Secrets to Improving Manufacturer-Distributor Relationships
Historically, relationships between B2B manufacturers and distributors have been a complicated mix. Some are valuable partnerships, while others are rocky relationships seeded with mistrust. Case in point: The Industrial Performance Group finds 82 percent of manufacturers and 92 percent of distributors say profitability is suffering because of problems in their working partnerships. The entrance of nontraditional competitors, disintermediation concerns and the explosion of digital transformation have done little to ease that tension.
Becoming a Digital Distributor author Mark Dancer puts a fine point on two sides of the concern, saying, “Distributors exist to offer a market basket of supplier products to customers but fear that manufacturers would rather market directly to customers. Suppliers are dependent upon distributors for market access but often question the margins earned by distributors.”
If leveraged correctly, manufacturers and distributors can use digital technologies to grow their respective businesses and improve their relationships with each other. Dancer continues, “Digital tools will not change this tension between distributors and suppliers, but they will offer opportunities for closer collaboration when the potential for partnership is recognized.”
A Gallup study offers further incentive for manufacturers and distributors to forge stronger relationships, finding that suppliers who are knowledgeable about their distributors’ business, offer valuable ideas and help them reach their goals, developing powerful partnerships that improve performance.
Advanced analytics sales applications are one such type of tool poised to enable this positive collaboration and drive meaningful revenue and profit improvement for both the manufacturer and distributor, while mitigating the risk of disintermediation.
These applications use predictive models to analyze transaction data to uncover customer purchase patterns and create three-dimensional views for every customer-product group combination, showing what customers were buying, are buying and should be buying. The resulting output is prescriptive guidance that can be delivered to the manufacturer’s channel managers or the distributor’s sales reps showing precisely where opportunities for cross-sell exist and when end customers are beginning to defect, down to even the SKU level. These advanced analytics applications enable companies to anticipate customer needs throughout the value chain and take steps to stop customer defection before losing the end customer entirely. But don’t take my word for it. There are some fascinating use cases for how manufacturers and distributors might share their data to grow sales.
For example, distributors can share point-of-sale (POS) data, enabling manufacturers to compare the purchase patterns across all distributor channels and identify opportunities for product category expansion and where they may be underpenetrated. In other words: Get more products on distributor shelves. Using this same data, manufacturers can determine if they have retention issues and can improve their rebate and promotion services or address product quality issues. Translation: Entice distributors to do more business with them and increase end-customer satisfaction with the manufacturer’s products.
Here’s another mutually beneficial example. Distributors can benefit from manufacturers sharing the output of the prescriptive guidance solution. Manufacturers can easily generate prescriptive recovery and wallet-share expansion opportunities for the distributors’ customers and push that information to the distributor’s sales force. This can enable distributors’ sales reps to shift from an all-too-common order-taking mentality and enable them to have more strategic and valuable conversations with customers about their buying needs. When distributors know precisely which accounts should be buying more of a manufacturer’s products, they also can pinpoint selling efforts to maximize rebates from the manufacturer. End-user prescriptive sales guidance from across all of a manufacturer’s distributors can be used to create SKU-level market maps. When shared with an individual distributor, they can better discern where customers are choosing the manufacturer’s brand.
Of course, distributors might be wary of sharing transactional data with manufacturers, for fear that they might use the data to poach customers. As a precaution, there are third-party data anonymizers that scrub, clean and remove data identifiers before sending to the manufacturer. In other cases, a simple contractual agreement can prevent customer loss or data tampering. Many leading-edge companies, in the spirit of all boats rising with the tide, have already recognized the tremendous value that closer manufacturer-distributor collaboration can yield.
With these opportunities for improvement via advanced analytics, manufacturers and distributors can develop more productive relationships and better business models, ultimately leading to top-line growth for both.