By Bridget McCrea
After surveying 246 NAED companies (102 distributors and 144 manufacturers) for the recent Reimagining Distributor and Manufacturer Relationships study, the message came through loud and clear: Both distributors and manufacturers need to put more time and effort into strengthening their supply chain relationships. With industry changes, new competitive forces, and issues like a tight labor market all taking their bottom lines, the need for this type of solidarity has never been greater or more critical. (See tED magazine article, The Great Disconnect)
“There has been a lot of focus on the topic of distributor-supplier partnerships lately,” says Maureen “Mo” Barsema, former NAED Chair. “According to the latest research, we are all concerned about what that exactly means. About 50% of a company’s partnering approach includes strategic alignment between a distributor and manufacturer, while the other 50% is a ‘tolerated engagement.’ Like it or not, this is our new business relationship model.”
By the Numbers
According to Dirk Beveridge, founder of Chicago-based UnleashWD and author of INNOVATE! How Successful Distributors Lead Change in Disruptive Times, the recent NAED study unveiled a number of supplier-distributor partnership trends. For example, 91% of distributors and suppliers believe there is a need to re-imagine how they work together and how they collaborate in today’s business environment. Specifically, 87% of distributors and 94% of manufacturers answered this question with a resounding “yes.” And, respondents almost unanimously agree that there is a need to work better together, collaborate more, and develop deeper and more meaningful value propositions for the markets, businesses, and individuals that they serve.
The question is, how can distributors and manufacturers do a better job in this area? And, how can they collaborate more effectively to combat the various forces that are threatening to disrupt their businesses? According to Beveridge, it all starts with a simple conversation. This should be an internal conversation first, he says, and it should be based on nine key points. They are:
- Are we prepared to trust each other? A lack of trust is a recurring theme across both distributors and manufacturers who were interviewed for the survey.
- Are we prepared to fully understand each other’s business models? Right now, there’s little transparency over one another’s business models.
- Are we prepared to put the customer at the center of the partnership? This is a must for any partnership to work.
- Are we prepared to look beyond efficiency for blue ocean opportunities? By definition, a blue ocean opportunity is the simultaneous pursuit of differentiation and low cost to open up a new market space and create new demand.
- Are we prepared to leverage the awesome power of data and analytics? New tools and platforms help partners work together in a more seamless, effective manner.
- Are we prepared to extend the partnering horizon? Look beyond today to determine what else (and who else) can enter the conversation and become a part of a successful, overall strategy.
- Are we prepared and capable of investing in the future? Successful partnerships don’t happen overnight.
- Are we prepared to build a market coverage strategy to maximize partnering? By working together, distributors and manufacturers can more effectively leverage their collective power.
- Are we prepared to make partnership a core competency? Put your supply chain partnerships first and the rewards will come.
After working through these questions, it’s time to bring your suppliers or distributors into the conversation. “Use the information internally, and then sit down with your channel partners and go through the work, the sweat, the process of asking and answering these questions while you’re sitting across the table from one another. If you do that, you’ll be well on your way to defining your go-forward partnering strategy.”
Put Some Elbow Grease Into it
Once you’ve taken an internal look at the key points Beveridge suggests above, and brought your channel partners into the conversation, the next step is to look carefully at whether your firm is ready, willing, and able to re-imagine its supply chain partnerships. Do you want to devote the energy to this effort? Are you willing to put some effort into understanding your partners’ business models? Can you truly commit to helping them drive profitability—sometimes at the expense of your own company’s profitability? “These are all important questions,” says Beveridge.
As indicated in the nine questions outlined above, the customer should also come into the conversation. In fact, the customer should be squarely at the center of the partnership itself. “A lot of the conversations we hear about partnering are focused on ‘driving profitability’ and ‘gaining market share,'” says Beveridge, “In reality, what companies have to do is put the customer front and center in this conversation.”
Beveridge suggests starting with two or three of your top supply chain partners—those with whom you share the highest levels of trust. Be ready to put some time into it, he says, knowing that everyone may not be on the same page when those conversations begin. “This isn’t a half-hour meeting,” he says. “Invite your partners to a half-day or full-day off-site meeting.” At the event, use the research points from Reimagining Distributor and Manufacturer Relationships (free online to NAED members here), the nine questions outlined above, and your own internal discussions to “drive deeper, more meaningful conversations about creating a mutual path to winning.”
Beveridge traces many of these challenges back to the habit of short-term thinking versus long-term planning and strategizing. “Short-term thinking leads to even shorter-term results,” says Beveridge, who also blames a lack of holistic, partnership-oriented thinking for thwarting progress in this area. “Beyond their annual joint planning meetings, distributors and manufacturers don’t take the time to define their relationships,” says Beveridge. “In many cases, this lack of process lends itself to an overall inability to form strong, lasting, mutually-beneficial partnerships.”
Starting from Square One
Barsema has seen significant shifts in the electrical distribution industry in recent years, with one of the biggest ones being the struggle to win in a game where there are more players (i.e., competitive threats) than ever before. “This forces us to consider new market approaches to drive success,” says Barsema.
For example, she says manufacturers now have several channel relationships when there used to be fewer choices, and in the same vein, distributors now have several vendor relationships. Compounding the issue, contractors now have several supplier relationships to select from. “We all ‘go around each other’ to some extent and have to respect the fact we can’t keep all of our eggs in one basket,” says Barsema.
“Additionally, more players means more ‘look a likes’ in the markets we serve, and with more diversified demand. This competition leads to price erosion, inefficient processes, confusion, and in the end, little trust.” To overcome these and other hurdles, Barsema points NAED distributors and manufacturers to resources like the “partnering heat map” (found in Reimagining Distributor and Manufacturer Relationships in the Age of Innovation, Part 1) and the group’s many different distributor and vendor score card resources (all are available online here).
“It’s up to us to define the meaning of partnership relationships with one another,” Barsema adds. “Stop wondering, and start using these tools to uniquely create, define, engage, and execute a united plan between distributor and manufacturer so that you can win together.”
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McCrea is a Florida-based writer who covers business, industrial, and educational topics for a variety of magazines and journals. You can reach her at bridgetmc@earthlink.net or visit her website at www.expertghostwriter.net.
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