Our ongoing research of distributor CEOs and manufacturers has revealed a troubling disconnect between distributors and their manufacturer partners. Findings are preliminary, but while distributors are confident about the strength of their digital vision, suppliers are not convinced. This “digital divide” is important, because if the value of distributors declines, manufacturers may diminish funds allocated to distributor compensation, use digital tools to create direct customer relationships (and perhaps sales) or embrace new disruptive channels like Amazon. These outcomes are potentially devastating for distributors. While our findings do not point to a massive trend, there is traction. We see evidence of all three outcomes occurring now.
This exhibit tells the tale with dramatic numbers. The progress of distributors viewed as “the best” by suppliers is ahead of all other distributors, but still behind the self-assessed digital vision of most distributors. The numbers in your industry might be different, but in a very real sense, it doesn’t matter, because it’s not about the numbers. All partnerships are about confidence. Without confidence, partnerships diminish and fall apart. Our findings point to a coming crisis of confidence for the long-standing manufacturer/distributor partnership.
The lack of confidence among manufacturers is staggering. If one applied the 80/20 rule, meaning that 20 percent of distributors are considered “best” by any supplier, the weighted average of those distributors rated as making strong, very strong or game-changing progress would be 18 percent. Or, said differently, more than 80 percent of distributors are viewed as making little or no progress toward becoming a modern, digitally enabled business.
Ultimately, the solution for closing the divide is for distributors to follow through on a digital vision and make effective use of digital tools for improving their customer experiences as well as improving internal efficiency and productivity.
The more immediate step is for distributor CEOs to take the lead in reaching out to their best suppliers and begin to close the divide through effective and ongoing communication. Distributors must explain that they are making progress and demonstrate how that progress will benefit suppliers. Some of these communications can be completed in the context of existing joint planning or manufacturer-led account management. It’s important that distributors take the lead and share their vision, plans, progress, and importantly, data.
Digital tools enable improved connections, collaboration, consistency, convenience and speed, but the most powerful benefits are driven by gathering, analyzing and acting on new digital data. While distributors have long been hesitant about sharing customer data with suppliers, leaving data out of communications and partnering will keep a new, invigorated value chain from reaching its full potential. Business customers seek value and in today’s information age, value is proved with data. Moreover, disruptors like Amazon operate their own chain on their own terms and enabled by state-of-the-art analytics. If the manufacturer/distributor value chain does not “run on data,” it will devolve to a second-class value chain—not just in perception, but in fact.
The working title for our upcoming research report coming out this Fall is “Update on Digital Tools Progress and Strategic Solutions.” We have a lot of work ahead of us, including digging into the digital divide previewed in this blog post. We’re moving as fast as we can, but we recommend that distributor leaders get started now. Distribution-intensive markets are evolving, and distributor leaders can apply a corrected view of evolution to help ensure the strength and survival of the distributor/manufacturer partnership. In evolution, it is not the strongest that survive. Rather, it is those that are most able to adapt! All species, including distributors that are stuck in their ways are the most at risk.
To help you get started, answer the following questions as a beginning point for engaging your suppliers on digital visions, progress and partnering:
- Do your best suppliers understand your vision for how digital tools will strengthen your business?
- Do they understand how your digital progress will create new and improved benefits for their business?
- Can you prove the strength of your digital vision using data and facts that are relevant for your best suppliers’ goals and market challenges?
- As you deliver better results for your suppliers through digital tools, what will you expect (and gain) in return from your suppliers?
- Can you envision game-changing results by innovating your business model beyond that of a traditional distributor?
These questions and many others will be addressed in our new research report coming out this Fall. While you wait, please reach out to me at firstname.lastname@example.org and share your insights and questions. I’ll be happy to share what I’m learning.
About the author:
Mark Dancer, President of Channelvation, Inc., is a channel strategist and leading authority on digital transformation. He is also an NAW Institute for Distribution Excellence Fellow. You may reach Mark at email@example.com.
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