When entering into a discussion about manufacturer-distributor relationships, you often hear phrases normally associated with, well, other relationships.

"It just stopped working, so we broke it off."

"It was us, not them."

"We just needed more than what they were giving."

Without consulting Drs. Phil or Laura, many manufacturers and distributors agree that their relationships have become more fractured as the economy has struggled. In fact, struggling relationships were more the norm even in the comparatively good economic times of the '90s.

Robert Nadeau, managing principal of the Industrial Performance Group, has consulted and done research in this area. He recalls a manufacturer-distributor research project that his organization was conducting in the mid-'90s. He was amazed at the lack of ongoing communication between the two groups, he says.

"We found the level of conflict had gone up, while the level of communication had declined by around 15 percentage points during what was known as the 'information revolution,'" he says. "During the time when everyone was touting the Web as something that was enabling everyone to communicate better, these two groups had stopped talking."

Since then Nadeau finds that manufacturers and distributors are generally making more efforts to talk and communicate. However, many attempts end in varying degrees of frustration, he points out.

"Many manufacturers and distributors are trying to have a dialogue about their working relationships," Nadeau says, "but they just aren't getting anywhere because they aren't starting from the same place. For example, both will admit that quality and price no longer form the basis of competitive advantage. And they'll agree that the things that got them where they are now, won't get them to the future. So while they'll agree on those two things, they can't agree on how they are going to move forward."

The frustration is apparent in Nadeau's voice, as is an element of sympathy for the somewhat Catch-22 situation that many traditionally profitable manufacturers and distributors can find themselves in.

"Some are too busy to do anything differently. They've been good at running something that works and have made money," he says. "The biggest barrier to change [can be] success."

Tom Berger is president of Fuchs Machinery in Omaha, Neb. He says that manufacturer and distributor relationships are strained because there's been a huge change in the overall sales channel—the manufacturer to distributor to end user path.

"This industrial channel, I believe, was driven by the manufacturer for years," Berger says. "They made the product and decided who would sell the product. If the end user wanted that product, he was told he needed to get it from XYZ company, the 'authorized distributor.'"

What distinguished a distributor as a company was the specific brands they represented, Berger explains. And since the manufacturer controlled who got what brand, that customer was forced to buy from the distributor whom they authorized.

"That world has changed and the manufacturer is no longer driving that channel," he points out. "The end user is driving that channel and the end user is looking for more from a distributor than just product."

Many distributors, large or small, have had to do what Fuchs has done—add different value-added attractions, such as help with inventory management and other potential cost- cutting, money-saving measures.

"The manufacturer has gone from a leadership role to more of a subservient one, and that's no fun," Berger says. "It's being controlled for them, and that alone has disrupted relationships between manufacturers and distributors."

As an example, Berger cites situations where the end user will still buy a particular manufacturer's product, but not from the same distributor. In addition, the word "exclusive" is essentially dead and gone from many manufacturer-distributor contracts, he says.

"The real partnership between manufacturers and distributors has been damaged," he adds. "Regardless of who runs the channel, we [distributors] are caught in the middle."

Citing these factors, Berger agrees with Nadeau that communication is more crucial than ever for manufacturers and distributors. Examples of what should be discussed, he says, include "Where are we going?" and "Does your strategic plan align with my strategic plan?"

"Having a business relationship is no different from a personal relationship," Berger says. "I think one of the most important things is to have regular conversations. There's an awful lot to be gained by having open lines of communication…."

An example of "open lines of communication" is being displayed by members of NAHAD—The Assn. for Hose and Accessories Distribution. At their convention in April, they unveiled new Hose Assembly Guidelines that were developed during committee meetings involving manufacturers as well as distributors.

One of those distributors was Steve Gray, of Lewis-Goetz & Company, Inc., in Pittsburgh. Lewis-Goetz is a distributor of hose, conveyor belting, gaskets and related accessories. What, for him, goes into making a good distributor? And for that matter, what makes a good manufacturer?

