Counseling for the manufacturer, distributor relationship
January 1, 2007
Web sites and distribution-oriented trade magazines are filled with articles about problems with “the manufacturer-distributor relationship.”
Consultants tend to write these pieces in a tone that makes you feel like you’re reading “Can This Marriage Be Saved?” from Ladies’ Home Journal. Fact is the subject has little to do with relationships. What they’re really tackling is the issue of channel deterioration.
When a marketing channel breaks down, it means distributors are seeing business slip away. It also means manufacturers are finding different ways to reach their markets.
Manufacturer and distributor personnel caught up in these situations may grow testy with one another at times, although that’s an effect rather than a cause of their problems. What everyone needs to face up to is there are certain fundamental business dilemmas that can’t get resolved by a friendly phone call between golfing buddies. Some problems may have no solution at all, no matter how well the buyers and sellers get along.
Don’t get me wrong. Personal relationships are very important in the world of business. A phone call from a golfing buddy often is what it takes to expedite an order, shortcut corporate bureaucracy or resolve any number of other glitches that arise in the day-to-day conduct of business. However, the so-called relationship problems between distributors and manufacturers stem from deep-seated supply chain ailments that transcend friendship.
ExpectationsPeople expect friends to lend support in time of need, but not to cure their diseases. Yet, in the business world they are prone to blame many ills on betrayal of friendship. You constantly hear one side accusing the other of being disloyal or “forgetting who brought them to the dance” or “turning their back on us.” This is the language of marriage counseling.
The big problems of this industry have their roots in harsh business realities, not relationships gone sour. Relationships can’t overcome the fact that consolidation has shifted a lot of product decision-making away from branch managers and toward deals made at home offices or buying-group headquarters.
Relationships have nothing to do with the so-called big-box retailers asserting their clout over the last couple of decades, nor that manufacturers and wholesalers now are starting to feel the same kind of heat from the big homebuilders.
Relationships cannot stem the incessant price erosion resulting from so many humongous competitors.
The marketing woes of distribution also stem in part from the emphasis manufacturers have placed on volume discounts and rebates to boost market share. This undermines collaborative brand-building efforts with distributors, and thus their value in the grand scheme of marketing. For distributors, discounts and rebates provide some relief from insufferable margin pressures. However, they don’t necessarily assure an inventory of the right products in the right places at the right times. These phenomena have helped accelerate the turning of many industry products into commodities.
Gone south?Relationships haven’t soured, although the value of relationship marketing probably has diminished throughout the supply chain. That’s what happens when fewer product decisions rest on brand name attraction or a sales representative’s trust and credibility, and more depend on hard dollars-and-cents calculations.
The Internet also has weakened the distribution channel structure by undermining the distributor’s role as a source of information and expertise.
None of these problems can get resolved with a phone call to a golfing buddy - although that’s no reason to break up the friendship. So it’s time to stop all of the wailing and gnashing about problems with “the manufacturer-distributor relationship.”
In reality, there is no such thing as the “manufacturer-distributor relationship.” The HVAC industry is a fabric woven with thousands of strands of manufacturer-distributor relationships. A few may be rocky, but the vast majorities are in pretty good shape. It is one of the enduring strengths of the industry - every day thousands of business deals are sealed by a handshake between individuals who can be counted on to keep their word. That’s what manufacturer-distributor relationships are all about.
Just don’t expect them to heal the sick.