Thankfully, in this post, I already addressed the key elements for a successful manufacturer/distributor relationship (If you haven’t seen it, you will find it very useful when you refer to it).
Unfortunately, missing one or more key ingredients will produce some trouble and even the evolution of the relationship toward a Lose-Lose.
Moreover, I have seen 5 pitfalls in the manufacturer/distributor relationship that could endanger the partnership. Although every case is different, and there are many variables to consider; identifying these areas of concern early could save the partnership.
Understanding The Counterpart Business
The biggest mistake that the parties, i.e manufacturers/distributors can make is to not understand the business of the partner.
Hence, the manufacturer should understand the distributor’s business model.
In this business model, the margin plays a key role; the distributor is keen to invest money, time, and resources; however, the product must bring a fair return on the investment. Focusing on decreasing distributor margin is a strategy that could alienate loyal partners.
Similarly, the distributor should understand the business of the manufacturer and the challenges to develop, produce and commercialize a medical device. For example, regulations evolve and become more and more demanding, putting a lot of pressure on manufacturers and consequently on distributors. Having this understanding will improve the relationship between both parties.
Open feedback
As for the human relationship, candid feedback is a foundational element of an effective and successful partnership.
For a manufacturer, building a network of distributors to develop a go-to-market strategy is a complicated task as it is for a distributor to develop a complete product portfolio to satisfy the needs of its market.
The complexity can be ameliorated if both partners work to develop a functional communication channel to provide regular feedback through a defined process. Both parties are essential and what they have to say about the counterpart is critical to the success of the partnership.
Myopic view
A myopic view is another factor impairing the relationship. The manufacturer must be very knowledgeable of the distributor sales operations to provide appropriate incentives and support. Strong commercial support is critical to a successful and durable partnership.
Marketing, sales training, marketing communication, and commercial backing are all important when using an indirect sales force; these structures of the manufacturer are costly and generate the return on the investment in the medium term. But a supplier not providing adequate commercial support is very short sighted.
The distributor on the other hand, before signing with a new manufacturer, should develop a compelling business plan. Typically, assessing the sales force size, the market coverage, and the commercial capabilities. Sometimes it is clear that the sales structure and capabilities are not sufficient to appropriately support the new product line and an investment is required.
Openness
The distributors are not really open to sharing information regarding their market since they consider the market knowledge a source of power in the relationship with the suppliers.
However, establishing trust in sharing market data should be achieved as early as possible in the partnership process.
For example, both parties should prioritize in discussing the “sell-out” (the distributor’s sales to end-customers); by analyzing this metric and not only the “sell-in.” Both companies can also obtain earlier indications of what is or is not working, enabling rapid course correction, if the commercial strategy was not optimal.
The manufacturer should share with the distributors any good or bad news having an impact on its business. This news can include data regarding supply issues, product reliability, success stories, and unsuccessful stories, quality problems, and regulatory requirements. Doing this breeds clarity and fosters a forward-thinking relationship between them.
Intermittent attention
Even when commercial strategies and tactics are effective and both parties are satisfied, problems may occur if the manufacturer and distributor fail to re-evaluate them periodically. For instance, keep in mind that the customer’s need for O.R. technical support may change.
Other challenges could arise because distributor’s sales capabilities are constantly evolving. The distributor may stop investing in a particular product line to devote resources, for example deciding to specialize part of the sales reps in a particular segment market that shows a better perspective.
The same is valid for manufacturers who can decide to focus on different geographic areas or product lines. These decisions can have a relevant impact on the support that the distributor can have from the manufacturer.
Conclusion
Indirect selling requires the development of a cordial partnership with the manufacturer and distributor at the center. Effectively executing this approach may require more time, more resources, and a larger mutual initial investment, but with the correct approach upfront, the partnership can be a major driver of long-term mutual success.
These 5 areas of concern are typical pitfalls in the business relationship between the manufacturer and distributor in medical devices. If not properly addressed these issues will lead to an unfruitful relationship and even the termination of the agreement.
Bringing the relationship to its full potential requires mutual efforts that go far beyond signing a contract and sharing the margins.
Did you see other pitfalls in the manufacturer/distributor relationship? Share your thoughts in the section below and if you like the content of this blog don’t forget to subscribe.