The 2020 Mid-Year Economic Update_long

Candid Distributor-Supplier Discussion Creates Benefits for Both

Creation of valuable relationship between distributor and supplier eliminates disintermediation scares.
Steve-Epner-84x84

Disintermediation: It is one of the scariest words you can say to a distributor. Every few years, there is another reason to believe that the concept of distribution has run its course. The Internet was one of the latest scares that was supposed to make it so easy for manufacturers to go direct that they would cut out the middlemen. Yes, it did make it easy, but it did not replace distribution.

What keeps distribution around? Value. That is it. There is no other reason. Distributors add value. Where they do not, they do not survive.

Value comes in many different sizes and styles. There is lots of talk about adding value to the end user to justify the margins that distributors make (even if distributors are constantly complaining about how small those margins are).

One value that is often overlooked: the value the distributor provides to the manufacturer or other source of product and services.

What is distribution in the first place?

Distribution is an outsourced sales and fulfillment function. Most product developers do not have the “feet on the street” to introduce new products, create new channels, open up new opportunities or provide customer service. The distributor comes in to efficiently provide these options.

So many distributors overlook this value they add to the supply chain. This service is worth big money to the suppliers, to the importers and product developers.

Why not sell this value?

I had a client years ago that needed to differentiate the business. This client was in an industry that was having supply problems, and came to me for solutions. We wanted to find a way to hold onto customers in tight supply times, in case they could not provide enough products to meet demand.

We turned the world around. We decided to make the front end of the supply chain the most important. The first thing we did was a vendor appreciation meeting. We invited our best vendors to a meeting at a golf resort, and we paid for the golf. (That got attention.)

Then we ran a number of sessions to better understand what the vendors wanted besides sales. One thing we heard was they wanted more data on the customer base. This would cause terror in most distribution meetings. Tell the manufacturer all about who we sell to? Heresy! They would immediately take away our customers.

Then they asked for more information on selling price and margins. Heresy again! They would raise our prices because they want a bigger piece of the pie.

Well, the distributor followed through. We made more data available to the suppliers. That information was used to better predict usage, fine-tune marketing material and create opportunities to make more money for the distributor.

This approach created more of a partnership relationship, and it was amazing to watch. After the meeting when the distributor began to follow through on the requests of the suppliers, the conversations changed. There was much less conflict and more cooperation. There was an understanding of how increasing the sales margin was good for the manufacturer.

More importantly, when there was a shortage of product, who do you think got first dibs? Not the biggest purchaser, but the loyal partner.

Next time you have to think about adding value, consider looking at ways to be a more important member of the supply team. Help support your manufacturers, and they will support you.

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