(The following is an edited text of a speech delivered by STAFDA president Marshall Jones at the association’s recent convention in Baltimore. Jones addressed the current state of the manufacturer-distributor relationship and the path it has taken in recent years.)

I would like to first thank the association for the opportunity I’ve had to be the first son of a former STAFDA president to also serve as president. Being part of a family business gives you the opportunity for a different kind of dinner table conversation. A regular discussion topic for my father and me has been the relationship between the manufacturer and distributor. I knew very little about manufacturers as I grew up working at Marco Supply.

While in college at Texas A&M, and majoring in industrial distribution, I took a semester long course titled Manufacturer-Distributor Relations. We had a 200 page text book but what I remember most from the course was my professor characterizing the relationship as “terrible.” 

As I reviewed the speeches from past presidents, there were many references made to the relationship. In 1984, John Philipps, in a passionate speech, described it this way, "the state of the industry is a lack of communication." Ten years later, Rob Culgin quoted an Arthur Andersen survey which reported that there has "never been a time where the manufacturer-distributor relationship has been more contentious."

I called John Philipps this past summer and asked him if his words of wisdom two decades ago had worked to fix our relationship problem. His response, in characteristic John Philipps style, was, “It’s gotten worse.”

While many aspects of the manufacturer-distributor relationship have not changed significantly since STAFDA was formed in 1977, some trends are adding to the stress on the relationship today.

Many manufacturers offer much broader product lines. The necessity of growth, and their desire to become a one-stop-shop, strains the distributor's relationships with both the expanding and current suppliers.

A new reality is that many of the manufacturers in our association manufacture very little. With the speed and low costs associated with producing in China or other foreign countries, they have become "brand brokers," choosing to focus on marketing and product development instead of production. This fuels the widening breadth in their lines because they don’t have many of the hurdles they once faced, such as tooling costs, to produce a new category of product.

Since STAFDA started, another trend has caused tension in the relationship. I believe there has been a shift of power from the manufacturer to the distributor. Prior to the ‘90s, most often, the manufacturer wrote the agreements, set the policies, and told us what we had to stock. For the most part, the distributor went along with them.

Two causes of this shift in power were excess production capacity and The Home Depot. Home Depot basically rewrote the book on manufacturer-distributor agreements and now even the small independent distributor takes advantage of the shift.

To illustrate the difference, think of the old process of getting started with a new supplier. We used to have a long courtship with plenty of hoops to jump through, followed by a large stocking order. 

Today, one of our inside salespeople can usually get us set up using the manufacturer’s customer service department and order just one item to be direct shipped to our customer. All this can be done within an hour. If a manufacturer has stricter new account policies, we can get almost anything a manufacturer sells through one of the national wholesalers for close to the stocking distributor cost, usually shipped the same day, or in some cases, picked up locally.

Over the last 15 years, the swing in power has forced the manufacturer to react with new programs advertised as advantageous to the distributor, but perhaps designed to wrestle back some control.

It has often been said there is a point where every problem is large enough to see, but small enough to fix. The challenge of the manufacturer-distributor relationship has been big enough to see for a long time. I don’t claim to be the one who can solve it, but I do have some ideas.

My first suggestion is to ban the term “partnering.” What partnering really means is for manufacturers to wait to be paid until the distributor has been paid. I don’t see those terms on any of my vendor’s invoices. Partnering would be taking product back “just because.”

In 1992, STAFDA president Mike Nordberg informed us that The Home Depot was asking suppliers to work as partners. Today, when I hear a vendor describe their relationship with The Home Depot, I seldom hear glowing remarks.

Instead, I am generally told, “We really enjoy dealing with STAFDA distributors much more than the big boxes.” That comment tends to worry me because I assume it just means we pay more and receive less than the Home Depot.

The bottom line is I don’t believe either the distributor or manufacturer really want to be partners with each other.

Back in 1982, my father said, “In this industry, it is difficult for manufacturers, sales agents, and distributors to co-exist in harmony. Our jobs are different. Our functions are different. Our needs are different…. What then can we do to get together? We can start by being open with one another so that all of us know where we stand. We must take the time to clarify our positions—then communicate them and live by them.”

I think the type of relationship he describes is not that of a partnership, but could best be characterized as a supplier, and a customer. Simple, yes; but powerful when you consider it.

One company that seems to get this idea is A.Y. McDonald, a fifth-generation family-owned and managed company that has been in business for 150 years. Headquartered in Dubuque, Iowa, they use a mix of factory direct salespeople and manufacturer reps to sell their valves and fittings to plumbing distributors.

