It used to be that distributors would sooner put their head in a tiger's mouth than share point-of-sale information with a supplier. Even a violent decapitation, they reasoned, would be preferable to giving customer data to a manufacturer that would allow it to make an end run around the distributor and sell directly to end users.

But as margin pressure increases and new technology makes it easier to streamline business processes and evaluate data, more and more distributors are discovering that collaborating with their suppliers can help increase sales and improve margins.

Take as an example building materials distributor CH Briggs, which passes point-of-sale (POS) data back to one of its major suppliers, the 3M Corp.

In return, Briggs gets special discounts, help with marketing efforts and access to 3M's analysis of their sales patterns, says president and CEO Julia Klein. The company sells mainly to cabinet makers.

“We have access to special programs, which in some cases include discounts on products that we wouldn't normally have access to,” Klein notes. “The second benefit is, in terms of product development and marketing, offerings that just do better because [3M has] more up-to-date information and they can respond better to the market.”

“With this information, we are able to see what a customer is purchasing,” adds functional product manager David Kreitz. “3M gives us the information saying, 'This customer is this type of business. You should also be selling this type of product to them.' It's great sales data. Along with that, we get an extra pricing discount.”

On the other side of the coin, having that POS data gives 3M detailed, up-to-the-minute insight into sales of their products, Klein says.

“We can tell 3M, 'Mid-sized shops that are doing commission work are starting to buy less of this and more of that,' and that's really important intelligence for them,” she says. “It's often hard to translate what's happening in the field to management and have them respond quickly enough. [This] information is not distorted by inventory management practices or field sales efforts.”

Jan Reyers, 3M's director of channel management, says the company has been asking for POS information from distributors for about three years, noting that one-half to 70 percent of 3M's sales are registered in the POS information sharing program.

In return for their participation, distributors get a 2 percent pricing discount and access to marketing funds, Reyers said.

“If they want to establish a marketing campaign on their own which has 3M products in it, those funds can be used to cover some of those costs,” Reyers says.

For 3M, the arrangement is beneficial in a number of ways.

“One of the advantages is compensation for our own sales folks, so they can feel they're getting credit for sales by a distributor. Equally important is the marketing potential that we have with that data—to be able to aggregate it and look at commonalities among the data that suggest where demand might be,” he says. “We have channel specialists in the marketplace, folks that are dedicated to trying to engage distribution. This data allows them to be more professional and more capable, to providing more value to those distributors. It's part of our whole value structure for distribution.”

Passing POS data back to suppliers isn't the only way distributors are collaborating these days. Witness IBT Inc., a bearings, power transmission and safety products distributor based in Merriam, Kan., whose partnership with Martin Sprocket & Gear involves sharing data at a much deeper level.

When Darrell Hensley, IBT's corporate operations manager, has a customer in need of a Martin product, he consults IBT's computer system to look up the part.

But the system doesn't just search IBT's inventory—it's linked into Martin's system as well, giving Hensley and IBT's other employees immediate access to Martin parts in any of that company's facilities in the United States.

“With one touch of a function key, I can check current price and availability anywhere they have [the part],” Hensley says, adding that the system is configured to cut a purchase order and load it into Martin's system in the format they prefer.

“It's the same format as if you were on their Web site entering an order,” he notes. “There's no fax, there's no e-mail. [The customers] don't even need to know that you're shipping it from the factory. Basically, you're not telling your customer, 'I don't have it, let me check the factory.' You're saying, 'I don't have it here, but I have it in Dallas.'”

Before the collaboration with Martin began, Hensley says IBT carried about 6,000 Martin products, with 2,000 being custom items.

“After I had the electronic collaboration piece put into place, it was a real huge benefit to me and to Martin Sprocket that I load their entire product offering into my database. Now we've got 21,000 of [Martin's] items loaded into our database,” he says.

Andrew McGlasson, distribution global marketing director for Infor, the software maker that helped IBT and Martin implement their collaboration, believes such cooperation will become more and more commonplace along the supply chain.

“In one way, when you look at it, folks have been collaborating forever, ever since they've done business with another company. However, the nature of doing business together has gone through some fundamental and very interesting shifts,” McGlasson says. “We're seeing a lot more flexible business models as folks have become more comfortable with the process of outsourcing, or sharing the responsibility for one area of their operations with other organizations. … [With] a larger number of companies involved in a global supply chain operation, they need to work better together.”

For manufacturers, such collaboration helps answer all-important questions about anticipating and reacting to demand, he adds.

“It's inventory positions—what inventory is being held at which locations, where is capacity unused or underused? Where's the best location to store something to meet demand?” McGlasson notes.

For distributors, the benefits of this type of collaboration include faster response times for customers and reduced costs.

“They can sell direct from their supplier's warehouse without taking on the additional cost of holding those goods,” McGlasson says. “Distributors today are facing pressures all the time to lower their prices. That notion—'What is the value I'm going to compete on?'—has to be shared and has to be defined very strategically across the supply chain.”

Klein, Hensley, McGlasson and Reyers all agree that there's one common denominator in sharing what amounts to a distributor's trade secrets, or in linking internal inventory systems: trust.

In each case, they say, well-established business relationships were a requirement for any type of collaboration.

“We have a long-standing relationship [with 3M], over 30 years probably,” notes Klein. “When we were first asked [to provide POS data] we were hesitant, asking, 'Are you going to go around us? Are you going to sell direct?' They've never threatened to do it, they've never had a mistake they've had to apologize for, so we're comfortable in sharing that information with them.”

Reyers says there's a good reason for 3M's strong track record and the trust Briggs places in the company. The manufacturer has stringent policies in place for employees with access to distributors' POS data.

“We have a very intense security policy internally. It's on a need-to-know basis only,” he says. “Employees with access have to take training on appropriate uses of the information. We [also] benefit from the brand, 3M, which already has a fairly high trust level, just an inherent trust.”

But even with those controls in place, it took some convincing for Briggs to agree to participate, Klein says.

“It took some back and forth to understand the program,” she notes. “You have to have the technology internally to be able to produce the information, segment it properly and transmit it electronically.”

“Those are the elements,” Klein adds. “A high trust relationship, clear benefits to the manufacturer and to customers and the infrastructure to do it efficiently. ... In 3M's case, the program is clear and the people who deliver it reinforce that high trust.”

For Hensley, who says IBT's relationship with Martin Sprocket is decades old, the trust factor is also key to the success of their collaboration.

“[Collaborating] doesn't make me leery with suppliers that we have longtime relationships with, because it's not their [way to market]. That's why they have distribution networks, because they don't want to handle all of that,” he says. “There are certain suppliers that are a lot smaller, that we don't have near the longevity of the relationship, that I would not ship direct, because I do worry about them having my POS information.”

“Certainly that's a concern, as companies look to do business more globally with arrangements where they don't have any recompense if the agreement isn't held to,” adds Infor's McGlasson. “That's a good lesson to keep in mind. As we look toward technology to enable greater collaboration among supply chain partners, the relationship still has to be there. At the end of the day, it's still companies doing business with other companies.”