The Dynamics between Manufacturers and Distributors

A distributor’s focus is on the end-user market and aftermarket support for a given product portfolio. If the end user operates 24/7, then the distributor must have the capability to safely respond in kind. The distributor’s investments are in facilities located close to the end user, in carrying a significant inventory of products, and most importantly, in personnel knowledgeable enough to support the technical selling needed—who know the applications and can give the support needed for the product portfolio.

For distributors who also possess field service and shop repair capabilities, the investment list grows significantly to include major capital equipment such as machine shops, paint booths, trucks, on-site trailers, welding and testing equipment, and once again, personnel who are trained and certified to perform these functions.

These capabilities often exceed what a manufacturer could support directly because the core of the manufacturing business is to innovate, design, engineer, manufacture, test, deliver and support quality products. The investments for the manufacturer range from research and development to marketing to establishing factories strategically located around the world. In an ideal state, the manufacturer’s desire to be “all things to all people” is clearly present. However, it’s often not practicable (nor financially possible) to take on the additional investments.

Thus, the relationship between the valve manufacturer and distributor is born. Distributors fill the operational space between the end-user’s needs and the manufacturers’ capabilities. Based on the realities listed above, this should be an ideal match for the two entities, and in many instances, the relationship leads to a satisfied end user with both manufacturer and distributor recognizing healthy results. When it doesn’t work that way, however, the relationship is strained, leading to a variety of outcomes ranging from loss of reputation (for either the manufacturer’s brand or the distributor) or missed opportunities to grow the respective businesses.

Key items for anyone involved in the relationship to consider are:

• Ensuring the wants and needs of each party, as well as the end user, are understood by the other
• Both sides agreeing on what “good” looks like
• Understanding what to do when disappointment strikes

Managing these three aspects will help to ensure effective communication between the manufacturer and distributor, thereby positioning the relationship for success.

WANTS AND NEEDS

Understanding the wants and needs of each party is the first step in creating winning and sustainable relationships.

Manufacturers want organic growth year over year. In instances where they produce multiple brands or models, they want market share gains for each of the lines. In slow markets, they may look for additional (or alternate) distribution paths to market. When business is favorable, they rightfully anticipate and expect business through distribution to grow at an accelerated rate. When the primary channel to market is via a distributor, it is imperative to the manufacturer that their products are receiving the appropriate amount of focus within the distributor’s business. As most distributors carry multiple lines within their portfolio, this is an understandable concern.

Engineered products are designed to solve existing problems. Because of this, the manufacturer aims for this to be written into specifications supporting the manufacturer and design features. When new products are introduced to the market, manufacturers target specific applications before launch to ensure strong reference points. Both scenarios require plant-level relationships, as well as a technical presence where the application, process and product features are understood. In many cases, the distributor working closely with (or on behalf of) the manufacturer can successfully provide this presence.

Distributors seek to perform to levels that justify and achieve exclusivity with their manufacturers. Exclusivity is a two-way commitment between distribution and manufacturing wherein the distributor is the sole provider of the manufacturer’s product for a specific industry or territory. The exclusive relationship often easily justifies extensive training for distributor personnel and allows the distributor to generously invest in inventory. In exclusive relationships, distributors routinely support long sales cycle efforts on the manufacturers’ behalf. In today’s market, exclusive arrangements between manufacturers and distributors are less commonplace than in years past, outside of a few product categories. Although the reasons for multi-distribution channels are plentiful, such arrangements often create friction.

Because distributors are the bridge between the manufacturer and the end user, they depend on the manufacturer to ensure product quality and delivery. Distributors do not have any immediate bearing on the manufacturing quality or delivery capabilities (unless they hold inventory). Therefore, it is critical that the information provided to the distributor always be accurate. Failure to have effective correspondence during the delivery of a product can quickly diminish the relationship between the end user and the distributor and has a further negative impact on the relationship between the distributor and manufacturer.

WHAT “GOOD” LOOKS LIKE

Establishing clear goals and tactical steps is vital within the manufacturer and distributor relationship. In some cases, successfully gaining a minor install base should be a major accomplishment—but only if this goal was clearly identified in advance. Creating and agreeing upon a mutual business plan where both parties outline the opportunities at hand as well as the resources devoted to accomplishing the tasks needed to carry out the plan is a powerful route to drive business improvement between the manufacturer and distributor.

WHEN DISAPPOINTMENT STRIKES

It is a given that with relationships that last long enough, challenges will occur. Between a manufacturer and their distributor, the issues can come from quality, pricing, delivery or performance. Understanding the severity and impact of each issue is critical. So, too, is knowing who to contact within the respective organizations when those issues arise and knowing well in advance before something happens. Where it has been agreed upon beforehand, minor issues are handled between local staff at the distributor and the manufacturer. Urgent issues might be escalated to management and critical (or “line down”) issues might be elevated and become visible to executive management. Who needs to be involved and how issues are handled is dependent on a variety of aspects that vary from one company to another.

In conclusion, manufacturers need strong distribution and distributors need strong manufacturing. As time moves forward, the dynamics between the two entities will evolve further. Customer requirements, innovations and the generational knowledge gap within industry are likely to be key factors in the future.

To maximize the relationship and to create a mutually beneficial arrangement, it is imperative that all parties communicate openly and regularly. Listening and understanding the three items above allows both parties to be a better partner and to offer end-user industries the best service.

JEFF KELLEY is vice president of sales at Setpoint Integrated Solutions (www.setpointis.com) in Baton Rouge, LA. He is a member of the VMA Communications Committee. Reach him at JKelley@setpointis.com.