Distributors and manufacturers continued to post strong financial growth through the third quarter of 2022, but the looming threat of a potential economic downturn has put a threat of cold water that success that most of the distribution sector has seen this year. When markets soften as they do during a downturn, surprises tend to be of the negative variety. But downturns can also open up opportunities to strengthen supplier partnerships, and distribution leaders who remain prepared amid a downturn can take advantage of such opportunities.
In our latest Quicktake podcast, MDM CEO Tom Gale and Indian River Consulting Group founding partner Mike Marks discuss key performance indicators (KPIs) in supplier relationships that can either be warning signs or chances for competitive opportunity across inventory and cash management, backlogs, support and strategic alignment.
Inventory backlogs are among the most prominent issues during a recession, as distributors often get loaded with inventory at a high purchase price, and then have to lower that purchase price in order to move the inventory when demand falls. Distributors that are able to efficiently manage their inventory at the beginning of a recession will be the ones who benefit the most during and after the recession, Marks advised, and that starts with negotiating with suppliers.
“You need to go through and do some of that negotiation now, and limit your deal,” Marks said on the podcast. “If I can limit holding inventory at the beginning, if my customer pricing gets more aggressive — because the customers then want to get some recovery from all these price increases so that all of a sudden when products available, they really push back instead of beating up their distributors again — I want to be able to go to my suppliers and have a lower purchase price because they’re desperate, too.”
Marks went on to explain that fostering trust with your suppliers going into a downturn is vital for distributors to make it through a recession and for maintaining the relationship on the other side when market conditions improve.
“I would want to be one of those distributors, that if my key suppliers want to pilot something or experiment, I want them to come to me, because they trust me, and they know that I work with them — we can both work together and collaborate,” Marks said. “And so I need to sort of reach out in advance so I’m the one in their mind. I’m on their list of people they can pilot stuff with.”
“So, be diligent about planning in terms of looking at the scenarios and all the uncertainty and imagining the directions that it could take,” Gale added. “Act quickly. And then incentivize your sales team to build the kind of strategic relationships with your supplier partners that are going to be the longer-term wins and differentiators for you.”
Listen to more of this discussion in the podcast player at the top of this article or by visiting MDM’s podcasts page, where you can also find our full library of previous episodes.