Helping Manufacturers And Distributors Improve Sales Performance And Profitability • 800-867-2778 • Issue No. 51

Robert Nadeau
Managing Principal

The Future of Manufacturer/Distributor Relationships
Survey Results

Conflict has always been present in manufacturer/distributor working relationships.

Frustration, curt emails and stressful confrontations are what usually come to mind when most of us think about the word "conflict."

However, some conflict is actually necessary in a working relationship.

Positive conflict arises when there are minor disagreements about how the two parties are going to accomplish the goals they have set for the relationship. This type of conflict promotes dialogue, fosters new ideas and can lead to innovative solutions. Without positive conflict, the working relationship will stagnate.

Conflict can also be destructive

Destructive conflict occurs when either the manufacturer, or the distributor, act in self-interest with little regard for how their actions will impact the other party. Irreparable damage can be done to the working relationship if the two parties do not communicate with each other in an effort to resolve their differences.

Our recent survey revealed that during these tough economic times, where resources are tight and performance pressure is high, the level of destructive conflict has greatly increased in many working relationships.

We also discovered that communication between many manufacturers and distributors is on the decline.

What is a working relationship?

The manufacturer/distributor relationship is a complicated state of connectedness in which each party is highly dependent upon the other. As a result, the actions of one party can greatly influence the financial well-being of the other.

Our research shows that the cornerstones of a solid manufacturer/distributor working relationship are common goals and two-way communication. When both parties are working toward a common goal and communicating on a regular basis, the level of conflict is usually low. And any conflict that does exist is usually positive in nature and can move the relationship forward in a constructive manner.

In our recently completed survey of 375 manufacturers and distributors, we found that the level of destructive conflict between many manufacturers and distributors has increased while the level of communication has declined.

However, there is a small group of manufacturers and distributors who are doing a very good job of navigating their way through the turbulent waters caused by the current state of the economy.

Survey Results

Survey respondents were asked how they have responded to the prolonged economic downturn.

The majority of distributors who participated in our survey indicated they have taken action to reduce costs by eliminating employees and reducing their inventory levels. In addition, many of these distributors indicated they were also private labeling products.

The manufacturers who participated in our survey indicated they have taken action to increase sales by selling direct to end-users. These manufacturers have also taken action to reduce costs by reducing inventory levels and cutting back on the services they provide.

Private labeling products by distributors and direct selling by manufacturers can easily be seen as major sources of conflict. Will these actions taken by survey respondents lead to positive conflict that can move their working relationships forward, or will they cause destructive conflict that can do irreparable damage to their working relationships?

It all depends on how this conflict is resolved.

Conflict Resolution

The best way to resolve conflict is to increase the amount of communication.

Communication reduces uncertainty by enabling both parties to explain the actions they have taken. It also provides an opportunity for both parties to explain how they are being impacted by the actions of the other party.

However, our survey results indicate that at a time when manufacturers and distributors should be communicating more, most of them are actually communicating less.

Survey respondents were asked how their working relationships have been impacted by the actions being taken by the other party.

The majority of distributors indicated that the amount and quality of communication with their manufacturers has decreased. In addition, many distributors indicated they have seen a decline in the amount of face-to-face time they have with representatives from their manufacturers.

Manufacturer respondents indicated they have also seen a decrease in the amount of communication they have with distributors, as well as less face-to-face time with distributor principals.

Many manufacturers also indicated there seems to be less distributor loyalty.

What does the future hold for manufacturer/distributor working relationships?

Will manufacturers and distributors use this conflict to move their relationships forward? Or will this conflict drive an even bigger wedge between the two parties? That depends on how manufacturers and distributors resolve the conflict that exists in their working relationships.

Moving forward

The business challenges manufacturers and distributors face today are unlike anything they have faced in the past. Responding to these challenges will require levels of trust, commitment and communication not found in the typical manufacturer/distributor working relationship.

As I mentioned earlier, our survey identified a small group of manufacturers and distributors who, despite the tough economic conditions, have reduced their level of conflict and greatly increased their level of communication.

How are they different?

I recently had the opportunity to facilitate a two-day meeting between one of these manufacturers and a group of their distributors, and here is what I noticed.

They too have their disagreements and issues that cause conflict. However, there are a number of things that truly set them apart from the majority of manufacturers and distributors who participated in our survey.

1) The manufacturer and its distributors are both committed to the working relationship.

2) They believe - based on experience - that collaboration will always produce greater benefit for both parties than will actions of self-interest.

3) They are willing do whatever it takes to find answers to the following questions:

• What can we do collectively to increase sales?

• What can each of us do to reduce waste and inefficiency?

• How can we do a better job of collecting and sharing information with each other?

Conflict will always be present in manufacturer/distributor working relationships. Conflict can move the relationship forward or it can cause irreparable damage. The difference between manufacturer/distributor relationships that are adapting to our new economic environment and those relationships destined for further hardship, is how the two parties deal with conflict.

Additional Help

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