If not managed properly, conflict between manufacturers and distributors can have devastating results. There are ways to manage conflict that can actually strengthen the relationship between channel partners.

by Robert Nadeau

Conflict is a topic that occupies the thinking of a great number of manufacturers and distributors. Conflict has always existed in these working relationships. However, it has recently become a major area of interest and research by those responsible for managing relationships in supply chains and distribution channels.

If not properly managed, conflict can drive the levels of commitment, communication and cooperation between a manufacturer and its distributors to extremely low levels. This, in turn, greatly diminishes the combined ability of the manufacturer and its distributors to serve their mutual customers in an effective and profitable manner.

This article attempts to define conflict and present a new way of thinking about it. It also discusses what can be done to resolve conflict in a constructive manner.

Most people assume that all conflict is bad. They think of conflict in terms of quarreling, bickering and irrational behavior. However, there is also a positive dimension of conflict.

Harmonious and peaceful manufacturer/distributor working relationships tend to become complacent. As a result, the parties in these relationships are slow to recognize and respond to market changes.

Without some degree of conflict, their would be no innovation, no creativity, no challenges to the status quo.

The paradox is that conflict can improve a working relationship’s performance, yet most organizations spend their time and effort trying to eliminate it.

The main reason is that, as Americans, our attitude toward conflict tends to emphasis the importance of “getting along.” Often, this attitude results in manufacturers and distributors not paying attention to conflict in the hope that it will just go away.

A more realistic view is that conflict is a natural occurrence in all manufacturer/distributor working relationships. It cannot be completely eliminated and, at times, conflict may be beneficial to the relationship’s performance.

Another interesting dimension of conflict is that it need not be real to present a problem. If either party perceives that conflict exists in the working relationship, it becomes an issue.

Whether conflict has a positive or negative impact on manufacturer/distributor working relationships is determined by how it is handled by the involved parties.

What causes conflict?
Conflict occurs when the actions of either a manufacturer or distributor are perceived as a threat or barrier to the accomplishment of the other party’s goals.

For example, when a manufacturer establishes a direct sales relationship with a customer in a distributor’s territory, that distributor will more than likely perceive this action as a threat to the accomplishment of its goals.

On the other hand, when a distributor joins a buying group or takes on a competitive product line, a manufacturer will perceive this action as a threat to the accomplishment of its goals.

In a recently completed survey of 750 manufacturers and 500 distributors, Industrial Performance Group discovered that excess distribution as a result of ineffective territory management is a major concern for distributors.

On the other hand, manufacturers are concerned that distributors lack commitment to their products because distributors carry a number of competing product lines.

There are three primary causes of conflict between manufacturers and distributors.

1) Incompatible goals.

Manufacturers and distributors have two entirely different business focuses.

Manufacturing is volume-focused.

Manufacturers reap financial rewards for producing large volumes of goods. Increases in volume bring about greater efficiencies, quality improvements and cost reductions. But they also increase the need to create additional demand for these goods in the marketplace.

Distribution, on the other hand, is margin-focused.

Distributors receive financial rewards for effectively managing assets and resources. The goal of distribution is to maximize the margin on every transaction. They accomplish this by focusing on products that have good sales volumes, high margins, and low associated costs and risks.

From this perspective, it’s easy to see how the goals that a manufacturer is working to accomplish and its distributors’ goals can be very different.

For example, a volume-focused manufacturer may assume that the best way to grow its business is to increase the number of distributors that carry its products, or by increasing the size of its of own sales force.

This action increases competition for existing distributors. Increased competition brings about higher costs and risks for distributors that respond by reducing their level of commitment to this manufacturer and its products. Distributors may also shift their focus to products that have lower associated costs and risks.

This response by distributors will more than likely be perceived as a threat to the goals of the manufacturer that increased the number of distributors.

Recently completed research revealed that only 17 percent of distributors indicate that they have common goals with the manufacturers they represent in the marketplace. This is a major cause of conflict between manufacturers and distributors.

To avoid this common and costly problem, manufacturers and distributors must take action to develop goals that are customer-focused, mutually beneficial and realistic, given conditions in their industry. Once developed, these goals must be communicated and understood by everyone involved. Taking this action will go a long way toward reducing the level of conflict in manufacturer/distributor working relationships.

2) Poorly defined roles and responsibilities.

Conflict is sure to occur in any working relationship where the roles and responsibilities of the manufacturer and its distributors have not been clearly defined.

Our research also revealed that 66 percent of distributors believe that manufacturers have done a poor job of defining their roles and responsibilities.

When roles and responsibilities are not clearly defined, uncertainty and ambiguity quickly lead to redundancies and inefficiencies, which drive costs up and overall performance down.

Clearly defined roles and responsibilities allow manufacturers and distributors to effectively allocate resources (time, money and people) to the activities they must perform in order to achieve the goals they have defined for the working relationship.

To avoid this common source of conflict, manufacturers must clearly define what is expected of their distributors and what distributors can expect in return.

3) No conflict resolution process.

As stated earlier, conflict is a natural occurrence in all manufacturer/distributor working relationships. Our research indicates that most manufacturers and distributors take the traditional approach to conflict — ignore it and it will go away.

The truth is, if you ignore conflict, it just gets worse.

Conflict resolution requires a high level of communication and cooperation. Yet we discovered that in most manufacturer/distributor working relationships, cooperation levels are very low and two-way communication is virtually non-existent.

So the question is, how do you resolve conflict in manufacturer/distributor working relationships?

Establish a process or forum in which the manufacturer and its distributors can openly express their concerns without fear of ridicule or retaliation.

The manufacturer and its distributors must then work to gain an understanding of how these concerns impact each other’s businesses and organizations.

They must also identify the root causes of these concerns and develop a list of possible solutions. This is an important step since most groups tend to treat the symptoms of a problem rather than working to understand its root causes.

Once this is accomplished, the manufacturer and its distributors must evaluate and select the solution that provides the greatest benefit to both parties.

Finally, both parties must commit themselves and their resources to the selected solution. Without this commitment, neither the manufacturer nor its distributors will likely take any action.

The exact form of this process is not important. What is important is that some process is in place that is perceived to be fair by both parties.

The most common form this process takes is the traditional distributor council. However, many distributor councils are hindered by a lack of structure, problem-solving abilities, poor decision- making, and little or no accountability. As a result, they are focused on golf and entertainment rather than working to deal with real issues in the working relationships.

This article appeared in the November/December '01 issue of Progressive Distributor. Copyright 2001.

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