Strategic collaboration with manufacturers could be a huge driver of revenue and profit for construction-industry distributors. So why have so many given up on trying to make it work? The supplier vs distributor relationship in building and construction is at a tipping point.The rise of Amazon has meant customers can buy building materials and fittings direct from the manufacturer, freezing out the middleman. That’s led to quite a bit of bad blood, with construction material distributors feeling betrayed by suppliers they’d invested time and money in.For their part, manufacturers are finding e-commerce isn’t the path to riches that it might have seemed. With nothing much to differentiate them from competitors, they usually end up in a price war to win the sale. In an industry where margins are already wafer-thin, that’s not ideal.The customer loses out too, with no one to help them choose the right products, advise on their best use, or deliver the required materials to the right place at the right time. The goods may be cheaper, but the time, add-on costs and risk are all higher.That’s not how collaboration supposed to workContrast this lose-lose-lose situation with a scenario in which the manufacturer-distributor-customer relationship is working as it should:
As the plans roll out, construction material distributor performance data is shared transparently with manufacturers – driving further collaboration and planning, and ensuring construction material distributors are fairly rewarded for their role in growing the manufacturer’s revenue and profit.
Three types of relationship breakdownIf you’re thinking “but that’s what we tried to do, and it doesn’t work”, you’re not alone. All research and anecdotal evidence suggests that the manufacturer-distributor-customer relationship is broken – right across the industry.The relationship problems can be grouped into three different but inter-related categories:
Make way for collaborative deal managementPlenty of construction material distributors have accepted these issues as “just the way it is”. But what if it didn’t have to be? What if there were a way to get the relationship back on track, and delivering significant benefits for manufacturers, distributors and customers alike?I believe there is a way, and it comes down to something I call collaborative deal management. It involves fixing the three problems outlined above, using new technology combined with a new organizational approach to manufacturer-supplier relationships.Fixing the organizational disconnectThe organizational issue is one that Benfield Consulting highlighted in its October 2018 study of how US distributors view and use vendor funds. One of the findings is worth quoting in full:
“57% of distributors don’t maximize funds, and leave significant amounts on the table. This means lost sales, lost operating profit, and less than optimal relationships with vendors.”
One of the consultant’s recommendations is for construction material distributors to appoint a Vendor Funds Manager: a central person responsible for driving strategic relationships with manufacturers, acting as an internal bridge between Finance, Purchasing and Sales, and using a single view of contracts and deals to maximize their use and negotiate more.
A single, shared view of rebate contracts and dealsThat single view of contracts and deals can be invaluable internally for a construction materials distributor, enabling purchasing and sales to work together to maximize rebate revenues, and Finance to monitor, accrue and claim for all rebate due – with a full audit trail.(Incidentally, this is something our software uniquely enables companies to do, and distributors across the construction industry are using it to collaborate internally and claim promptly and accurately for all monies owed. Many find it pays for itself very swiftly by finding thousands of dollars of unclaimed rebate – as well as supporting more strategic conversations with suppliers.)A foundation for collaboration and profitBut the real value comes when that single view is shared with manufacturers. When both parties have a shared view of deals agreed and distributor performance against them, it creates a foundation for ongoing strategic collaboration – enabling everyone to work together to maximize margin, revenue, cash flow and profit.In an industry worth $1,231 billion annually, it’s a relationship worth saving.