Friday, March 13, 2015

More on Distributor Supplier Etiquette: The Supply Partner Side

Distributors: customers, partners or something in between?
The Supply-Partner side of the Etiquette Story

The whole etiquette issue is not one sided. Over the last couple of weeks we have received several calls and comments on the topic: What part of distributor/supplier etiquette bugs you the most?

This week I would like to hit on a point made by a couple of folks on the supplier side. To launch the topic, here is a comment many great supply-partners feel throws a wet blanket on the partnering equation.

“Don’t forget, we (Distributors) are the customer.”

As I think back in time, I realize I might have used this line a few times myself. Reflecting on the subject, I see both sides of the argument. Speaking for distributors, I can see some validity in the point. We write checks to the supplier; often paying with much greater rapidity and regularity than those who finally end up with the product. I struggle to recall a manufacturer who extends anything other than 30 day terms. Yet, most Fortune 500 companies have unilaterally declared their own buying terms of at least 60 days. How can they do that? Because, they really are the customer.

Distributors may be the customer in other ways. After they buy the product they are often stuck with a plethora of widgets that don’t exactly fly off the shelf. Increasingly, distributors are bundling services and products, building sub-assemblies and, in many industry segments, creating turnkey solutions for those who later buy the product from them. This, too, sounds a lot like a customer.

However, the argument breaks down from there. If distributors are customers, they are a special type. Typically, there is a contract defining the scope of the relationship which doesn’t exist with “garden variety” customers. The supply-partner can walk away from other customers, without legal implications. Distributors operating in many states are protected from no fault termination by 1950s franchise protection laws. Further, distributors are given special pricing, marketing support and often, intellectual property not shared with common customers.

Somewhere along the way, distributors associated as customers, become something more. When things work well, and for most distributors and their major supply-partners it does, the relationship looks more like (and I hate to use an over worked term) a partnership. At times, even the best partnerships are strained and the distributor/supply-partner rapport is often put under stress.

A few years ago Michael Marks co-wrote a book called, Working at Cross Purposes: How Distributors and Manufacturers can Manage Conflict Successfully. The work describes the differences in the business models of distributors and their Supply-Partner manufacturers. The business models generally mesh well, but human nature tends to cause us to dwell on the conflict part.

This brings me to my last point. Distribution is a business model not a way of life. For some of us who are second or even third generation wholesale distributors, one point must be revisited often. The most successful business models change with conditions. Distribution today doesn’t look much like it did when my dad launched his distributorship in the early 1960s. Companies filling the ranks of his line of trade have evolved to the point at which they hardly resemble life at Hurtte Oil Company.

What does all of this mean? Well, the day we become merely customers instead of distributors is a day we may be skating out onto some mighty precarious ice. Distributors will exist only as long as we can provide services to the customer more economically, more efficiently and better than the supplier can using a direct model.

Are we customers?
I don’t believe so. We are a highly efficient, cost effective, low maintenance channel to market. And as long as we keep our competitive edge by being more nimble than manufacturer’s organization, we are special.

Distributors demand respect. Savvy manufacturers know that when distributors change brands their customers follow along. The last research paper on the topic points to something like 78 percent of the customers moving to the distributor’s new partner over a three year period.

With this in mind, perhaps the statement might be: Distributors aren’t customers, but the real customers “belong to” the distributor.

What do you think?

1 comment:

DanOB said...

Frank, this is a great article, and a timely reminder. There is often tension in the relationship, but as a distributor we don't control our upstream or our downstream partners, and we have to make sure that we don't poison the stream with righteous anger at the policies of either group. We have to be the fastest adapters to whatever is happening upstream and downstream, finding ways to deliver value in changing times is how we survive. If we do it really well then maybe we even thrive. Thanks for this series, it comes at a good time. Dan