Study shows distributor/manufacturer relationships eroding

New research reveals that 82 percent of manufacturers and 92 percent of distributors say that deteriorating working relationships are eroding both sales performance and profitability.

This conclusion is drawn from a four-year study of more than 750 manufacturers and 500 distributors conducted by the Industrial Performance Group (IPG), a Northfield, Ill., firm that specializes in supply chain and distribution channel management.

"Called Report Card Update, this new research is a follow-up to the benchmark study Report Card on Manufacturer-Distributor Relationships that our firm completed in 1997 and released in early 1998," said Robert Nadeau, managing principal of IPG. However, the underlying reasons for the severe deterioration in communications between manufacturers and distributors are unclear, he added.

"This second phase of our research answers many questions about manufacturer-distributor working relationships. Additional input from manufacturers and distributors is called for at this point," said Nadeau. The Industrial Performance Group is currently conducting an e-survey in an effort to understand why manufacturers and distributors are not doing more to improve their working relationships. (To participate, visit www.indusperfgrp.com, and click on the e-survey icon.)

Nadeau is a nationally recognized researcher and speaker on the subject of manufacturer/distributor working relationships. Over the past 10 years, he has spoken to and worked with more than 200 manufacturers and distributors in a wide variety of industries.

For manufacturers, the biggest problem with distributors is a lack of commitment to their products and promotional programs, the study showed. Participating manufacturers also reported that distributors lack sales and marketing skills as well as the ability to effectively manage inventory.

The No. 1 problem for distributors is the ineffective or inconsistent management of territories by manufacturers, the survey showed. The result is multiple and often conflicting channels to market, including direct selling. This condition slashes the level of distributor commitment to and trust in the offending manufacturers, Nadeau said.

The research also reveals that manufacturers continue to do a poor job of providing direction for their distributors. Only 17 percent of distributors share clearly defined goals and plans with manufacturers to accomplish these goals, respondents reported.

"We found many of the same problems during the first phase of our research in 1997," said Nadeau. "However, what we now discover is that conditions in working relationships appear to be getting worse."

Nearly half, 49 percent of manufacturers, and 42 percent of distributors indicate that the level of commitment in their working relationships is very low. This represents a nine-percentage-point drop from the benchmark established in 1997.

Fifty-one percent of distributors and 34 percent of manufacturers report a low level of cooperation in their working relationships.

"This is significant in that it indicates that the level of trust in these relationships is also low, since the two are highly interrelated," said Nadeau.

However, the greatest area of concern is the extremely low level of communication between manufacturers and distributors. Sixty-three percent of distributors and 73 percent of manufacturers in the study said that high-quality, two-way communication is virtually nonexistent in the working relationships.

"Communication is the glue that holds the working relationship together, and the level of communication between manufacturers and distributors has declined significantly over the past three years," said Nadeau. "Communication between a manufacturer and its distributors provides not only direction, it facilitates the efficient allocation and management of resources in the channel. Without this sharing of information, the relationship is prone to high levels of uncertainty and conflict which severely hinder the ability to perform in a profitable manner."

The Industrial Performance Group's findings should serve as a wake-up call for manufacturers and distributors alike, said Nadeau. By neglecting to maintain their working relationships, manufacturers and distributors are forced to spend more on sales and marketing budgets while their margins get squeezed even further.

Nonetheless, IPG's Nadeau cautions that the findings should not be viewed as finger pointing at either manufacturers or distributors.

"The real message of our study is that there are tremendous opportunities for both parties to improve sales performance and profitability simply by changing the nature of their working relationships," explained Nadeau. "Some manufacturers and distributors will do a better job of using this information and in making positive changes. That's the nature of competition."

The full Report Card Update of the survey findings and an analysis of what they mean can be obtained by calling the Industrial Performance Group at 800-867-2778. E-mail requests should be directed to study@indusperfgrp.com. 

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