A new breed of reps
As the channel evolves, manufacturers' reps are taking on more distributor functions
By John R. Johnson -- Industrial Distribution, 5/1/1999
DISTRIBUTOR OR MANUFACTURER'S REP? For the uneducated, it's hard to tell the two apart nowadays. For those familiar with the distribution industry, the difference is easier to define, although that's changing.As the channel continues to adjust to life with smaller margins and new wave trends like integrated supply and unique selling avenues like the Internet, the line between distributor and rep becomes grayer.
Indeed, the distribution business is changing by the minute. As distributors adjust to new pressures, other parts of the channel adjust as well. Relationships with manufacturers are modifying dramatically as distributors take on new roles within the channel.
Just the same, the role of the independent manufacturers' rep is also revolving. Almost entirely product peddlers in the past, manufacturers' reps are now asked to play a much bigger role in the channel -- including performing training, and stocking and specifying product, chores that distributors have performed in the past.
"The role is changing, depending on the strengths and weaknesses of distributors," says Bill Weiner, executive director of the Chicago-based NorthAmerica Industrial Representatives Assn. "Manufacturers rely on them far more today for marketing and sales advice -- not just straight sales. The multiple line rep is the eyes and ears of the marketing and sales department, so it is changing."
Chuck Stockinger, executive director for the American Supply & Machinery Manufacturers' Assn., says the changes have resulted in a blurring of the lines between distributors and reps. Some reps are actually starting to stock a significant amount of product, he says, while others are performing services that were routine for distributors.
Between the products he has on consignment and those he buys from manufacturers to resell, Norman Penfield, owner of Ole Pro Agency, Inc. based in Holly Springs, Ga., has an inventory valued at more than $750,000. Why commit that much cash to a warehouse?
"Because the local distributor wants it," says Penfield. "What I try to do is back up these distributors so they can make good timely deliveries, because the standard is overnight delivery. If a traditional distributor competes with a catalog house, they've got to give overnight delivery. If I've got [the product] in the region, I get the sale instead of going to the catalog house."
However, the transition of the rep to a more distributor-like role isn't just about product. It's about technical expertise, training, and finding new business, all of which many reps say today's distributor doesn't have time to do anymore.
"It just seems that we're being asked to do more and more of what in the past we thought of a traditional distributor doing," says Penfield, "like selling product, stocking product, and doing training. I see an erosion at the distributor level in the customer service and sales force. They are not out actually plowing new ground" and looking for new customers.
Richard Bucher, vice president of industrial and institutional accounts for Simple Green, Rosemont, Ill., says his firm can't rely on distributors to pound the street for new business anymore.
"Distribution is obviously [more involved in] integrated supply, value-added sales and demonstrating the value they add," he says. "But the distributor salesperson going out and being your salesforce ... it's just not there anymore. They don't have time for it."
Bucher says end user calls are what Simple Green looks to its reps for. "Not just showing or talking about our line, but doing demonstrations," he says. "A lot of reps out there basically just look at themselves as sales facilitators. Even though we have good brand awareness, the line needs to be shown, because a lot of people don't know all the things it can do."
Vinny Matteis, principal at Amval Associates, an independent rep firm based in Vermont, can attest to the changes sweeping across the rep industry.
"I don't know if the line is blurring, but some of the functions that distributors used to do in terms of selling and spec work is falling more and more on the rep," says Matteis. "The distributors are integrating the requirements to the end user -- they still do that -- but in terms of distributors having specialists selling abrasives or cutting tools...those days are changing and not many distributors have those kind of specialists any more. They tend to be more into program selling and selling integrated supply contracts, so the reps are called on to sell in conjunction with them."
It only makes sense that if the role of the rep is changing, that the pay structure should change as well. At NIRA's recent annual meeting in Las Vegas, Nev., industry consultant Frank Lynn outlined an out-of-the-box hypothesis for the rep industry. Several weeks after Lynn's presentation, reps who attended were still buzzing about it.
We've all heard of the pay-for-fee service compensation approach that some manufacturers are considering adopting for their distributors. Well, Lynn already has a manufacturer client who is experimenting with a new way of paying reps. Basically, the manufacturer is testing exclusivity among reps, or paying a rep to have a single person devoted to selling a particular product that requires a technical sell. Typically, this would be a product that requires heavy application know how.
"The compensation would be as high as 22 to 25 points, roughly double what they are getting now," says Lynn. "The compensation numbers would have to be good enough to keep the [rep] alive, but if you have 40 points to play with, there should be enough cushion." Lynn says the system wouldn't work for commodities, but is ideal for "a product that requires a technical expertise, where the manufacturers don't feel they get any real support from distributors."
In this case, the manufacturer's rep would realistically become a competitor to the distributor. However, Lynn tempers that fact by acknowledging that most distributors don't put much time into these lines anyway. "They don't do much for these product lines," he says. "They are typically 15 percent of the business and they spend one or two percent of their time on it, and most of that is writing the order."
"The problem is when you have a national chain selling products, and then the customer asks for service," says Matteis. "The local reps aren't compensated for the sale, which tends to be a problem. What will happen down the road will be a fee-for-service approach, so if we're not compensated for the sale, we get paid when we service the product. Manufacturers recognize this is a problem."
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