Often it seems as if the relationship between manufacturers and distributors has always been a topic of conversation in my 40 plus years in our industry. In the early 1950’s the concept was that privately held, smaller, but independent distributors sought a means to compete with the national and some publicly traded distributors – thus the NAPD (now IAPD) was born to pool distributor buying power, but it never happened.
By the 1990’s, the regional distributors had immense buying power on their own and even the independents had grown the size of their purchasing "pencil". It was in the best interest of the manufacturers to support the smaller independent in every way possible to keep them alive. Today that goal is even more important, since the small independents provide unique services that cannot be duplicated by the slower moving, larger national and regional players. In addition, from a manufacturer’s viewpoint, not putting all their eggs in one basket can insulate them from dependency.
The trends that affect manufacturer-distributor relationships in the electronic age:
Brought by end-users looking to cut costs, integrated supply destroyed many long time relationships as customers turned to a single distributor to supply them with products previously purchased from several distributors. Of course, the losing distributors pressured manufacturers not to grant their competitors volume-based pricing, which could be used in the general marketplace.
Consolidation – Many distributors felt the need to be bigger in order to compete for business from end-users that were turning from their local distributors to regional and then to national distributors. As distributorships were purchased, manufacturers had to evaluate whether they wanted to support the new ownership, which might carry rival lines. Since the end-user is always looking to drive down costs, distributors reactively embraced the initiative of giving in to the customer at the expense of the supplier; instead of concentrating on driving down their internal costs.
EDI - Distributors thought they had a lower cost/higher efficiency solution 20 years ago with the advent of EDI, whose intent was to streamline information and product flow with part number conformity. However, distributors did not want this conformity because it devalued their services and allowed end-users to use common codes to seek out the lowest prices. Also, standards for communications, like standards for item codes, could never be established.
E-commerce – Fortunately what EDI did not do, the internet has. The establishment of item code conformity allows distributors and manufacturers to communicate with common standards and even allow the distributor to invoice customers electronically. Thus the trading exchanges have enhanced manufacturer-distributor relations.
Supply chain collaboration – By connecting their enterprise resource systems, distributors and manufacturers become partners –tearing down communication barriers and dramatically lowering costs. It gives both parties the ability to view each other’s inventory in real time. Further, interconnectivity allows supplier updates to distributor’s pricing and delivery information saving hours of clerical work for distributors … and new products can be introduced online.
Without some of the above initiatives, both distributors and manufacturers risk being caught not meeting customer demands for high-quality service at low prices, which translates to a healthier bottom line.
Melvin (Mel) Ettleson is the Editor and Publisher of The Global Plastics Newsletter, a monthly source of news and information for management level individuals involved in the plastics sheet, rod, tube and film industry. Ettleson has over 40 years experience in the industry and holds a B.S. in Engineering from Lovell Technological Institute and an M.B.A. from NYU. He can be reached at 248-258-5657, Fax: 248-258-0851.
For more information, click on the Author Biography link at the top of this page.