"It's the same question," he says, adding that the answer doesn't necessarily revolve around simply going with the best price.

"It's understanding the value you provide the customer," he explains. "I don't think that in today's marketplace, where people are trying to streamline their production processes, price is the only issue. It's a much more complicated customer today, and you have to figure out what 'value' is to them—whether you're a manufacturer or a distributor."

People in many industries agree that the economic slump has contributed to various ills, including the deterioration of once-healthy manufacturer-distributor partnerships. But some say the economy can only be blamed up to a point.

Sam Foti, Jr., is president of Hose Master, Inc., in Euclid, Ohio. He led the committee in developing NAHAD's hose assembly guidelines. As a manufacturer, he thinks that, good economy or bad, there was a time when a certain amount of mistrust was almost inevitable.

"How many times has a manufacturer sat with his distributor and the distributor said, 'Your competition has approached me and I can save 15 percent.' And distributors have made these moves without hesitating to drop a [product] line and go somewhere else," he says. "By the same token, manufacturers get caught in this loop and get a bit 'drunk' about a big end user, say, and think they would be a great opportunity. But then that end user says, 'Do what you want, but I'm not buying through a distributor.' And some weak manufacturers cave and go around that distributor. People have been burned on both sides."

Foti says such actions were more common "an era ago. I think we've evolved now to where we appreciate the role the other brings to the table. I think people know that there's profit when you can commit yourself to loyalty."

As a distributor, Gray says "for a good distributor-manufacturer relationship, joint cooperation is critical, especially in today's market, where you have a dwindling manufacturing base out there. If you're going to be effective at keeping the business, it really does take the distributor and manufacturing partner looking outward and figuring how to secure or keep that business."

"The foundation of manufacturer-distributor success is trust. I think it is the obligation of both to continuously earn that trust," says another manufacturer, Justin Aschenbrenner, vice president of industrial business development at the Gates Rubber Co. in Denver. Gates manufactures belts, hoses and hydraulics.

"Some manufacturers forget that distributors are just as interested in profit as we are," he adds. "I think we need to respect the distributors' need for profit just as we have a need for profit. Tough times like this can bring you closer together."

Trust ranked low in INDUSTRIAL DISTRIBUTION's 57th Annual Survey of Distributor Operations. Distributors indicated that both their loyalty to suppliers, and suppliers' loyalty to them, had worsened over the past five years. And while the average distributor said they represented 42 manufacturers, they only considered 6 of them to be true partners. When distributors were asked to list their single best partner, no manufacturer received even 5 percent of the votes.

Pricing is a vital statistic in any industry. But there also is a consensus that being overly focused on pricing—at the expense of other services and considerations—has contributed to past manufacturer-distributor breakups and difficulties. In his role as president of a distributorship, Berger agrees.

"There are a lot of different pieces," he says. "Price would be but one. If everything is perfect but the price is a little high, I can live with that."

At Gates, Aschenbrenner says, "We tend to shy away from the pricing game and focus on the value we bring to the end user of our products. And if that distributor is unable to represent the value we think we bring, that can result in a breakup."

While neither manufacturers nor distributors have a crystal ball, those interviewed seemed confident that the manufacturer-distributor détente reached in many industries would continue.

"A big area of interest today for distributors is documented cost savings for their consumers. That has grown as the economy went south, and I don't see that stopping," Aschenbrenner says. "We have become closer to our distributors in a lot of ways and it's strictly through the ability to bring value to our distributors' customers."

"We're doing a lot more proactive joint marketing planning, year in and year out, with our manufacturers," says Gray. "We try to define the select accounts that can generate some growth, and figure what we need to do as a team to land that account. I think there's more proactive joint cooperation between manufacturers and distributors to get that kind of business."

Foti, whose company (Hose Master) has a distributor relationship with Gray's company (Lewis-Goetz), agrees.

"I'm both altruistic and selfish," Foti laughs, "because I think making things better [between manufacturers and distributors] will enhance our profitability."

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