Manufacturer/Distributor Etiquette: Why It Still Matters
Etiquette is defined as the rules of proper behavior in society and in professional practice, including actions among members of society or profession in dealings with others. As America moved into the early 20th century, many newcomers to the growing middle class found themselves ignorant of the rules of society. Think about it for a moment. Common folks like my grandparents found themselves moving from farms and coal camps where the possession of a fork and spoon for the whole family was a luxury to a gentile life where dinner parties featured a plethora of silver service and a half dozen plates. They had good intentions, but sometimes the right behavior perplexed them.
Enter Emily Post and a few others who dedicated themselves to advising common folk on the rules of polite society. The efforts of this small group of people did much to quell the anxieties and create a better society. We all benefited from their efforts. But in spite of all the work laid down by these pioneers, etiquette is still a hot topic. Why? Societal changes drive a need to review and revamp the rules of the past. Being an expert on 1950s etiquette does not rule out social blunders in 2015.
So what does this have to do with distributors and their supply partners? A great deal. As our industry accelerates through technology and demographic changes, we find ourselves with many new players on both sides of the distributor/supplier relationship. We direct training for supplier/manufacturer employees toward products, customer types and factory programs. Exacerbating the issue, the demographics in our industry are forcing generational interaction, so we find baby-boomers and millennials seated at the same table trying to communicate.
The chasm between partners widens; often based on simple lack of professional courtesies. Miscommunications and friction between distributors and their upstream partners are building. And, for some strange reason, nobody seems to be talking about it.
A Good Example of a Bad Example
Just a few weeks ago, I was invited to sit in on a distributor/manufacturer planning meeting. The distributor had a long relationship with the manufacturer, and even though the distributor was producing strong sales results overall, a couple of key product lines were lagging. Earlier in the year, the distributor and their supply partner had laid out an improvement plan. For all intents and purposes, the plan had been a success; measurable results pointed to a significant turnaround. I anticipated a positive working meeting to continue the efforts.
As we gathered in the conference, I couldn’t help but notice an air of nervous energy amongst the manufacturer’s people. The supplier’s local team members positioned themselves together on one side of the conference table, the distributor team members on the other (which is a topic unto itself). After a few social niceties, the supplier’s regional manager turned to the other group and bluntly stated, “We are here to understand what you are going to do for us in 2015.” After the distributor outlined 10 or so programs in place and plans to add more resources in the coming year, the regional manager said, “Good, put them on paper, and I will let you know if that’s enough.”
I couldn’t help myself; this was an expensive meeting with more than nine people in the room. I held back as long as I could but had to ask, “Isn’t this about joint planning? Shouldn’t we discuss how we can make things work as a team?” It was at that point the regional manager dropped the neutron bomb of distributor/supplier dysfunctional relationships.
“We are the ones who make the decision as to whether you are doing the right things. Don’t forget who’s in charge here. We are the manufacturer, you are the distributor. We’ll tell you if you’ve got it right.” He didn’t actually say those words, but the implication, tone and style conveyed the same meaning.
Even though the rest of the conversation was mostly productive, I wonder about the negative psychological impact that seemed to linger in the room. Armed with this bad example, let’s turn the tables and look at some examples of good professional etiquette.
We need to understand and appreciate one another’s business model
Manufacturers need to take time to understand the business model of their distribution partners. A good first step might be to analyze one of the many industry benchmarking reports (sometimes profit reports). Experience shows that many of those charged with channel management don’t realize some of the drivers associated with their business partners. To illustrate the point, recently we worked with the channel team of a major distributor and discovered that most believed the typical before-tax profitability of a distributor was in the 15 to 18 percent range when the median profitability hovered at a fraction of that level (3 to 4 percent).
On the flip side, distributors need to understand the manufacturer’s business. Distributors mostly overlook the need for factory loading, accurate projections and market share. A quick review of distributor reluctance to provide meaningful projections, current inventory levels and localized market data points to the failure of distributors to invest time and effort into their partner’s business model.
Etiquette Point: Take time to understand your partner’s business model.
Seek out education. Ask your partner to help you understand how they work and what drivers are important for the future. Look for ways to share meaningful data.
Data security is massively important
One of the stumbling blocks in distributor/supplier etiquette comes cloaked in the failure of partners on both sides to understand the need for data security. Some of the reluctance to provide information described a few paragraphs above appears because acceptable practices around data security are missing. POS data continue to be a lightning rod topic because tales of professional breaches are heard constantly.
