distributors say they receive no protection even after converting an end user to a new product line, while suppliers complain that distributors have become too price-focused and occasionally will switch lines when the cost difference is literally pennies apart. Both sides speak the language of partnership, but typically shift costs back and forth rather than committing to reduce costs together.
"The days of exclusive distributor's territory are really gone," says the president of one distributorship, who asked that his name not be used. "People tell me, 'You are exclusive,' but the truth is, they don't care if I'm protected. They want us everyday to hit 600 customers as much as possible."
Suppliers are upbeat
Half of the manufacturers surveyed indicate their relationships with distributors improved during the past five years, although 44 percent remain dissatisfied with the job distributors are doing bringing products to market. By comparison, only one-third of distributors believe relations improved during that span, with slightly more saying things worsened.
From suppliers' point of view, improvements primarily include the willingness of distributors to increase product offerings, better communication and improved marketing programs. To a lesser extent, distributors are credited with enhancing value-added services and sharing information.
Topping improvements from distributors' perspective is better communication by suppliers, followed by shared information and more flexibility with pricing.
Similarly, manufacturers are more optimistic about the relationship improving during the next five years.
Nearly three quarters (72 percent) of manufacturers expect to see improvements, and a quarter say it will remain the same. Slightly more than a third of distributors expect to see gains and one third believe it will worsen. Thirty-eight percent of distributors believe relations will remain the same.
Robert Myers, a vice president and division manager at Ever-Tite Coupling Products, suggests that building alliances to drive down costs is an obvious, but seldom done, way to improve the bottom line for everyone. He says many firms have already accomplished relatively easy steps such as using EDI for their transactions. Still needed to be done is improving efficiencies in processing orders, invoices, and reducing errors that lead to extra paperwork for return authorizations and credits, for example. Tackling those types of procedures could save 10 to 15 percent of operating costs for suppliers and distributors, he believes.
Working with a handful of its distributors that appear dedicated to tackle returns and credits, for example, Ever-Tite Coupling believes it could reduce errors by half and add $50,000 to its bottom line. Errors such as one party giving the wrong part or order number often are not caught until they reach the end user. Determining which party had control and improving procedures should help reduce that.
"We've been doing this for probably three or four years, at different levels of intensity with some distributors," he says. "It takes a lot of time and effort to do it."
Myers says 'partnership' has become an overused word since both sides increasingly focus on price. "Most partnerships that exist today are really what I call based on cost shifting, not on really reducing the cost of doing business," he says.
Building loyalty
Some distributors believe loyalty from manufacturers is dropping because more suppliers today view the end user as their sole customer. Suppliers counter that to build loyalty, distributors must commit themselves to learn new products and not be price-driven as well.
An executive at a Tennessee distributorship says evidence of deflated loyalty includes the growing presence of stocking reps, who take ownership of products at their facility for a manufacturer's rep company and get paid based on how much product moves.
"That is a very sore spot among many distributors across the country," says the official, who asked that his name not be used. "They're selling to make money, not to build a relationship with that product."
The same distributor said a hose manufacturer recently asked him to carry its line when "he already has five distributors within 30 miles of me, and won't cut those off. I won't take it on."
A marketing director for a Florida manufacturer agrees that price is king again. The official, who also asked that his name not be used, said that is driven first by end users that don't respect specifications as in the past. But he said distributors give "a lot of baloney about quality ... when you get right down to it price gets it every time."
For example, the official mentioned calling on a distributor that reported performance problems with a competitor's metal hose line. But when the marketing director offered to sell hose at his standard price, the distributor said the supplier must first meet the competitor's price -- even though the competitor was not making deliveries at the time.
Will Linnemeier, vice president of sales at ducting manufacturer ABC Industries, says that to build relationships, suppliers must back up their talk about supplying service. At times, distributors help his company develop select products.
"You're going to get loyalty when you provide a level of service to the distributor that allows them to service their customers competitively," he says.
Understanding distributors' problems
Not everyone is soured on his or her partnerships, of course. Linnemeier expects relations to improve and rates them as excellent. Still, he says communication could improve if distributors contacted his company's technical or sales staff directly with questions rather than calling independent manufacturer's reps.
"A lot of times distributors say there is a lag time" in receiving responses, he says. "Well, they (ABC personnel) can't be responsive if they don't have the information."
Tim Neville, a branch manager at Motion Industries in Milwaukee, Wis., rates the partnership as "good."
But he says the consolidation and hefty growth of some suppliers disconnects them from the concerns of distributors.
To improve that, he suggests suppliers give their outside sales reps more autonomy to make decisions on requests such as increasing delivery times, or holding and releasing shipments.
"The outside sales rep is trying to help the distributor but has either zero power or no upper sales backup," he says. "It's basically the big boys are calling the bluffs and saying, 'Do you want our product or don't you?"
"I would say some vendors just don't have an idea of some of the (distributor's) problems, and the bigger they get, the more this is a problem," says Neville.
In other survey results:
* Nearly half of manufacturers (46 percent) do not believe distributors do long-range planning to enhance business.
* Fifty-five percent of distributors said their suppliers do not expect too much when it comes to marketing functions for their lines. And nearly six of 10 rate the support they received from manufacturers as good or excellent.
* Most manufacturers surveyed (87 percent) still do not offer vendor managed inventory, and an equal number of distributors do not participate in programs in which suppliers manage some inventory for them.
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