At the 2005 convention of the Specialty Tools & Fasteners Distributors Assn., Marshall Jones was among the scheduled speakers. The president of Marco Supply, Jones' topic was manufacturer-distributor relationships.

Sounds like a fairly typical convention/trade show address. Heard one, heard them all, right? Not this time.

Jones grew up in distribution, he explained to his audience, as in 1970 his father founded Marco Supply, which sells tools and equipment primarily to professional construction firms. But Jones was not there to deliver nostalgic anecdotes of summer vacations spent in the warehouse. He got his listeners' attention with his to-the-point observations about manufacturers and distributors—their similarities and, especially, their differences

“It's been said that there is a point where every problem is large enough to see, but small enough to fix,” he told his audience. “The challenge of the manufacturer-distributor relationship has been big enough to see for a long time. … The bottom line is, I don't believe either the distributor or manufacturer really want to be partners with each other.”

Unlike most trade show speeches, Jones' talk jump-started many discussions. The cocktail hour talk that night consisted of much more than the usual, “Where are we eating?” or “What did you shoot today?” Excerpts of that talk ran a few months later in INDUSTRIAL DISTRIBUTION and created further discussion and reaction.

In revisiting the topic of manufacturers and distributors—and analyzing his speech—Jones remains firm in his opinions on the subject.

“There's a lot of tension. It's not smooth, that's for sure,” Jones says today.

He received some flack and criticism following the STAFDA talk—some from his own suppliers.

“Some manufacturers we worked closely with said, 'Gee, I thought things were good. I thought we had a good personal relationship and worked well together,'” Jones recalls. “And I think [in many cases] we do.”

He isn't trying to sound an “abandon ship” distress call, he explains. He says he knows there are many distributors and manufacturers who have done well together.

“There are a number of examples of two companies that have people who naturally get along and work well together,” Jones says, “doing a lot of good things, growing market share and having a mutually beneficial relationship.”

But Jones doesn't use the word “partnership” in his favorable comments about these companies. What perhaps raised eyebrows the most at STAFDA was his belief that manufacturers and distributors weren't really cut out to be “partners,” at least not in the literal sense of the word. He still holds that opinion.

“I still feel exactly the way I did when I wrote that,” Jones says. “When I think of a 'partnership,' I think of mutually beneficial results from the same action. If I sell something, it's good for me and it's good for them. [But] that's not necessarily the way these relationships work.”

It may be a subtle distinction, but it's a distinction that Jones feels makes a big difference: The goals of manufacturers and distributors aren't always mutual, he says.

“Market share is the driver for manufacturing; profitability is the driver for distribution,” he says. “Those two aren't natural parallels. I can make choices to focus on one brand or product line with a manufacturer [in which] I have good profitability. But that doesn't help his machines run. So I'm making choices that aren't necessarily mutually beneficial for my 'partner.'”

Phil Gallagher, president of Avnet Electronics Marketing Americas, says the whole customer vs. partner debate is one both sides would do well to ponder. He says he prefers the “partner” categorization rather than “customer.”

“Rarely do I have a conversation with a supplier about [my] wanting to be treated like a customer. I like 'partner' more than 'customer' because we want to be seen as part of their organization and we want their organization to be seen as part of ours,” Gallagher says. “I want to be treated as an extension of them. I want to be a channel in the market and there's a big difference between being a channel in the market and a customer.”

Prior to being named company president in 2004, Gallagher was Avnet's senior vice president of global business development; his responsibilities included global supplier relationships. He is also a past president of the National Electronics Distributors Assn. So the supplier-distributor issue is one he has been involved with on a daily basis for several years.

“Some suppliers refer to us as a top customer,” Gallagher says of Avnet. “That's OK, in that sense. In terms of what we buy … there are few customers out there who may buy $500,000 of one product, for example.”

He explains that Avnet's being an authorized distributor for many suppliers essentially makes his company very much a partner.

“As a supplier-authorized partner to them … we're designing, selling, marketing and taking risks for them [with] customers,” Gallagher says. “We're an aggregate for them to touch thousands of customers that otherwise they'd never be able to go sell to.”

He suggests the phrase “channel partner,” as being the most accurate in describing what distributors bring to their manufacturers.

“That's what we are. We have proven to be the most cost-effective way for them to go to market,” Gallagher explains. “There's rarely a supplier who won't tell you that when they put their pencil to paper and they do their activity-based cost, we're the most profitable channel in the market. And that's why we're continuing to grow as we are with our suppliers.”

Jones emphasizes that his use of “customer” isn't meant at all to be a second-hand categorization. For one thing, he wonders, what's so bad about being treated as a customer?

“Hopefully, my customers all feel pretty good about it,” Jones laughs. “I don't call the contractors we work with 'partners.' I call them 'customers.' We want to make sure they are treated [even] better than I would treat a partner.”

