Speaking at this year’s AIM/R conference last April, a manufacturer spoke of a dilemma shared by many of his counterparts in describing Ferguson as “our biggest customer and our biggest competitor” - referring to the distribution giant’s line of private label goods.
Another topic brought up at that session was the inevitability of line conflicts among rep agencies as they and their principals keep consolidating. Years ago no manufacturer would tolerate keeping a rep that sold directly competing products. Now, in many cases, they have little choice but to bite the bullet.
These two otherwise unrelated subjects point to a tectonic shake-up at all levels of the PHCP distribution channel. Consolidation and other forces are compelling people to accommodate business practices that used to be unacceptable.
One of the first upheavals was the trade-sales-only policy that used to be held sacred by many of this industry’s distributors. In many markets you can still find one or two that still abide by it. Mainly, they are small independents who have made that their niche and survive largely because of it. Nonetheless, contractors for the most part have resigned themselves to the fact that many of their favorite supply houses sell to the public and/or to competing retail outlets. They don’t even get their dander up as much as before over declining price protection. If they did, those remaining trade-sales-only supply houses would be giants in their markets instead of niche players.
Distributors for their part used to get so worked up over rep warehouses that many rep firms that operated one tried to hide it. Some would obtain property for that purpose in out-of-the-way locations. Now many distributors recognize the advantage of having product quickly available that they don’t have to pay for until sold, and have come to rely on the backup inventory in rep warehouses. This interest generally trumps the fear of reps “selling around” them, which has always been more of an urban legend than reality.
Also gone by the wayside is the old taboo against reps making sales calls on wholesaler customers. Many distributors used to insist that reps make “missionary” calls only when accompanied by one of their own salespeople. That’s dissipated largely as a practical matter since most distributors don’t employ as many outside sales reps as before, and the ones that remain have better things to do with their time than traipse around as watchdogs.
Manufacturers have had to make their own accommodations to today’s business realities. They aren’t exactly happy about distributor house brands or reps selling rival product lines. For the most part, though, they respond maturely in accordance with their best business interests. They may be disgusted at the private labeling by their customers, but not enough to turn their backs on the business they still get from those distributors.
When it comes to rep line conflicts, manufacturers used to have the option of turning to hordes of small, hungry independent reps salivating for a chance to pick up attractive lines. Now it’s virtually unheard of for a major line to be repped by anything but a large organization able to deliver ample marketing and service support. Manufacturers still have the option of turning to a captive factory sales force, yet it’s a tribute to the value of independent reps that only the largest manufacturers tend to have the economies of scale to make that option attractive. The result is a crazy-quilt pattern of territorial splits around the country with agencies representing different lines within different boundaries. This may drive bookkeepers batty, but manufacturers take the long view and try to continue working with reps who have a track record of superior sales and service, even if there are a few conflicts in the package.
“Who sells what to whom” was never a moral issue, although that’s how it usually gets framed by parties squeezed out of a sale. What’s important to keep in mind is that this industry’s distribution channel does not exist to enrich its constituent business entities. That’s the result if everyone does their job well, but the channel evolved to best serve the needs of the final customer. It’s all about delivering the goods end users need in the most efficient and cost-effective way.
The PHCP distribution channel used to be like a checkers game with only red and black pieces, governed by simple rules and movements. Today it’s more like chess with a wider variety of pieces and endless ways to maneuver. But as long as everyone continues to serve the best interests of the final customers, all the channel’s players can prosper.
