|
For years, manufacturers and distributors
have recited the mantra that the key to happiness is found in win-win
relationships. Achieve win-win, and all your problems will be solved.
Distributors will be loyal, grateful customers who purchase more of
everything you make regardless of product quality. Distributors will
make money on every transaction with customers, so inventory management
doesn’t matter.
This attitude, fostered during the long period of post-WWII economic
growth, lasted until the mid-1970s, when maturing markets, a slowing
economy and competition from imports began to change the business
landscape. By then, a false sense of security had taken hold at all
levels. Retailers, distributors and suppliers felt they did not have to
earn the business, they were entitled to it.
A new book published by the Distribution Research and Education
Foundation (DREF) of the National Association of Wholesaler-Distributors
argues that win-win is a dead concept, replaced by the Law of Legitimate
Cross-Purposes. In Working at Cross-Purposes, How Distributors and
Manufacturers Can Manage Conflict Successfully, authors Mike Marks, Tim
Horan and Mike Emerson of the Indian River Consulting Group make the
case that manufacturers, distributors and retailers all have different
goals, different stakeholders and different business purposes. “The
mistake is when any one party believes that loyalty is anything more
than the lack of a better alternative. Successful distributors and
suppliers realize that there is always a better alternative.”
The Law of Legitimate Cross-Purposes
The authors point out that suppliers and distributors derive profit in
different ways that can generate conflict. “A supplier makes money by
achieving high levels of plant capacity utilization,” they explain. A
distributor, on the other hand, “makes money by getting a large share of
a customer’s total spend with multiple suppliers and customizing the
service provided for that customer to create competitive advantage.” The
authors conclude that, for distributors, “The customer relationship
often represents a much better long-term investment than the
relationships with suppliers being represented at any point in time.”
This doesn’t mean, however, that distributors and their suppliers seek
each other’s demise. It is in both parties’ best interest to promote
stability in the channel. It is just that neither party wants the other
to succeed at the other’s expense. The authors offer some helpful tips
on how to operate in a world of legitimate cross-purposes:
-
Understand that cross-purposes are
good, they should exist, and they keep people on their toes.
Channels don’t exist in a vacuum, nor do manufacturer-distributor
relationships. If a supplier allows a distributor to operate with
higher-than-industry margins, eventually that supplier is going to
go away because it cannot be competitive.
-
Be upfront about the existence of
conflicting purposes. A distributor’s relationship with a
supplier should go beyond the local rep; he should build
relationships at all levels of the organization. (PIDA’s Executive
Conference program is designed to foster direct dialogue between
manufacturers’ and distributors’ top management.)
-
Distributors and suppliers should
recognize their niche, and not try to be all things to all people.
Suppliers are realizing that they are better off focusing on their
core competencies and are allowing distributors to carry
complementary products.
-
Spend time helping your partners in
the channel know how you make money. Suppliers care about
distributors as long as the distributors add value in terms that are
meaningful for suppliers. Sometimes you have to show in pure,
unadulterated terms that there is an economic benefit.
-
Recognize there is a fine line
between complementary and competitive. High performing suppliers
are willing to help their distributors find complementary lines,
thus avoiding competing lines.
-
Don’t overreact to Minor But
Aggravating Issues (MBA’s). High performers intuitively
understand how to determine which issues are important and which can
be ignored.
The authors conclude that loyalty in the
manufacturer-distributor relationship is an economic term. “Loyalty is
measured by the trading partner’s willingness to endure a bad short-term
economic outcome to preserve a long-term valuable economic outcome. It
is really all about economic alignment.” Manufacturers and distributors
that expend effort on becoming aligned, and that stop trying to create
win-win relationships, end up creating an environment of trust,
communication and growth.
Mike Marks, co-author of Working at Cross-Purposes, is a featured
speaker at the AVDA Annual Conference, April 29 – May 1, 2007 in
Savannah, GA. Registration information for the meeting can be found on
the AVDA website, www.avda.net.
|
|
