Striving for Perfect Relationships

Gene Biben Posted On February 15, 2021

After the recent NEMRA meeting and listening to the presentations from the marketing groups and the national chains, the question of “strategic relationships” came to mind.

What is the most important factor in choosing relationships between a distributor, manufacturer and representative today?

Relationship?
Ease of doing business?
Profitability?
Loyalty?

Can we possibly get all four in one?

This got me to reminiscing and ruminating.

When I started as an inside salesperson many years ago for a wire company, the President stated if a loyal distributor stocking our products needed a special situation whether delivery or price, I was to make sure it occurred.

This was repeated to me about 10 years ago by one of our supplier’s senior vice presidents.

What has changed?

What has happened in the last 10 years where this seldom occurs any longer, and could it occur again?

Fewer manufacturers, fewer distributors and fewer representatives have reduced choice in the market. Theoretically, with less there should be the opportunity to improve margins for each. However, most report profitability continues to shrink for each. Why?

Often a manufacturer’s profitability is focused on keeping machines operating at maximum capacity and consistency. Shutting them down is expensive as opposed to laying off people or shifts as occurred when I worked in manufacturing. It is a major reason why to many the DIY market is essential for their success and distributor pricing. The machine I learned on took three people per shift to operate; ten years ago when I revisited the same facility, there was one person operating three machines.

Distributors with fewer choices often migrate to the same manufacturers as their competitors, yet when pursuing job business or blankets they are given the same pricing. This forces them to reduce margins to win business. They may perform value-added functions their competitors do not for success, but that also has a cost that needs to be justified. Could this also be a reason many distributors depend on rebates for their profitability?

Ease of doing business, especially with lower profitability, is essential to ensure survivable net profit margins. Until recently, additional products added to existing suppliers saved distributors significantly in expenses for receiving, number of invoices and meeting various freight requirements that continue escalating

COVID has not only changed selling strategies, it has made getting products from anywhere much more difficult, time consuming and expensive It has also often forced distributors and stocking reps to consider redefining inventory strategies to meet customer demands to stay profitable.

Pricing: 25 years ago, the president of a large and successful manufacturer said the day of regional pricing needed to end in favor of national pricing. If distributors wanted to be on a level playing field to compete with national distributors who can see their branch pricing, it was imperative. He also believed that to service national industrials and what he thought would be national contractors, the pricing would need to be available to all and coordinated.

LOYALTY: I have been a representative to the local NECA Chapter. 2 years ago the discussion centered on loyalty to contractors. A few complained that everyone wants them to be loyal, but when they quote a job their competitors get the same pricing from their suppliers as they do. Other members disagreed stating they limit who they purchase and their suppliers help them knowing if they receive the job, their suppliers get the business.

A friend of mine owned a very successful regional electronic distributorship. I asked why he sold it, and his answer surprised me. He said his major suppliers were selling many of his larger customers directly leaving him either poor paying accounts, smaller ones or the larger ones needing staged deliveries.

Many of these issues remain unanswered, but they need to be discussed with senior management and cannot be answered regionally.

Given the state of today’s business environment can ease of doing business, profitability, loyalty, and relationships benefit all of us or is returning to those days a dream?

While the days of yesteryear may have passed, the key to understanding, and eventual success, comes through dialogue.

Paths Forward

From recent discussions with distributors and manufacturers, those that have strategic relationships shared that they are mutually more profitable with their key suppliers. Why? The reason is that they both have a better understanding of each other and each other’s needs. Alignment, at some level, is achieved. While it cannot occur in every interaction, in total, steps to improvement are made.

And that is the key. Incremental improvement.

To achieve, companies should consider:

Soliciting “voice of customer” through distributor, rep and customer 360 initiatives and advisory groups with key stakeholders … and sometimes a mix of channel stakeholders.
Soliciting input to improve processes, and product launches with key partners.

The reality is that we won’t go back to twenty-five years ago and a more profitable industry for all, but, perhaps the key, is setting benchmarks for cohort groups and striving for tiered incremental improvement.

We may not be able to move the channel, but perhaps we can move key relationships and strive for continuous improvement.