December 2004              return to newsletter contents page

The Value of a Good Working Relationship

by Robert Nadeau, Managing Principal

Industrial Performance Group

Today’s business environment is more complex than ever before. Manufacturers and the distributors who represent them in the marketplace are being challenged by the globalization of markets, the emergence of new technologies, and competition from new and unexpected sources. Despite this increasing complexity, the basic issues remain the same: how to increase sales performance without sacrificing profitability.

In a survey completed in 2001, the Industrial Performance Group of Northfield, Illinois discovered that manufacturers and distributors generally agree that the old ways of doing things are no longer producing the desired results. However, this same

survey also revealed that there is a great deal of disagreement between the two parties regarding what needs to be done to respond to these changes.

As a result, in most manufacturer/distributor working relationships, it’s business as usual despite the fact sales performance and profitability steadily decline.

What causes these problems, and more importantly, why is it so hard for manufacturers and their distributors to change the nature of their working relationships?

A Lack Of Common Goals & Plans

Sales performance and profitability problems are usually the result of a lack of common goals and plans in the working relationship.

When working relationships lack common goals, the manufacturer and distributor function independently. They make decisions, allocate resources, and take action to accomplish their individual goals -- which usually have nothing to do with the goals of the other party. This results in an increase in the level of conflict in the working relationship. As the level of conflict goes up, the levels of trust, communication, and cooperation go down which severely impacts sales performance and greatly hinders their combined ability to respond to changes in the marketplace.

The second component of sales performance and profitability problems is that there is often no plan/strategy which explains how the two parties are going to work together to accomplish a common goal. When there is no plan, how can distributors be expected to know exactly what they should be doing. As a result, there is usually a great deal of confusion in the working relationship which leads to redundancies and inefficiencies which drive costs up and profits down.

Improving The Working Relationship.

Everyone talks about the importance of the manufacturer/distributor working relationship yet very little information exists on the subject. As a follow-up to their ongoing research, the Industrial Performance Industrial Performance Group has identified eight attributes that determine the overall success and profitability of a manufacturer/distributor working relationship.

They are:

1. The manufacturer and distributor share a clear and common understanding of the conditions that exist in their industry.

2. Based on that clear and common understanding, the manufacturer and distributor have developed goals that are mutually-beneficial and plans for accomplishing these goals.

3. The manufacturer and distributor are highly sensitive to the ever changing needs of their mutual customers.

4. The manufacturer and distributor have clearly defined the roles and responsibilities of each party in an effort to improve performance and eliminate redundancies and inefficiencies.

5. Action had been taken to assure that everyone involved has the knowledge and skills required to effectively perform their assigned roles and responsibilities.

6. The manufacturer and the distributor engage in high-quality two-way communication.

7. They are both strongly committed to the relationship; and

8. There is a high level of collaboration between the manufacturer and the distributor.

Taking action to improve the working relationship is hard work, but it yields high returns. Wishful thinking and a longing for the good old days are the biggest barriers to better relationships.

However, as customers continue to demand more and more from their suppliers and severe price and service warfare has become common place in most industries, a manufacturer/distributor working relationship with high levels of trust, communication, and cooperation can often be the difference between profitability and just getting by.


About the Industrial Performance Group
The Industrial Performance Group is a consulting firm that specializes in helping manufacturers and distributors increase sales volume, improve profitability, and build customer loyalty by better managing the relationships, processes, and practices in supply chains and distribution channels. Dr. Nadeau will be a speaker at AVDA’s 2005 Conference in Coral Gables, Florida. www.indusperfgrp.com 800.867.2778.