Editor’s note: To help manufacturers avoid the typical pitfalls encountered when they organize and manage a Distributor Advisory Council, The Corporate Development Institute (CDI) surveyed nearly 300 distributor principals in a variety of industries to determine which manufacturers had the most effective DACs. Since distributors usually carry the lines of several competitive manufacturers, they are readily able to compare manufacturer policies, practices and councils. These same distributors repeatedly named 24 manufacturers with the most consistently well-run distributor councils. The CDI then interviewed these 24 companies to identify and describe which management practices led to their more effective DACs.
Manufacturers with the greatest Distributor Advisory Council (DAC) success begin with a well-defined purpose, values and objectives that align with the entire council. Henkel-Loctite, a leading manufacturer of industrial and household adhesives, has managed distributor councils successfully for more than 60 years and now has separate DACs in the USA, Mexico, Europe, Latin America, Japan and Southeast Asia. Loctite’s former vice president of channel management and industrial distribution, Kevin Boyle, stated, “The purpose of our distributor council is to work closer with our distributor partners to better serve the needs of users, who in turn should increase sales and profits for both of us. The cornerstone of our dedication to a council is that Loctite sees its authorized distributors as channel marketing partners first and secondly as customers. What is good for distributors is usually good for us. We learn what to do and what not to do by listening, learning and responding to our distributors. The council has caused us to modify a lot of products, programs and policies for our mutual benefit.”
With more than 60 years of experience maintaining DACs worldwide, Loctite has fine-tuned its approach to DAC management. Loctite’s global regional vice presidents are solely responsible for distributor relations. They have no direct responsibility for field sales personnel and report to a regional CEO or general manager. There are six reasons Loctite prefers full-time, dedicated vice presidents of distribution to be responsible for a DAC, instead of relying on national or regional sales managers.
- Many sales managers do not understand how distributors earn and lose revenue, nor the strategic and operating issues they face.
- Some sales managers are autocratic and more occupied with large direct sales to OEMs and end-users rather than to middlemen placing small orders.
- Most sales managers do not realize that a fiercely independent and entrepreneurial distributor principal will work with you but never for you.
- The high turnover rate in sales manager jobs hurts distributor relations.
- Sales managers of large, public companies rarely understand the challenges facing small entrepreneurial, family-owned or privately held businesses.
- Few manufacturing sales representatives appreciate that distributors have “skin in the game,” so unlike sales reps, distributors are paid only when products profitably sell. Likewise, distributor principals are not W-2 wage-earners who automatically get a paycheck deposited, regardless of performance.
The Corporate Development Institute’s research indicated the trend to have a senior manufacturing executive dedicated full-time to distributor relations is growing. These dedicated executives typically advance through the manufacturer’s organization with long careers, exhibit excellent communication and people skills, and are able to discuss delicate topics including leadership/ownership, succession planning, weak outside/inside salesforces, and potential contract cancellation. Most distributor principals applaud this dedicated approach, now employed by manufacturers including Loctite, Caterpillar, 3M, and Mettler-Toledo, known for precision instruments and delicatessen food scales.
A clear vision and purpose
Gehl farm and construction equipment, a division of Manitou Americas, posts annual sales of about $700 million and is convinced of the value of DACs. Committed to its DAC success, Gehl clearly spells out the vision and purpose of its council through five goals.
- Improve communication between Gehl and its dealers.
- Learn about customers, competitors and industry trends.
- Understand the pain points and unmet needs of end-users and dealers.
- Gain insight and suggestions from Gehl dealers on existing and new product concepts.
- Evaluate and test proposed marketing programs.
Parker Hannifin has five different DACs in the states, plus more globally. The company’s Motion Systems Group, which operates 12 U.S. divisions selling through its distributor network, has managed a highly effective DAC for the past four decades. The president of the group explained Parker Hannifin’s DAC philosophy. “Every one of our divisions needs help from distributors to sell their products. Distributor Councils are one of the best ways we know to work together in important areas which benefit users, distributors, and ourselves. Councils have been a great learning experience for us to shape policies and focus programs. The majority of our distributors’ concerns raised at council meetings result in changes.”
The general sales manager of Alcoa’s Presto Products Division has had an advisory council in place for nearly 10 years and enthusiastically touts the rewards. “When forming a new council, neither party should become discouraged after struggling through the first year or two. By working at improving their council, the results will be better with each meeting. There is nothing more important to us now than open, two-way communication with distributors about their needs and the needs of their users. Approximately 80% of the suggestions made by distributors have been acted upon. We are convinced that our council has significantly improved market penetration and profits for us and our distributors.”
Although DACs have been used by industrial companies and manufacturers of consumer goods for some time, high-tech hardware and software manufacturers are just beginning to grasp that councils can help them learn about the marketplace and strengthen distributor and dealer relations. One of the first software companies to form a DAC was Microsoft. Its dealer council has representatives from small, independent retail companies, large nationwide retailers, and specialty market value-added resellers, also known as VARs. The vice president of sales at Microsoft stated, “Our last council meeting, held near the Atlanta airport, cost us $25,000, but it was a small investment for all the tremendous amount of information the dealers transmitted back to us. It is the dealers that have their hands on the pulse of the fickle customer. We also learned about how precious floor space is to a dealer. We were going to spend a lot of money on expensive store displays only to realize that the dealers had no space to put them. The dealers also helped us determine service levels, product support and application training needs for software programs. The dealers really enjoyed the meeting. They got a chance to meet other dealers from all over the U.S. and share ideas and best practices with their peers.”
When asked to comment about the positive experiences of being part of a DAC, a high-tech computer dealer in the Dallas-Fort Worth area, operating several branch stores, said, “Our industry is full of propeller heads and rocket scientists who design new products. They’re brilliant whiz kids, but they far too often lose sight of what the customer needs. While on the dealer council of a PC computer company, these individuals get burned and stopped from pushing dogs on the retail stores. When a new product concept was presented to the dealer council, we were stupefied. It was a good idea and a good product, but it was too sophisticated. Our dealer council also suggested the need for a 24-hour, toll-free telephone number for new product introductions so dealer salesmen and users could immediately call for assistance. The council has really helped their business and ours.”
To learn more about DACs, download the full report, Build Stronger Partnerships with Distributor Advisory Councils. Based on interviews with more than 300 distributor principals, this report provides a best-practice roadmap for manufacturers and distributors on why and how to create DACS that can help supply chain partners target markets and align resources more effectively.
James Hlavacek, Ph.D., is chairman and founder of The Corporate Development Institute, a global management development company based in Charlotte, North Carolina. He has helped create and improve distributor advisory councils for a wide range of companies. He has over 40 years’ global experience as a management educator and strategy consultant, working with long-term clients such as Parker Hannifin, Lockheed-Martin’s Skunkworks, 3M, Unilever, Caterpillar, SC Johnson, Timken, Henkel-Loctite, and BASF. In addition, he has served as a board member for Fortune 500 companies and several successful venture capital startups. Previously, he served as chairman of marketing at Case Western Reserve University and director of the Institute for Executive Education at Wake Forest University’s graduate school of management. He is the author of six books and more than 50 articles.