By Bridget McCrea
A three-part series that examines the key stages of the distributor-supplier relationship and how to create alliances that endure the test of time.
Read Part II of this series, "The Marriage," HERE.
Read Part III of this series, "The Divorce," HERE.
The beginning stages of any relationship are typically rosy and positive. After all, this is the "courtship" period when everyone is on his or her best behavior, working as a team, and moving forward with grand plans for success. The entire business model at this point is based on, "We're going to work together to sell products and make money," and everyone is onboard and ready to go.
Making sure this enthusiasm lasts through the courtship stages—and comes out unscathed so that it still has momentum on the other side—isn't easy. With both distributors and suppliers busy putting out day-to-day fires (and, moving onto the next great partnership opportunity), turning that initial eagerness into a productive, long-term affiliation requires time, attention, and at least a little elbow grease.
"Historically, relationships between B2B manufacturers and distributors have been a complicated mix. Some are valuable partnerships, while others are rocky relationships seeded with mistrust," writes Zilliant's Javier Aldrete in "Secrets to Improving Manufacturer-Distributor Relationships."
Aldrete points to a recent Industrial Performance Group survey that found that 82 percent of manufacturers and 92 percent of distributors say profitability is suffering because of problems in their working partnerships. "The entrance of nontraditional competitors, disintermediation concerns, and the explosion of digital transformation," Aldrete concludes, "have done little to ease that tension."
Something Just Doesn't Feel Right
As Dirk Beveridge surveys the electrical distribution industry, he sees an industry that continues to do its job, add value, work hard, and manage its piece of the channel. But something is missing. "Distributors tell me that they have relationships up and down the channel," says Beveridge, founder of Chicago-based UnleashWD and author of INNOVATE! How Successful Distributors Lead Change in Disruptive Times, "yet something just doesn't feel right."
According to the Reimagining Distributor and Manufacturer Relationships survey of 246 NAED companies (102 distributors and 144 manufacturers), a lot of companies agree with Beveridge. In fact, a full 91% of participants said there is a "real need" for manufacturers and distributors to reimagine how they can better work together and more collaboratively. The survey also found that a higher percentage of distributors believe manufacturers are not prepared (i.e. mindset, culture, strategies) to partner, and that the opposite is also true in that more manufacturers than distributors believe distributors are not prepared to partner.
About 63% of NAED distributors surveyed believe that their manufacturers are "actively involved" in creating partnerships with distributors, yet 37% of all NAED distributors that enter into relationships with manufacturers believe that those relationships have little chance of becoming truly collaborative partnerships.
What Works, What Doesn't Work
Having recently wrapped up Phase II of the Reimagining Distributor and Manufacturer Relationships research, Beveridge says he's been carefully examining "what works and what doesn't" within the alliances or "building blocks" of the industrial distribution model. Focusing specifically on the early stages or "courtship" period, he says the current business environment is forcing both sides of the relationship to "check their mindsets" before aligning with new partners.
"Historically, distributors have been focused on the transaction," says Beveridge. "In today's business environment, they need to 'check' that mindset and understand that true partnering doesn't mean that my 'win' comes at your 'loss.'" Put simply, a distributor's profitability doesn't have to eat away at its supplier's profitability (or vice versa).
"True partnerships are built on deeper conversations and understanding one another's core competencies right from the beginning," says Beveridge. Key points to cover during those early conversations and meetings include: How does each partner in the relationship actually make money? How can the two entities work together for the greater good of the team? What does each party expect to be paid for?
Other good points to cover include past history of failed partnerships. What went wrong? What would the potential partner "do over" if it could? What red flags should have gone up early in the relationship to avoid the negative impact of having to 'break up' down the road?
"Once you can come to an agreement about which aspect of the value chain each partner gets compensated for, what it will contribute to the alliance, and what it expects from that alliance," says Beveridge, "then you can move forward with developing solutions to ensure that one partner's win doesn't come at another's loss."
Moving Away from a Transactional Mindset
The advice that Beveridge outlined above may sound straightforward in theory, but actually putting it into action isn't always easy for distributors and manufacturers. That's because both tend to focus too much on the transaction, the program, and/or the specific opportunity—and the monetary value that can be extracted from it. To break out of this mold and lay the foundation for a positive relationship right from the start, Beveridge says both sides of the partnership need to change their ways of thinking.
"Dig deeper in terms of understanding the other partner's core competencies, business model, and ability to drive value in specific areas," says Beveridge. "Then you can start helping one another drive the necessary profitability, instead of working against each other."
And don't forget to bring the voice of the customer into the conversation, Beveridge says. In other words, no joint planning or strategizing should be done in a vacuum, and without first taking the customer's demands, challenges, and preferences into consideration. "The vast majority of joint planning that takes place between distributors and manufacturers is focused on what projects are up for grabs," says Beveridge, "and which customer segments are ripe for targeting."
A better approach, he says, is to look more carefully at (and listen to) specific customers and understand what they want to achieve, what pain points they need to alleviate, and what projects they need to complete. Ask yourselves questions like: Do we have alignment on these customer-centric issues? Have we gone out together to talk to and listen to the customers that we want to work with together? And, have we honestly allocated enough gray matter to creating a unique, innovative, differentiated solution for the marketplace? "This," says Beveridge, "is where truly successful partnerships begin."
McCrea is a Florida-based writer who covers business, industrial, and educational topics for a variety of magazines and journals. You can reach her at firstname.lastname@example.org or visit her website at www.expertghostwriter.net.