Managing channel conflict with extended supply

Since the early 90s, the trend in mid and large size B2B companies has been to consolidate their decentralized procurement groups and streamline their supply chain operations optimizing their buying power, supplier relationships and of course, reduce cost. This optimization typically lends to procurement group/s purchasing product and services for multiple ship-to locations.

As a result, these companies are finding benefits in working directly with manufacturers (vs. Marketplaces and Distribution Channels).

Why? Well consider these seven common business drivers:

1. Managed Service

Companies are trending toward a single managed service that understands their business, builds confidence and trust, and is successful when they are successful. They provide a single point of accountability for their products, services and how they are fulfilled. This helps their customers optimize their supply chain while being easier to do business than the competition.

2. Consolidated Transactions

Imagine having to order the same product for multiple locations. And to get the products delivered on schedule, must coordinate multiple orders with different Distributors closest to each ship- to location. And then be invoiced by each of those Distributors. Turning what should have been a single order into multiple order and invoice transactions leading to higher administration and transaction costs.

3. Quality Information and Data

Working with multiple Distributor or Dealers, the risk of inconsistent product information and data is higher than working with a single point. In addition, Distributors and Dealers may not provide visibility to the manufacturers full product offering. Accountability for data quality and completeness is greater with the manufacturer and leads to a reduction in customer returns, cancellations and exchanges.

4. Consistent, Fixed Pricing

Most mid to large size B2B companies are looking for yearly fixed pricing contracts from their manufacturers that allow for stable forecasted cost. This can be difficult at times when dealing with variable price marketplaces or multiple Distributor locations offering their own promotions. Remember, these customers still have one procurement system where they can only manage one price per product. Invoice reconciliation with negotiated contracts lead to increased costs and channel pricing conflict. In some cases, the customer is even willing to pay more for a product just to obtain consistent pricing.

5. Transparent Inventory

As part of optimizing their supply chain, having product delivered on schedule is part of the equation. Having to follow-up with multiple Distributors or Dealers is costly. These customers want someone to manage their demand in a fashion where they do not need to be concerned about where the product is being shipped from, just that they are receiving it when they need it. In some cases, they are even looking for consignment. But, that is a future article.

6. Continuous Improvement

When these companies enter a long-term pricing contract with a manufacturer, they usually are also looking for a value proposition beyond a buying decision solely based on price. Even when Maintenance, Repair and Operations (MRO) or commodity type product are the focus of the relationship. They are looking for the manufacturer to keep them abreast of advancements in their product and how they can be leveraged to their full extent obtaining the highest ROI and benefits that can be achieved. A manufacturer can coordinate this with their extended enterprise of channel partners in making sure this is achieved.

7. Integrated Systems

To streamline the supply chain, larger companies are looking for real-time integration of their buy-side procurement and purchase requisition solutions with their suppliers sell-side eCommerce solutions.  Integrating with the manufacturer verses each of its Distributors (or having them integrate with them) lends to a greater number of integrations and associated IT cost that needs to be managed.

If you are experiencing this or hearing any of the above from existing or potential Corporate/Named Accounts, then read on…

Sell Direct without Channel Conflict

Channel conflict has always been a significant concern for Manufacturers considering selling direct. Especially those operating under a limited distribution model where sales regions are established for each Distributor or Dealer. Selling direct circumvents sales territories and is in direct conflict with limited distribution agreements. The impact may seem lower for mass distribution models allowing channels to sell anywhere. However, selling direct still threatens the heath of these channels impacting product price points, related margins and brand loyalty. So, this leaves many B2B Manufacturers searching for approaches to address these direct requests while reducing channel conflict.

So, what should I be considering if I am one of these Manufacturers?

What is an “Extended Supply” Model?

Extended Supply Models allow for a Corporate or Named Account to submit a single order to a manufacturer’s agile Ecommerce solution (verses their Enterprise Resource Planning solution, aka ERP). Orders can be submitted manually through a B2C-like ecommerce experience, uploaded from a file, integrated via web services or traditional EDI. There are many manual and automated integration approaches that can and should be offered to support different types of customers.