I see their ads almost monthly on the back of a wholesaler magazine and I wondered if dealing with a manufacturer could really be that easy? I called Kevin Cronin, a product manager there. He said that his customers are consolidating, there is a tremendous amount of offshore competition, and you’d find the type of product A.Y. McDonald sells in all their customers’ locations, but none of their customers could exist only on A.Y. McDonald’s type of products.

To me this sounds a lot like the scenario many STAFDA associates face. A.Y. McDonald knows the importance of differentiating themselves. They were afraid of putting the policies in writing, but they have learned two lessons from publishing them. One, they very seldom have to use those policies, and second, is how big a deal they are to the customer who needs them. Kevin consistently referred to his distributors as “customers,” not partners, throughout our conversation.

There are many manufacturers in this room who strive for the same type of relationship A.Y. McDonald has developed with its distributors. However, while preparing this speech, I was struck by the number of times I’ve been told by our employees, or other distributors, how difficult some manufacturers are to deal with.

If you are wondering which group you fall into, ask your distributors, “Are we treating you the way you want to be treated?” Listen to their needs and concerns.  Let me warn you; it may sound a lot like whining (we distributors are known for that), but if you pay close attention, you might find ways to strengthen your relationships.
 
I’m not advocating that manufacturers treat all their distributors the same. On the contrary, manufacturers should create a list of “strategic customers.” These are the folks who do the heavy lifting; they support a wide breadth and stock it deep.  When there is a new product launch, they carry the flag. These distributors may stock other lines but don’t support your direct competitors with the same fervor.

I recommend you treat the “strategic customer” radically differently than you do “an authorized distributor.” How? With substantial price differentiation, but just as importantly, there should be extra rep support and built-in protection from the distributor’s direct competitors who aren’t a strategic customer.

Pioneers should be protected, and not just for the first 60 days after a launch. To make this really work, the supplier has to shift from making purely short-term, bottom-line financial decisions to asking, what is the best way to make my “strategic customers” want to do business with me?

Another shift in thinking needs to happen with the relationship between the manufacturer and their independent sales reps. Manufacturers who use independents must start treating their reps like they would an employee. This is the only way the rep can act as a true extension of the manufacturer and treat the distributor as a customer. Too often the rep has to treat the manufacturer as the customer. This is unfortunate because it tends to leave the distributor in the cold.

There is a lot that can be done to strengthen the relationships between all three links in our chain, but I believe the manufacturer treating the rep like an employee, and the distributor as a customer, is the first step.

Our industry sure has seen plenty of threats over the years. How have we been able to weather all of those storms? The first part of the answer is our adaptability. The second reason is the special relationship with our customers for the products we sell. Just as I didn’t know much about manufacturer-distributor relationships before I entered Texas A&M, I didn’t know much about distributor-customer relationships until my time with Carlson systems in their Denver branch.

I was an experiment. The first commercial construction sales rep for a branch deeply focused on, and highly successful with, residential contractors. I inherited two customers, neither of whom had bought from us in a year. We had little commercial inventory, no support staff knowledgeable on commercial applications, or a delivery infrastructure for commercial contractors. I often wonder why anyone ever bought anything from me. (Don Carlson might point out there weren’t many who did.)

For those few who did buy, the reason was relationship. In a short period of time, I was able to develop a rapport with a group of prospects. They already had accounts with people who could supply the products I did. All of them were successfully building projects before I arrived. I simply took an interest in a small area of their product needs, or told them a joke, or brought them donuts to create a spark that ignited a relationship.

Our customers constantly remind us there is no shortage of places to get the materials we sell.  For instance, rental yards, which our customers use and who all have the products we sell. Distributors such as plumbing or electrical houses—where our customers get the vast majority of their supplies and who all have the products we sell. The big boxes—where our customers go and who all have the products we sell.

Yet we survive, and through the years, we have done even better than that. We have thrived because we develop the kinds of relationships I did and that each of you do in your market. Customers know you, trust you, and continue to count on you for the products that are at the core of our business.

I believe another factor contributing to our success is the entrepreneurial spirit found in our companies. Regardless of the generation, there is a common bond among STAFDA distributors hard to replicate in national chains.

My father described it very well in his speech when he said: “I believe our own ability to be creative and look for opportunities is more important than the economic environment in which we operate. The rewards and benefits will accrue to those who accumulate the facts, study the trends, exhibit fortitude, discipline and creativity, and most of all exercise good judgment.” 

Most of you have done just that.