Helping Manufacturers And Distributors
Improve Sales Performance And Profitability
Published by the Industrial
Performance Group, Inc.
No. 23

A Failure To Communicate.

"What we have here is a failure to communicate," this famous line from the 1960's movie Cool Hand Luke describes the current state of most manufacturer/distributor working relationships.

Our recently completed four-year study of manufacturers and distributors revealed that high-quality communication is virtually non existent in most working relationships. In fact, two thirds, 68% of the over 2500 manufacturers and distributors who participated in this study indicate that communication between the two parties sunk to an all time low during a period known as the information revolution.

Why is Communication so Important? Communication is the sharing of information between manufacturers and their distributors. Information provides the working relationship with a sense of purpose and direction. It also provides a mechanism for the efficient allocation and coordination of resources. In the absence of information, the purpose and direction of the working relationship become blurred, decisions turn into guess work, and valuable resources are consumed by activities that waste large amounts of economic wealth - money.

In a recent E-survey of over 500 manufacturers and distributors, we identified the common problems that occur when information is not collected and shared in working relationships. We discovered that these problems are having a much bigger impact on the profitability of manufacturers and distributors than most people realize. See Executive Summary #1

Common Problems. Fixing mistakes, expediting orders, holding excess inventory, and waiting are the most common and costly problems that occur in manufacturer/distributor working relationships. The occurrence of these problems can be directly linked to the absence of two primary types of information: product-related and relationship management information.

Product-Related Information. Product-related information assures that the right products, in the right quantity, get to the right place, at the right time, in a cost-effective manner.

However, 76% of survey participants do not have access to high-quality demand information. Without access to this type of information, forecasting and inventory management become best guess estimates. This usually results in too much or too little inventory in the channel. Too much inventory drives holding costs up and too little inventory drives processing and handling costs up.

In addition, 59% of respondents indicate that they do not have access to high-quality product availability information, and 65% do not have access to high-quality delivery/tracking information.

In the absence of this product-related information, it's easy to see how the combined resources of manufacturers and distributors are being wasted on non-revenue generating activities as people look for, expedite, and then wait for inventory to get to where it is needed to meet demand. Not to mention the impact on customer satisfaction as they are forced to wait for the product they need to arrive. In addition, customers often incur the additional costs for expedited deliveries.

Relationship Management Information. Equally important, yet often overlooked, is information related to managing the manufacturer/distributor working relationship. This type of information provides purpose and direction for the relationship.

Eighty one percent of the respondents do not have access to high-quality industry/market information. Without this type of information, manufacturers and distributors fall victim to history based planning -- assuming that the future can be predicted based on what has happened in the past. As a result, they are slow to identify and respond to opportunities in the market place.

What's even more telling is that 84% of the respondents do not have access to information related to the goals and plans for the working relationship. Furthermore, 81% of the respondents do not have access to performance feedback information. In the absence of this information, conflict in the relationship increases due to the uncertainty that is created by a lack of direction and feedback. As a result, performance and profitability suffer as valuable resources are ineffectively utilized due to a lack of planning and coordination.

Manufacturers and distributors did not intend to drive their working relationships to a point where trust and communication are virtually non-existent and economic wealth is being wasted at an alarming rate. These conditions are the long-term implications of the decisions made and actions taken by both parties in the past.

Caught in the flurry of technological advances and current management fads, manufacturers and distributors have lost sight of the fact that open and honest dialogue, rather than a continuous monologue of complaints, forms the basis of a productive and profitable working relationship.

What is the solution? The solution is for manufacturers and distributors to engage in a dialog with the purpose of learning that most of the problems they have are a direct result of poor communication. One of the best forums for this dialog to take place is the distributor advisory council. However, many distributor councils are hindered by a lack of structure, ineffective problem-solving, poor decision-making, and little or no accountability. As a result, they become focused on golf and entertainment rather than on dealing with the issues that impact the performance and profitability of both parties.

To learn more about setting up or managing a successful Distributor Advisory Council, click here to request a free copy of Avoiding the Common Distributor Advisory Council Problems. This publication will help you identify and eliminate the 5 common problems that hinder the effectiveness of distributor advisory councils.

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