New dimensions in Manufacturer-Distributor relationships—Part 1
Most of these relationships have frayed and left many dysfunctional.
In our past installment, we reviewed the current state of manufacturer-distributor relationships. The advance of globalized manufacturing, e-commerce, e-business models that shun personal-selling, and the cost-competitiveness of the supply chain has left most relationships frayed and many dysfunctional. In essence, changes outside the traditional relationship have made the sales intensive, product-based relationships ineffective.
Many manufacturers and distributors, despite mammoth planning sessions, can no longer achieve organic growth. Our belief is that attempts to revive yesterday’s platforms of product-market growth using leagues of sellers is too expensive and just plain won’t work. Why? Buyers are moving purchases of commodities to the Web where low-cost, Internet-based models are eating into traditional full-service distributors’ sales.
Much recent focus has been on Amazon Supply and their cost-out model where surveys find they can reduce end user purchase price by 20% or more to MRO customers. This pricing advantage is a no-brainer for customers who don’t want or need hand-holding for commodity purchases.
Our work with traditional distributors finds that more are waking up to the fact that commodity buyers won’t suffer over-attention and expense of personal sales relationships. Hence, distributors are moving sales efforts to non-traditional roles including business development, application specialists, process consultants, and other more value-added roles where the value is not specific to a particular product.
Distributors are extending their reach into the value chain to develop solutions across manufacturers involving different technologies to solve an application issue. An example would be a traditional distributor of filtration, valves, plc’s, and actuators who develop a fine-micron filtration system with butterfly valves and actuators integrated into a plc. The distributor is not selling butterfly valves or actuators, they design a timed filtration system specific to a customer issue. This type of cross-product sale proposes issues for manufacturers intent on a finished product sale. Their customer is not necessarily the distributor’s customer but the distributor who engineers the system and creates the product which is a system solution.
As distributors extend their reach into the value chain, they look for common solutions across customers. The goal is to build sub-assemblies to WIP (work-in-progress) inventory, and batch it for further augmentation. In this way, cost is taken out while quality is improved. Additionally, we are finding where common applications are placed online with features, benefits and cost-savings. This supports the solution selling effort on a 24/7 basis and gives access to hundreds of potential customers.
Manufacturers who hawk mature-products and demand “feet on the street” won’t succeed in a new world where distributors are extending their reach into the value chain using e-commerce and developing in-house engineering/application expertise; especially as commodities are transacted online with limited sales support. They will find their efforts ineffective and product-sales objectives stymied; a new paradigm needs to be resurrected to drive the partnership.
A new approach to an old problem
The field and study of manufacturer-distributor relationships is as old as B2B markets which, in North America, dates to the beginnings of the Industrial Age. The subject is perennial in interest and cyclical in research. Our view is that the perennial interest is as strong as it ever was while the research and literature is in a trough. There simply is a dearth on how manufacturers and distributors grow in a post-modern society. The last peak of research and advice was, by our reckoning, in the late 1980s and early 1990s and regarded the idea of planned partnerships.
Since the internet, globalization and e-business; however, few new models and research has come forth. Our attempt to offer a new approach is based on observations and work in an age where supply chains are rendered hyper-efficient for box-in/box out commodities and distributors are moving further into the value chain. The new approach is for consideration and discussion. Hopefully it will spur much needed research.
Stay tuned next month for Part 2.