Most distributor supply partners realize customer lists, pricing levels and ongoing buying habits are important intellectual property (IP) for distributors. Some even provide their distributors with written assurances for the use of the data, but issues still exist.
Most distributors protect themselves against loss of important intellectual property by requiring employees to sign nondisclosure and noncompete agreements. Workers leaving the distributor organization should fully expect enforcement of the agreements. And increasingly computer forensic work provides a trail to the guilty. Like the addition of a security alarm, these measures minimize data theft from the inside, but the system breaks down at the manufacturer level.
When manufacturer field salespeople and reps move down the channel into the ranks of a competitive distributor, they carry IP with them. Since this person never worked directly for the distributor, no nondisclosure or noncompete agreement exists. And, unless the manufacturer practices exclusive distribution, a better than even chance exists that the salesperson will go to work for a company with exactly the same product lineup. In the past year alone, we have seen more than a dozen instances of this happening and the manufacturer taking no steps to safeguard IP. Sensitive data fell to the competitor and created costly issues.
Etiquette Point: Manufacturers should not only sign confidentiality agreements on distributor data, they should insist their field salespeople and reps sign a similar agreement. When employees move to positions outside the company, the manufacturer should be prepared to carry out the forensics needed to ensure that no one stole IP data.
Most relationships aren’t exclusive
If you practice exclusive distribution, this probably doesn’t apply to your situation. However, there are some lessons to be learned in distributor communications. On occasion, there is a need to appoint another distributor within the territory. The needs can be tied to market segment coverage, new product expansion, an existing distributor moving into a new territory and even lack of performance with your existing distributor. Most distributors will not respond positively to these actions, but cognitively they recognize your prerogative to make the decision.
Nothing strikes anger with distributor sales managers like learning a supply-partner signed a new distributor from an irate salesperson. Nothing creates distrust with sellers more than being told a competitive distributor has offered up one of their products to an existing customer.
Etiquette Point: Manufacturers should alert existing distributors of new distributor appointments well ahead of the news going public. This practice allows the distributor to reinforce relationships with existing customers and prepare mentally for new activity.
This nonexclusive relationship thing goes two ways. Distributors often find the need to bring on new vendors and supply partners. Many distributors will disagree with me, but I believe common courtesy calls for some kind of discussion as to the purpose of the addition. It is not uncommon for distributors to lead manufacturers on for years with tales of expanding shelf space. I personally believe the practice is bad for the industry and in the longer term, bad for the distributor.
Etiquette Point: Distributors should be honest and straightforward in explaining a vendor’s position in their selling strategy.
No surprises on direct business
We all know that occasionally times come when market and competitive pressures put manufacturers in a place where they must take their business direct. Obviously, distributors hate the thought of a partner going around them, but it happens. These instances should be few and far between, but when they arise, they should never come as a surprise.
Etiquette Point: Establish and communicate the instances where sales might be taken directly. The distributor must be well aware of the circumstances and able to predict the potential action. If the distributor has invested time, effort and monetary resources in developing an account, and the situation suddenly changes, they should be compensated.
Not every point of etiquette is earth shattering
So far we’ve tackled a couple of the major blunders of distributor/supplier etiquette. If this were understood and properly executed, it would reduce much of the friction in the channel. However, there are a number of lesser points to discuss. For the sake of time, we’ll review them in rapid fire.
Respect the other guy’s time.
Etiquette Point: No manufacturer should simply drop by and expect an instant audience with the distributor’s management team.
Set training expectations.
Etiquette Point: Focus your training on selling product in the distributor’s market. Long-winded reports on the manufacturer’s efforts to create a new factory, develop an international presence or set up a new computer system should be limited to a few minutes ahead of the real training.
Joint calls aren’t all about you.
Etiquette Point: Distributor salespeople have hundreds of products to sell. Most have ongoing business dealings with their customers. Some portion of the call may involve routine discussions of products from other manufacturers.
Don’t question management policy.
Etiquette Point: Manufacturer salespeople should never question distributor policy with salespeople. If you have an issue with policy, take it to leadership.
A final word on etiquette
Obviously, this topic is huge. My notes on the do’s and don’ts of professional behavior fill a half-dozen pages. My guess is you too have an ever-expanding list of touch points on proper interaction between distributors and their manufacturing colleagues. I realize we have only scratched the surface of an immense and varied topic. I would love to hear your ideas on the subject. Shoot me an email, and if you’re mad enough, give me a call.