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Manufacturers To Distributors: We Feel Your Pain
Some surprising results from summer survey
MHEDA's Executive Committee (EC) meets every summer to conduct a high-level strategic meeting. This meeting begins the association's annual strategic planning process, which starts with a review of MHEDA's Mission Statement, followed by an environmental analysis. This analysis, or environmental assessment, includes both an internal and external look at the environment in which we operate.
Internally, the EC analyzes membership trends and activity participation as well as the association structure and function. The external assessment includes an analysis of economic trends, the general association market and the material handling industry. MHEDA's EC relies on the Manufacturers Board of Advisors (MBOA) to provide their views on industry trends as well as a general overview of what they are learning from their distributor networks.
MHEDA expanded this assessment in 2007 by asking MHEDA manufacturer members to complete a survey. Manufacturers were asked the following questions:
- What changes do distributors need to implement for success in 2008?
- What do you see as the biggest challenges/obstacles for distributors?
- What do you see as the biggest challenges/obstacles for manufacturers?
- What do you think are the top three areas in which a distributor should invest?
- Describe a best practice or investment by a distributor that resulted in better performance.
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Here is what we were told by manufacturers.
Changes to Make
To be successful in 2008, there are some changes manufacturers would like distributors to make. Twenty-one percent of respondents believe that distributor success will come from more and better training of employees, especially regarding engineered and integrated systems. One manufacturer's challenge is receiving the correct information to do a quote, and he would like to see distributor employees trained in this process. Says another, “Distributors need to become experts to the point where they can answer questions and make suggestions that cannot be found on the Internet.”
Distributors who use the Internet more effectively will experience success, say manufacturers (21%), citing Web site sales, new marketing opportunities and product listings with links to manufacturers. “Make it easy to do business,” one respondent says.
Adding product lines, particularly engineered systems, should be a focus, note several manufacturers (16%).According to one manufacturer, “Additional lines not only increase visibility in the marketplace, but also offer true margin enhancement for both the dealer and the sales staff.” Another wants distributors to put greater focus on unit sales.
Still others (16%) want distributors to focus on providing value, especially in the service area. One says, “Concentrate on satisfying fewer customers and customer support, rather than chasing the quantity of opportunities.” Referencing the opportunities of the Internet, one respondent suggests, “Distributors should have less dependence on protected territories and do more promotion of the value-add they supply. The Internet enables users to move more easily and the distributor must make the case to hold these users as customers.”
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Distributor Challenges and Obstacles
Differentiating themselves in the market and providing value were the most oft-mentioned (40%) challenges distributors face, according to manufacturers. While several advised selling on value, not price, others (20%) feel that margin compression is the distributor's biggest challenge, along with managing multiple lines of competitive equipment and developing core specialties to differentiate themselves: “Too many dealers with the same lines.” “Everybody sells the same thing. Distributors need exclusive products and protected trading areas,” says one respondent.
“Create value that customers are willing to pay for,” says another. “Distributors sell peace of mind, expertise and solutions. Become a product expert.”
Employee issues pose another significant challenge, especially maintaining qualified people who have been trained in material handling applications. “Hire good salespeople,” says one respondent. The cost of training is also a challenge. “The cost of training service technicians is an issue, along with the peripheral equipment needed to service increasingly complex units. All of this is eroding the profitability of the dealer's service department.”
Only 15% of manufacturers cite that their selling direct to end-users is a challenge for distributors. These respondents noted they must now compete against other manufacturers who have gone direct, and selling direct is a necessary part of doing business.
Manufacturer Challenges and Obstacles
Interacting with dealers was by far the number one challenge for 42% of the manufacturers, with concerns ranging from finding quality dealers to developing joint marketing programs. “We may be forced into selling direct,” says a manufacturer currently not doing so. “It's very easy for distributors to find competitive lines for any of the products they represent. The key for us is to build partnerships.”
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Low profit margins are a concern for 21% of respondents and, just like distributors, manufacturers also point to eroding profit margins and rising costs as cause for concern: “Continued overcapacity is driving down prices.” “Separation of dealers into higher performers (good) and weak performers (bad) is greater than it has ever been.” Adds another, “Too many distributors just want the cheapest products.”
Other challenges include improving response time and service, competing with foreign imports, and getting access to user accounts to support distributors.
Areas Where Distributors Should Invest
#1 People and Skill Training (42%)
#2 Technology (19%)
#3 Marketing and Advertising (11%)
Other answers included engineering talent and resources, inventory, international sourcing and lean practices.
Distributor Best Practices
This question garnered a wide range of responses, but marketing programs received the most comments (29%), from hiring marketing staff to generate qualified leads, to working with manufacturers to develop marketing programs for secondary product lines. One dealer did not wait for leads from his manufacturer, who shares this suggestion: “He went out and spent his money on pay-per-click keywords for his key products, a technique that generated 80% of his sales.”
Other examples of best practices include:
- “Purchase trailer loads of material and resell to other distributors.”
- “Develop a professional business plan and follow through with the implementation.”
- “Make decisions based on facts.”
- “Improve business process in all five profit centers.”
- “Incentivize salespeople to work harder.”
- “Change compensation scheme of senior people to place greater focus on sales.”
- “Provide exceptional service to fewer customers.”
All of the comments from manufacturers who responded to the survey can be found in this article.
