Manufacturers, distributors need to heed warning signs

By Cholly Snow -- Industrial Distribution, 5/1/2008 8:23:00 AM

“Warning: Iceberg Ahead.” If you have ever travelled in extremely cold climates where ice can accumulate, you have probably seen this warning. If not, I’m sure most of you have seen movies outlining the dangers and possible devastation caused by these giant ice formations. With only about 10 percent of the iceberg visible, it’s easy to miss the underlying dangers.

Many years ago this industry consisted of several manufacturers, most with complete product lines, all going to market in much the same way. A manufacturer’s representative would work directly with a chosen distributor in a given market. The manufacturer and the distributor would work as a team to sell and service the end users in that market.

In many cases the rep would maintain an office in the distributors’ place of business, work directly with the sales force or make individual calls on the user as a representative of the distributor—a true partnership. Many of you who are new to the industry may not remember this; but that environment existed at one time.

Since that time many things have changed. Today we see a much smaller group of manufacturers, due to acquisitions, mergers and business closings. Most have cut their sales forces to very few reps with huge territories and little time to work with their distributors on a regular basis.

They have also decreased their product offering in many cases, forcing distributors to buy from multiple sources to fill their needs. This has created many problems relative to liability. Each manufacturer will blame the other manufacturers involved in the final product and then they all blame the distributor for incorrect fabrication or whatever.

The water begins to freeze.

The next major change was manufacturers selling directly to the end user. They have listed many excuses—not reasons—why they have taken this course of action and I am sure you have heard your share of them as they explain to you why your former customer is now their customer. Even if they allow you to service the customer for them, it will be at a reduced profit margin on your part. Needless to say, their margins remain the same.

Regardless of what they tell you, the only real reason is greed. The iceberg has now formed.

After securing the business of these large users away from their distributor network, they are still not happy. You see, greed has no end. It is perpetual.

They have decided to become their own distributors. Large manufacturers have started buying up large distributors or simply opening their own stores to sell directly to the end user. Once they have acquired a network of distributors that fits their long-range plan, their products will no longer be available to other distributors. If you doubt what I am saying, you need to open your eyes.

Warning: it is now a dangerous iceberg.

Now to the real issue at hand. Why should any manufacturer who engages in this type of activity be recognized as a manufacturer by distributor associations? Most by-laws specifically address this issue or at least refer to it in the membership qualifications. In my opinion, those who fall into this category should not have any rights at trade shows or conferences—no contact table, no hospitality suite, etc.

Before you think I am over the edge here, let me tell you I don’t expect any association to make these changes. Why? Greed. Like I said, it perpetuates itself among all involved in covering up the change.

Want to see a picture of tomorrow? Go look around Europe. Do you see a distributor network there? No.

After all, many of the manufacturers in the United States are now owned by European entities and their philosophy of doing business follows their money.
Warning: Iceberg ahead.

Cholly Snow is president of Rubber Plus Inc. www.rubberplusinc.com, a supplier of industrial rubber and related products based in Knoxville, Tenn. He can be reached at Csrpi@aol.com.