Partner, customer—or both?

By Frank Pagliaro -- Industrial Distribution, 7/10/2008 10:30:00 AM

(In the May issue of Industrial Distribution, an article on manufacturer-distributor relationships—      “Can manufacturers and distributors be true partners?”—drew several reactions.

In the article, Marshall Jones, president of Marco Supply Co., a distributor, and Phil Gallagher, president of Avnet Electronics Marketing Americas, discussed the issue from each side.

ID reader Frank Pagliaro, president of JewelTree Inc., also had some thoughts on the topic and submits this column.)

Are manufacturers and distributors partners? Customers? Maybe neither.

Phil Gallagher is right when he says the “customer vs. partner” debate is one both sides would do well to ponder. But it needs to be done from a completely different direction, because we’ve all been getting it backwards for so many years. Actually, manufacturers are the distributors’ customers, a real role reversal, and distributors are part of the manufacturers’ sales and marketing organization—not their customer, but a part of their organization.

However, I disagree with Marshall Jones when he says distributors and manufacturers don’t want to be partners. Deep down, they both really believe they want and need to be partners because they’ve been taught that a partnership is a good thing even though there will be tension.

But be very careful what you wish for, as very few of us are cut out to be partners. Entrepreneurs, yes. But partners? I don’t think so. We give orders well. But we don’t take orders very well.

Think of the partnerships you’ve known. Haven’t most of them been dissolved for one reason or another? Many times partner A does most of the work and partner B spends or receives a disproportionate share of the income or profit.

Neither partner wants to do a disproportionate share of the work. But both would like to have a disproportionate share of the income, which is a huge disconnect that’s not mutually beneficial. But to date no one has come up with a better term that “partner” to describe the manufacturer/distributor relationship, and the debate goes on.

Being a distributor for 20 years, an executive for a Fortune 100 manufacturer, marketing through distributors for 11 years, and a channel marketing consultant for seven years, I’ve seen both sides of the equation, or I should say both sides of the issue as neither views it as being equal.

Most manufacturers describe their distributors as a channel to the marketplace and secretly think of it as a necessary evil that they would rather do without if only they could figure a way to effectively eliminate it. They need to realize that the distributor channel is an integral part of their organization, just like their sales and marketing departments, their production plants and warehouses. The distribution channel is a part that makes the manufacturer whole—a valuable entity they can’t afford to lose or do without and has no equal. (Well, it shouldn’t have an equal if performing correctly.)

The sooner manufacturers realize the value of distributors, the better off both parties will be. For lack of a better term for distributors than “partner” or “customer,” manufacturers should use “distribution sales force.” Actually, I’d eliminate the word “distribution” and use the term “sales channel.”

Like family?
Furthermore, distributors must be considered part of the manufacturers’ immediate family and be treated as such. They deserve respect and need to be treated exactly like they treat their top salesperson, the salesperson that they’d do absolutely anything to retain. That means helping each other out when times get tough; not having a hidden agenda; pricing with a margin for a fair profit based on the value delivered; and overlooking some deficits.

Doing so will relieve much of the tension and create open communication and cooperation for their mutual benefit. Maybe this is easier said than done, and it’ll assuredly take time to change many long-time, entrenched habits down the entire chain of command, right to the lowest area sales rep. But many manufacturers have had success with this formula. So it’s doable.

Now that we’ve re-defined the manufacturer’s role—should distributors view them as partners? Absolutely not. Remember how we defined partners above.

Here’s where the current role reversal comes in and it’ll take some doing for many distributors to get their heads around this, even longer for the more arrogant ones:

Manufacturers are the customer of the distributor. No—you didn’t read that incorrectly. Manufacturers are the distributors’ customers. Most distributors only take into consideration what they buy from manufacturers. Let’s take a look at what distributors are selling to the manufacturer. Distributors are selling their ability to sell and market product. This includes on-going sales of existing product, new product introduction, promotions, marketing and designing.

Every distributor should honestly ask themselves, “Would I hire my company to do the sales and marketing required for this manufacturer’s product line and do I own the relationship with the user of their products?” The honest answer needs to be “yes,” or your relationship with the manufacturer will be rocky at best—or, you’ll become extinct in favor of a real sales and promotion-minded organization.

Look around at what manufacturers are capable of doing. But the best product in the world will not be successful unless someone has the ability to sell it. It’s imperative for the distributor’s long term success to provide the sales and marketing aspect that is extremely costly to replicate.

Today more than ever, there is a tremendous risk for distributors who don’t have a first rate marketing group and sales force, because most of the traditional functions of a distributor can be cost effectively performed by the manufacturer or outsourced using today’s technology. The exceptions are sales, marketing, product introduction, promotion and owning the local relationship with the user. All of these are costly sales functions that distributors get paid to perform—functions distributors can “sell to the manufacturer,” thus manufacturers are “customers of the distributor.”

If distributors possess the best-in-class sales and product promotion and sell it to their suppliers, no one in their right mind would even contemplate replacing or mistreating them. Manufacturers will never be able to cost effectively replace first class sales functions of the distribution channel. But second class can be replaced.

So distributors need to be the best there is at all aspects of sales and product promotion or some smart manufacturer surely will seek out a way to do it themselves. Don’t give them a reason to go looking. Let them be your customer and treat the relationship as such.

Frank Pagliaro is president of JewelTree Inc. based in
Pewaukee, Wis. JewelTree is a consultancy for wholesale distributors and manufacturers that sell through distribution. He can be contacted at fpagliaro@wi.rr.com.