By Bridget McCrea
A recent survey on partnerships in electrical distribution revealed some alarming disconnects between manufacturers and distributors. But are we really that much different than any other industry?
According to the recent Reimagining Distributor and Manufacturer Relationships survey of 246 NAED companies (102 distributors and 144 manufacturers), 91% of participants believe there is a need for manufacturers and distributors to reimagine how they can better work together and more collaboratively.
The survey also found that a higher percentage of distributors believe manufacturers are not prepared (i.e. mindset, culture, strategies) to partner, and that the opposite is also true in that more manufacturers than distributors believe distributors are not prepared to partner. It’s clear that current mindsets, models, and methods contribute to the lack of trust between manufacturers and distributors, and that this lack of trust is the primary challenge to deep partnering and collaboration.
“There isn’t an underlying culture of mutual partnership,” one manufacturer writes. “Distribution continues to battle manufacturers to gain increasing shares of the manufacturer’s margin while offering little in increased benefits. Distribution seems to want the same margin percentages as manufacturers without all the risk such as property, plant, equipment, etc.”
Two Sides of the Coin
About 63% of NAED distributors surveyed believe that their manufacturers are “actively involved” in creating partnerships with distributors, yet 37% of all NAED distributors that enter into relationships with manufacturers believe that those relationships have little chance of becoming truly collaborative partnerships.
“There are very few manufacturers that are truly committed to their distributors,” one NAED distributor writes. “They want and need volume and go to the market with too many channels/distributors. Distributors can’t commit back to them until there is a mutual strategy.”
Long-time manufacturing and distribution consultant Tony Donofrio has good news and bad news for the electrical distribution industry: You aren’t that much different than the rest of the business world, but if you don’t do something about it soon, the negative impacts of ineffective supply chain partnerships could negatively impact your company’s chances for long-term success.
“After reading through the survey results, there’s not much here that I haven’t already heard or seen in other industries,” says Donofrio, principal and head of Argo Consulting’s Supply Chain Practice. With over 30 years in the retail, consumer products/packaged goods, manufacturing, and pharmaceutical industries, Donofrio’s previous roles include COO of Easton Bell Sports and chief supply chain officer at Sears Holding Corp.
“You can pretty much pick your industry and find a similar mindset when it comes to the manufacturer-distributor relationship,” says Donofrio, who urges NAED distributors and manufacturers to consider what their relationships would look like if they thought of themselves as a single entity. “Once I get everyone in the same room, one of the first questions I ask is: If you were a single company, how would you operate?” Donofrio explains. “Once you look at it from that perspective, the barriers start to go away and everyone becomes more focused on service, cost, cycle time, and quality (which he refers to as the ‘four components of value’).”
What Worked in the Past…
In reading through the survey results and the related comments from distributors and manufacturers, Donofrio says a number of individuals pointed out that while their partnerships may have worked up until this point, they seem to have little faith in their ability to perform in today’s business world. With disruptions like e-commerce, Amazon Business, and new threats of disintermediation lurking around every corner, the need to re-imagine supply chain partnerships has probably never been greater.
“The competitive landscape is changing and becoming more dynamic and aggressive,” says Donofrio. Where in the past it may have been easy to spot a future competitor, for example, and then make the necessary changes to go head-to-head with that threat, today’s business models and competitive threats can literally turn on a dime. And when distributors and manufacturers aren’t on the same page and/or thinking like a single, focused entity, issues like trust come into play—as evidenced by the partnership survey results.
“There are ways to move beyond a merely transactional approach to the market, but it requires creative thinking, transparency, and trust,” one manufacturer asserts. Another one says, “I think most distributors want a long term partner – someone they can trust and someone with whom they can mutually build their business together.”
Those desired levels of trust are hard to attain when distributors don’t want their suppliers to know who their end customers are, or when manufacturers divert the distribution channel and sell direct. In fact, actions like these tend to erode trust and make it even more difficult for the two entities to think like one well-oiled machine. “There’s clearly a lot of doubt, fear, and distrust in these relationships at this point,” says Donofrio, who adds that a lack of visibility (i.e., when is the order going to arrive at my distributorship so that I can get it to my end user quickly?) doesn’t help either.
“The end-to-end supply chain can be very complex, and if the systems don’t ‘talk’ to one another or have a good handshake between them, communication—and subsequently, relationships—can break down pretty quickly,” says Donofrio, who has seen this happen across numerous different industries. In other words, electrical distribution is not the only industry to face this ongoing visibility challenge.
Getting Everyone in Sync
Ultimately, Donofrio says distributors and manufacturers that want to reimagine their partnerships and create more cohesive and profitable relationships should start by establishing clear definitions for things like “service.” For example, where a manufacturer may define good service as meeting a defined ship date, the distributor may be looking at the actual delivery date.
“When these definitions are out of sync,” says Donofrio, “you start to lose those common parameters that define your relationships. Drill down further into these parameters and it’s interesting to see how differently these entities view the very basic components of running a business.”
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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 bridgetmc@earthlink.net or visit her website at www.expertghostwriter.net.
Tagged with disintermediation, Exclusive Feature, lighting, tED