The 2020 Mid-Year Economic Update_long

Marriages of Manufacturers, Distributors a Difficult Balancing Act

A few events do not make a trend. But I've noticed a few instances lately where manufacturers have bought up distribution in select markets. Examples: In July, a Swedish manufacturer of seals, Trelleborg, acquired AFM in Portland, OR, a $13-million distributor. HVAC manufacturer Carrier Corp. announced in June it was buying a $150-million distributor serving northern California and Nevada, E.B. Ward and Valair, with 140 employees.

It stirs memories of the difficult balancing act and sometimes rocky road cutting tool manufacturer Kennametal found when it operated an industrial distribution division while also managing independent distribution networks. It finally spun off its distribution units.

The reason given by Carrier for its purchase of distribution: The ...

A few events do not make a trend. But I’ve noticed a few instances lately where manufacturers have bought up distribution in select markets. Examples: In July, a Swedish manufacturer of seals, Trelleborg, acquired AFM in Portland, OR, a $13-million distributor. HVAC manufacturer Carrier Corp. announced in June it was buying a $150-million distributor serving northern California and Nevada, E.B. Ward and Valair, with 140 employees.

It stirs memories of the difficult balancing act and sometimes rocky road cutting tool manufacturer Kennametal found when it operated an industrial distribution division while also managing independent distribution networks. It finally spun off its distribution units.

The reason given by Carrier for its purchase of distribution: The acquisition of E.B. Ward and Valair will strengthen our rapidly expanding sales and distribution network in California,” said Geraud Darnis, president of Carrier Corp. “This will enable Carrier to serve our customers directly in this large and strategically important market.”

You don’t have to read between the lines to see why this strategy looks like a great idea on the surface. For a distributor, think about whether your market area might be attractive to a dominant manufacturer-supplier that might be seeing significant growth in your area. By buying a niche distributor, the manufacturer could gain direct coverage overnight. But where does that leave the distributor? Or the customer, for that matter? Too often the relationship that created the business in the first place gets mangled when a manufacturer tries to manage it directly.

This trend seems to cycle based on a combination of economic and market potentials. But it is short-sighted for a manufacturer to measure the short-term cost savings and increased revenue by bringing distribution under its roof. The history of independent distribution has repeatedly seen these marriages end up on the rocks. The intangible service qualities an independent distributor brings to the table simply can’t be replicated within a manufacturing culture. There are too many conflicts built into the different cost structures and profitability models.

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