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Manufacturer-distributor relationships are hurting sales and profits

NORTHFIELD, ILL. -- Experts often refer to business partnerships in terms of marriage. However, these delicate relationships between supply chain partners are deteriorating, and the amount and quality of communication has decreased. This has marked effects, resulting in a drop in sales and profit.

This situation affects the whole industry. Eighty-two percent of manufacturers and 92 percent of distributors believe their working relationships negatively impact business. And nearly half of distributors and manufacturers see the level of commitment as low.

That is one of the findings in the Report Card released by The Industrial Performance Group, Inc. of Northfield, III. The survey was based on a four-year study of 750 manufacturers and 500 distributors. The research was the result of a follow-up to an IPG study released in 1997 on the manufacturer-distributor relationship.

From these studies, IPG has identified eight attributes of peak performance. Shared goals, clearly defined roles, communication and commitment are some of the attributes of successful relationships that are uncommon in practice, said IPG managing principal, Robert Nadeau.

"Our core work has been to focus on the relationships and how investment in bettering the relationship pays off - in spades," said Nadeau. "However, in this study, we have seen that communication, commitment and cooperation have dropped significantly."

According to the study, the biggest problem from the manufacturer's perspective is the lack of commitment on the part of the distributor. The distributor's chief complaint is manufacturers' territory management.

"The distributor also sees a lack of commitment to the relationship," says Nadeau. "Rather than working to increase sales with current vendors, manufacturers are often adding multiple distributors in a territory or selling direct."

He points out that the sales interest of a manufacturer is volume, while a distributor works on margin.

"Though these interests are divergent, if both partners work together, the relationship can help each attain the common goal of increased sales and profit."

Senior vice president Hardy Hamann of Virginia Beach, Va.-based Hermes Abrasives said price and inventory pressure is a constant throughout the supply chain. With the added pressure of the current economy, many cost-cutting measures can impair the level of performance within the supply chain.

"But most distributors are fulfilling their purpose," said Hamann. "Distribution plays an important role, and those that are best are increasing in their significance."

He said Hermes works proactively with distributors to make joint plans and work together to open new accounts and develop new opportunities.

"It comes back to trust," said Hamann. "In bad times, these issues are tested."

At Warren, Mich.-based Production Tool Supply, manufacturer relationships work well, said director of sales and marketing, David Francis. As a master distributor, PTS is a high volume account, but Francis said there is more to the relationship than volume sales.

"We are actively involved in promoting our manufacturers' lines and we receive a lot of support from our manufacturers," said Francis. "We go to market by many channels and try to support our manufacturers with promotions like in-store displays and flyer programs."

But many distributors are not as happy with their manufacturer relationships. One distributor that is unsatisfied is Tony Curatolo, president of Camken, Inc. in Rockford, III.

Some manufacturers are using multiple distributors in Camken's territory, which hurts the manufacturer and distributor, said Curatolo. He also sees less manufacturer training as manufacturers go with large-volume national distributors.

"It's different when a distributor is really trying to sell and provide the technical and engineering support for an entire line of products instead of just taking orders," said Curatolo. "We invest the time and engineering in the sale that a national contract provider can't."

Curatolo said that once the engineering support has been provided by the distributor, he wants to be sure he gets the sale, rather than be undersold by a competitor or a manufacturer selling direct.

"[Manufacturers] give more support to larger distributors, but smaller distributors are more loyal," said president Jerrod Gervasi of Charlotte, N.C.-based Atlantic Drives and Bearings of N.C. "We. are committed to selling their line and supporting their products and yet when we ask for more support, they tell us to sell more product, first."

Gervasi recognizes that communication is a two-way street, however. He said that he has started building relationships with some of his manufacturers. He has made a concerted effort over the last year and said he is getting results.

Ron Herein, vice president of marketing and business development at transmission and belting distributor Baldwin Supply, is not satisfied with the cooperative advertising dollars or the marketing research supplied by manufacturers. His company needs timely sales leads but "by the time we get them, they're old. Only a few [manufacturers] have cooperative money programs," he said.

Problems in the sales process have been developing for a long time and are not likely to be solved easily, according to William Stone, Jr. president of Transmission Products, Inc. in Richmond, Va. One of the complex issues he encounters is the tendency of customers, because of consolidation, to have to buy through large, national distributors via contracts.

"The big distributor with branches everywhere has a national contract, but the manufacturer still expects the local independent to heavily market the product. Even if we market those items, we can't sell them to the plant down the street who has a contract with someone else," Stone said.

Admitting that he has no easy solution to the problem, Stone understands that business climates are difficult for everyone.

However, he would like to see manufacturers take less direct business from his customer base.

"[Manufacturers] used to have a rep in the area last for about 10 years, now we're lucky if they are employed one or two years. They can't get the relationships they need with customers, and have to deal with six or eight distributors, instead of one," he said.

Stone said most manufacturers have discontinued distributor advisory councils for a variety of reasons, and he would like to see them return.

Bettering the relationship between manufacturers and distributors is the raison d'etre of the Industrial Supply Manufacturers Assn., according to assistant executive director John Thimmig.

"Our partnership with the Industrial Distribution Assn. means that everything we do focuses on better communication and improving supply chain relationships. We have over 10 committees and task forces whose mission is to improve and develop that relationship," Thimmig said.

"Maybe many channel conflicts come from integrated supply situations. Of course the economy doesn't help things and alternative channels are emerging, like the Internet and "big boxes" and catalog houses. Those are all challenges to the traditional industrial distributor," he said.

"There are just so many changing factors today," said Thimmig. "The whole distribution environment is changing rapidly and dramatically, but I can assure you the focus of our two organizations is to improve relationships. That's not just a party line; we live it day-in and day-out."

Nadeau points out that when he presents the results of his survey, the common response is: "Sure, I new that."
"So isn't anything being done about it?" asked Nadeau. "In better economic times, we attributed it to complacency while everyone was making a profit, but we have found that there are many barriers to an effective relationship."

COPYRIGHT 2001 Cahners Business Information in association with The Gale Group and LookSmart.