By Robert Nadeau, Managing Principal at Industrial Performance Group, Inc.
A strong manufacturer/distributor working relationship has traditionally been something both parties strived to achieve.
Our research shows that increased sales volume, lower operating costs and higher profit margins are just a few of the advantages that can be gained by improving the working relationships between manufacturers and distributors.
One would assume that during tough economic times, strengthening these valuable working relationships would be a high priority for manufacturers and distributors alike.
However, it appears as though some manufacturers and distributors are actually taking action—in response to current economic conditions—that is resulting in higher levels of conflict and a reduction of the flow of information between the two parties.
Will strong manufacturer/distributor working relationships become the next casualty of this extended economic downturn?
Or are they adapting and evolving into something new, different and better?
Today’s business environment is a real pressure cooker.
Prolonged economic uncertainty, intense competition, razor-thin margins and the ever-shifting sand of government regulation are just a few of the challenges faced by manufacturers and distributors.
Both parties are doing everything humanly possible to keep their businesses afloat.
The actions being taken by manufacturers and distributors in response to these challenges are in some instances, changing the very nature of their working relationships.
During the past three years, we’ve seen a number of trends emerge.
The drive for cost containment has forced companies to shed seasoned veterans, on both sides of the relationship.
These individuals truly understood the importance of solid working relationships. In addition, they had the experience, skills and desire to successfully navigate the rough waters that occur in every working relationship.
Their absence has created an environment where issues and concerns that were once quickly resolved to the satisfaction of both parties, now escalate into major points of contention. This has resulted in frustration and a breakdown in communication.
Despite sluggish markets, the pressure has increased on some distributors to maintain high inventory levels.This comes at a time when many distributors are reducing inventory levels to better manage cash flow.
The result has been an increase in the level of conflict between the two parties.
Downsizings and layoffs in the manufacturing sector have greatly reduced some distributors’ access to information and support. This greatly hinders the distributor’s ability to serve customers in their local markets. The result has been a decrease in the distributors’ level of commitment to the supplier’s product.
Downsizings and layoffs at the distribution level have greatly reduced the manufacturers’ access to local market information. This makes it extremely hard for manufacturers to do market-based planning.
What does it all mean?
These are uncharted waters for all of us.
It’s impossible to predict what the future may hold, but that doesn’t preclude us from thinking about and discussing how and why manufacturer/distributor relationships are changing and evolving.
We all need more information
In an effort to gain a better understanding of how manufacturers and distributors in the electrical industry are responding to the economic downturn, we’re posting this brief opinion survey.The results of this survey will be published.tED