Every weekday in December, tED magazine is counting down the Top 20 Stories of 2016. Below, the #20 most-viewed story of the year, originally published on May 24, 2016.
By Bridget McCrea
When Dirk Beveridge paired up with the NAED to conduct a research study on the partnerships between electrical distributors and their suppliers, he already had a pretty good idea of the feedback and comments he was going to get. What this founder of Chicago-based UnleashWD and author of INNOVATE! How Successful Distributors Lead Change in Disruptive Times, didn’t expect to see were the numerous perception gaps that seem to exist between what one party thinks about how well it’s going on the partnership front, and what the other party has to say about the alliance.
“We learned that 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,” says Beveridge. Specifically, 87% of distributors and 94% of manufacturers answered this question with a resounding “yes.”
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. “That high percentage definitely took me by surprise,” says Beveridge, who surveyed 246 NAED companies (102 distributors and 144 manufacturers) for the Reimagining Distributor and Manufacturer Relationships study.
Supply Chain Partnerships Aren’t Good Enough
Of the 246 companies surveyed for the study, a whopping 224 said the relationships that they have with their supply chain partners “aren’t good enough.” Put simply, a full nine out of 10 supply chain partners are ready to exit their current relationships and try a new approach at any given time. The news doesn’t get much better.
According to the survey, only 59% of manufacturers say that their NAED distributors have a “partnering” mindset. “Distributors have not demonstrated a spirit of partnership,” one study participant pointed out. “It’s been about what we as manufacturers can do for them. Period.”
Of those manufacturers who feel distributors do have a mindset to partner, the feedback provided via the study was largely positive. For example, one supplier said, “I think most distributors want a long-term partner—someone they can trust and someone with whom they can mutually build their business together.”
But not all suppliers are convinced that this will happen. As one manufacturer voiced, “There isn’t any underlying culture of mutual partnership. Distribution continues to battle manufacturers to gain increasing shares of manufacturers’ margins while offering little in increased benefits.”
On the other side of the equation, distributors think they’re doing a very good job of partnering with their suppliers, with 78% saying that they have the mindset to be a great partner. The same disconnect runs in the opposite direction, with just 63% of distributors believing that their manufacturers possess the partnership mindset. So, 37% of suppliers aren’t doing a very good job in this area…yet 78% believe that they are. Clearly, the “It’s not me, it’s you” mindset is in full force on both sides of the distribution partnership.
“There are very few manufacturers that are truly committed to their distributors,” one NAED member said. “They want and need volume and go to market with too many channels/distributors. Distributors can’t commit back to them until there is a mutual strategy.”
Trust is Definitely an Issue
From the study, Beveridge says he also learned that trust—or a possible lack thereof—is a big issue for electrical distributors and their manufacturers. “It’s the elephant in the room, so to speak,” says Beveridge, who attributes the trust issues to the many different disruptive trends that are currently impacting the electrical distribution business.
As a result, both distributors and manufacturers are wondering what the other is up to, what its current plans are, and what it has in mind for the future. Because many of these plans are up in the air at this point, the level of trust among supply chain partners has eroded.
“The business models are changing in ways that the industry hasn’t seen before,” Beveridge says, “and both manufacturers and distributors are looking to define the path to [success] in this new business environment.”
By the feedback they provided during the survey, NAED members appear to understand both the current environment and the need for change. As one distributor put it, “The old ways may have worked until this point, but the landscape is changing. They will not work going forward.”
Other NAED members opted to keep quiet about the overall context of the study and the subsequent results and report. “Our president is going to pass on responding because he had nothing nice to say,” one distributor said via email, after agreeing to be interviewed for this article. “I guess you have to admire his honesty.” Two additional NAED members said they read through the report but had no comment to offer for this article.
Let’s Get the Conversation Started
As he reviewed the results of the Reimagining Distributor and Manufacturer Relationships survey, Beveridge says he was surprised to learn of another clear—and disturbing—disconnect. Distributors, it seems, have very little visibility into their supply chain partners’ business models. And manufacturers have an equally clouded view of exactly how their distribution channels operate, make money, and maintain profitability. And to make matters worse, neither is very interested in raising those levels of visibility.
“They’re not prepared to understand each other’s business models. Distributors don’t really know how their suppliers make money and vice versa,” says Beveridge. “This has gone on for decades and it’s pretty jaw-dropping.”
Clearly, change is the big word that the industry needs to be thinking about as it examines the effectiveness of its supply chain partnerships and finds ways to work more collaboratively in the future. And as the industry continues to evolve and feel the impacts of various disruptions, the need for stronger bonds across supply chain partners will continue to grow exponentially.
As one NAED member put it, “I don’t have an answer other than to say we need to have conversations on the subject and start the process.”
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 email@example.com or visit her website at www.expertghostwriter.net.
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