Develop Stronger Distributor, Manufacturer Links

by Larry White - Interlynx Systems, LLC

While trust is a two way street, this article specifically focuses on the challenges of mistrust caused by manufacturers.

The distribution selling model can be one of the most effective and cost-efficient means for delivering products to the marketplace. Distributors drive unique value to end users that most manufacturers cannot easily duplicate.

Distributor value is derived from:

offering a collection of complimentary products and integrating them to meet the needs of the end-user customer
providing value-added service in the form of consultation and lead-time management
building and leveraging strong customer relationships for the benefit of companies represented
assuming risk on behalf of the customer in the selection and application of equipment or services
covering markets and geographies through a cost-effective sales organization

Distributors can also generate a multiplicative effect because of the number of potential feet on the street they can deliver. Consequently, a company that understands how to motivate a distributor network can unleash a torrent of focus on their products and programs.

Understanding the drivers of distributor mistrust

Unfortunately, time and again, companies underestimate the value of a distributor network in the overall selling process and do not take the time to identify the drivers of the distributor/company relationship. Consequently, even reputable companies leave a legacy of broken distributor relationships through maverick decision making and ignorance of the distribution selling model.

My experience is that the foundation of distributor/manufacturer relations is driven by trust. Building trust can be a significant challenge. Companies and their distributors often have opposing objectives.

The most often cited include:

management continuity of the company vs. the long-term outlook of their distributor partners.
lack of clarity on roles of channel partners in the marketplace
unclear and inconsistent decision making guidelines used by the company

Because of these missteps, a lack of communication and ultimately, a stalemate will permeate the relationship.

Management continuity of the company vs. the longer term outlook of their distributor partners

The challenge of management turnover in corporations is a real threat to the overall health of distributor relationships. In my time in industry, our general manager changed about every 12-18 months. This appears to be consistent with most industrial companies. Ironically, turnover is often the result of lackluster sales performance. The legacy of broken promises caused by management turnover further deteriorates the potential for the replacement manager's success. I have seen top corporate managers who one day are making promises to a distributor principal (particularly after a memorable dinner) only to find that manager leave for another company months later. The promises made are promises broken. The high turnover at the corporation can also lead to philosophy changes. I have seen corporations with a legacy of fostering healthy distributor relationships only to see a new management team erode years of goodwill in a matter of months. Finally, on the subject of time horizons, manufacturers are notorious for driving quarterly and even monthly numbers. Managers face significant short-term pressure to perform. I have seen sales managers who, coming up short on bookings, will sell out to a new partner in an attempt to close the numbers, thus damaging any remaining trust left of the incumbent distributors.

Lack of clarity on channel partner roles in the marketplace

The next challenge lies in defining roles of the various channel partners a manufacturer may employ. While some companies use only one type of distributor, product life cycles and end-user customers drive new supply chain models. In addition to evolving customer needs, acquisitions and business integrations drive a lot of the change for the manufacturer and distributor. Regardless of how it occurs, a manufacturer frequently ends up with a mixture of distributor types in the marketplace. Over time, this leads to market confusion, extensive channel conflict and an unclear distribution policy and strategy. The lack of clarity of product access issues, discounting and territory responsibilities, especially if combined with excessive conflict, will ultimately discourage a distribution network. The manufacturer must regroup on occasion and segment its channel partners. Ideally, the manufacturer then identifies the value of each channel type and creates a formal program that clarifies the roles of all their distributor partners and implements programs to drive favorable distributor behavior. A manufacturer's willingness to clarify the roles of their distributor partners can go a long way to rebuilding trust, even if the distributors do not agree with the outcome.

Unclear and inconsistent decision-making guidelines

Another divisive issue commonly cited by distributors is inconsistent decision making by the company. This is often a derivative of the management continuity challenges cited above, but it can also result from poor channel strategies, fear of decision making or complacency at higher levels of the organization. During my years in industry, decisions local sales managers made were often not aligned with the goals of the manufacturer. Reversals of such decisions were common and nearly impossible to enforce. This caused ill will among distributors and the problems associated with correcting became significant. When there is no template for consistent decision making, rules are applied haphazardly and ultimately, distributors cannot predict the future behavior of their manufacturing partner. Thus, a schizophrenic relationship develops between distributors and manufacturers that divides loyalties and ultimately creates apathy where enthusiasm once existed.

Defeating distributor distrust through operating guidelines

Companies can overcome these challenges by establishing a solid framework of mutual trust and expectation from their distribution network. By creating a set of clear operating guidelines to drive clarity and performance, distributors can rebuild relationships that drive a higher level of commitment from their channel partners. Manufacturers with committed distributors will realize higher sales levels and overall focus by their distributors. And committed distributors benefit by gaining an objective framework for mutual understanding and engagement. The establishment of operating guidelines serves as a framework of policies distributors and manufacturers can adhere to. By institutionalizing them, the relationship will survive changes associated with constant organization change. The process works best by having representatives from the company and distribution network work independently and collaboratively to establish a set of sustainable operating guidelines. Company representatives normally include a cross section of managers to assure an outcome that fosters company wide acceptance. The distributor participants represent the interests of the various distributor stakeholders. The final outcome results in clearly defined operating guidelines committed to and signed by both parties. These guidelines are distributed to the broader constituency of distributors and company staff. The process works best when a third party assists in the development and implementation of the guidelines to help resolve conflicts that arise over time and assure adherence to the guidelines.

Building the platform for growth commitment

The process described helps both parties set the stage for renewed growth commitment. Once distrust begins to fade, distributors and manufacturers can work constructively in the market place by establishing mutual expectations and accountability. Growth goals will become the centerpiece of this these expectations and the power of your distributor can be unleashed.