One of the elements of lean manufacturing is evaluating whether a task you are performing adds value to the end product—or not. If it doesn’t, the philosophy goes, eliminate the task.
The same litmus test should be applied to your business partners. In this case, does a reseller, distributor or retailer add value to your product or company? Why—or why not?
Here is a breakdown of the services you should expect from your channel partners:
Manufacturers’ reps: Reps should focus on your product and a few, complementary product lines. They should not represent competing lines. Reps should manage existing customer accounts and identify new sales opportunities. One of the advantages of a rep network is that it doesn’t require you to have a sales facility in every locale you want to reach. Territories are mostly regional, and many reps work out of their homes so there’s little overhead for your company.
Wholesaler/distributors: These are the inventory managers of your industry. Most own and operate warehouses in key regions. Overnight delivery has enabled distributors to consolidate warehousing, rather than maintain a warehouse in every region in which they sell.
Distributors may carry competing product lines to offer the broadest possible choice (“broadline” distributors) to their customers. Many distributors serve thousands of customers which can open new markets for your product. The downside is a broadline distributor can only allocate so many resources to your product, and often, the most profitable products get the most attention.
Standard distribution services include buying inventory in bulk; breaking bulk down into customer-size orders; managing consignment, just-in-time or automatically replenished inventory; generate sales leads; fulfill customer orders and often, post-sales support. Many distributors also offer technical support services, which may require manufacturer-sponsored training.
Both distributors and reps will provide manufacturers with information on sales (point-of sale or POS reports); market trends; special customer requests, supply/demand forecasts and order-scheduling. Reps and distributors frequently work together: a rep will book a sale and distributors will fulfill that sale; that way, reps don’t have to stock products. This eliminates redundancy—manufacturers don’t have to stock duplicate products in every region—so you can manage your inventory better. One downside to this: reps and distributors will split a sales commission and as a manufacturer, you may have to decide what portion of the commission goes to the reps and what portion goes to the distributor. Industry associations may provide guidelines for this kind of arrangement.