He admits that perhaps the use of “customers” could cause a misimpression as opposed to being called a “partner.” But he remains firm in his opinion.

“The manufacturers don't want to see their distributors as customers because then they have to treat them like one,” Jones says. “They want to see them as intermediaries between them and the end user. They can't call me a 'customer' because they don't really care about me like they care about a customer. And I don't have any problem with that. But just don't give me lip service and tell me you want to be my 'partner.'”

Jones' company, Marco Supply, focuses on commercial construction, an industry that is still doing fairly well in most regions of the country, especially compared to residential. And while he doesn't wish to add to all the recession talk, Jones points to tough times, even hypothetically, as proof of how strong a manufacturer-distributor relationship is—or isn't.

When times get tough, the tough … tighten the credit line? Perhaps. But if two parties are really “partners,” wouldn't they work something out, Jones asks? Gallagher and Jones agree that tough credit times can reveal a great deal about a partnership. Gallagher, for one, believes that keeping lines of communication open can help both parties get through any difficulty, even a tight credit crunch.

“There are ways to work through all that. We're all in this together,” Gallagher says. “If we can be more flexible with a customer and help them in a situation, or help our suppliers, then we should have those conversations.”

Especially in a difficult situation, Gallagher stresses, a manufacturer and distributor will probably be reminded they have many things in common.

“At the end of the day we're all managing the same thing on our P & Ls and balance sheets,” Gallagher explains. “So lean on your strong partners. In good times, that's easy. But when times get tough, that's when you test yourself and your partners.”

Jones agrees philosophically but worries that some choices may be unavoidable—especially in tough economic times.

“You'd like to think that each would help the other through [hard times]. But what can often happen is manufacturers [for example] might get tighter on credit,” Jones explains. “And you can't blame them for that because there are people who will fail in these downturns. They don't want a big receivable that disappears [and becomes a] bad debt.”

He remains hopeful that, despite these realities, those who have a good, valid partnership will follow Gallagher's advice.

“If you have a 'partnership,' isn't that the time on a rocky road when you give [partners] more than you'd normally give?” Jones asks.

Gallagher agrees that the savvy suppliers realize the indispensable role a good distributor plays in their success. The roles have also evolved in recent years, he says, to the betterment of both parties. Distribution in particular has matured.

“We've evolved,” Gallagher says of distributors. “Distribution has grown up a little. If [a deal] doesn't make sense and a customer doesn't see the value and isn't willing to pay for it—and the supplier doesn't see the value and isn't willing to pay for it—we're not going to book business at a loss just for the sake of booking business. Today, it's all about the value proposition.”

Jones agrees with the significance of a value proposition these days but is worried about various other influences—especially inflation and lower product demand.

“This is one of the first downturns I can remember where we also have a tremendous amount of inflation going on at the same time,” Jones says. “We [also] have price increases [in some cases] and demand is lessening. That's an issue we're confronting: dealing with price increases in the face of declining demand. This makes it that much harder to maintain the relationship with the manufacturer.”

Jones' concerns were reflected in INDUSTRIAL DISTRIBUTION's 61st Annual Survey of Distributor Operations. Forty-three percent of respondents cited price competition as their number one concern and 41 percent listed economic conditions as theirs.

When times improve, any damage done may be difficult to repair with regard to manufacturers and distributors. Jones cites residential as a prime example.

“The manufacturers who are very heavily oriented to residential markets are looking for any outlet they possibly can to move their product,” Jones explains. “And that has to cause some tension now and may also cause tension when things do come back. [Then] they'll have a messier playing field than they had before this downturn happened.”

To avoid as much of this tension as possible, Gallagher emphasizes communication—regardless of where people stand on the partner vs. customer debate.

“We're working closer with our suppliers than we ever have,” Gallagher says. “[For one thing], they don't want us to get stuck with the wrong inventory. That doesn't do them any good either.”

Avnet meets weekly or monthly with most suppliers, he adds, reviewing their respective backlogs of inventory and getting a handle on what items they need to order, or to stop ordering.

Both men agree distribution will survive the economic challenges.

“I'm optimistic,” Gallagher says when asked for his “state of the industry” opinion. “I feel as positive about our supplier relationships today as I have in quite some time. Now, that doesn't mean there aren't issues. But if anything was proven out of [the slump in] 2001, it was that the guys who came out shining from a supply chain standpoint were distributors.”

Jones emphasizes the two-way street that is still at the heart of any good manufacturer-distributor contract—where distributors do an excellent job for manufacturers and vice versa.

“Look, distributors can't exist without manufacturers. If there's no supply [to sell], we don't have much to talk about,” he says. “And they need distribution to get their products to the end users. So we both need each other. And that's a good thing for both sides of the channel—or all three sides, including the end users.”