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The Chain Gang
Making trading partner relationships work
By Bob Gatty
Late last August, for the men and women at Imperial Trading Company, Inc. — and virtually everyone else in the New Orleans region -- all hell broke loose.
First Hurricane Katrina wreaked havoc, ripping most of the company’s warehouse roof away – the roof that had just been replaced and repaired to the tune of $500,000.
The massive storm made it virtually impossible for the company to operate. People couldn’t get to work. Streets were flooded, and then blocked by the authorities. Obtaining product was virtually impossible, even if there was a safe, dry place to put it.
Then, soon after temporary roof repairs were made, Hurricane Rita ripped it away again. Altogether, Imperial suffered insured losses upwards of $5 million as a result of those two storms.
Today, AWMA board member Bob Pierpoint, Imperial’s vice chairman, looks back at that horrible time almost in awe, and with no small amount of pride and appreciation.
"Ninety percent of our manufacturer suppliers were unbelievably generous and understanding in giving us the support we needed to get back to where we were before the storms," he says. "And there were even distributors – competitors – who offered warehouse space; others serviced our customers until we could get back. I am eternally grateful."
It was a catastrophic event, and if ever there was a test of the strength and viability of the industry’s partnership chain, it was then. While the importance of every link became exceedingly clear, the experience also emphasized the bitter taste that can result when partnerships fail, when competitors seek advantage when one link is perceived to be weak.
Today, many distributors report improving communication and cooperation with suppliers—indeed, stronger, more cooperative partnerships. Yes, there are grumbles about too many new product introductions or difficult circumstances with major cigarette manufacturers, but overall attitudes appear to be positive and hopeful.
If that is the case in normal times, certainly it is especially important when a catastrophe occurs, such as what struck Imperial Trading last summer and fall.
For just as companies like U.S. Tobacco, R.J. Reynolds, Hershey and Masterfoods, among others, provided extended terms, emergency shipments and performance number protections, others showed no such understanding. In fact, Pierpoint says today, a small minority of companies questioned Imperial’s credit worthiness because of its flood losses and pressed them about insurance coverage and other such details.
For a time, it was impossible for the company to provide much of the information those suppliers sought. "We couldn’t even find where our bank was," Pierpoint says, "and our insurance agent was downtown, and we couldn’t get to him."
Pierpoint reflects about the "lack of compassion" exhibited by that small 10 percent of suppliers. "We in this industry, whether we’re manufacturer, retailer or distributor, are supposedly in a partnership," he observes. "But that means what we do must be good for the entire entity. It is times like this that you find out. Is it lip service, or is it really commitment?"
Fortunately, by far the majority of Imperial’s suppliers demonstrated the latter. "There are people out there who are true partners." But, says Pierpoint, some wholesalers, sensing weakness, tried to tie up Imperial’s customers with long-term contracts.
‘It was both big and small," he says. "Some tried to help us; others tried to hurt us."
The importance of communication
The experience, he adds, emphasizes the importance of "understanding the moral basis for what we do and how we do it as an industry." The experience also points out the importance of communication among all trading partners, of getting issues out on the table, discussing them, and reaching resolution.
"It is when no one wants to meet and talk, that’s when things become ugly," he says, adding that AWMA’s Summit & Business Exchange (ABX) program, set for September 11-14 in Lake Las Vegas, NV, is a perfect opportunity for partners to discuss such issues and concerns.
"When I hear manufacturers say they don’t need to participate, I just shake my head," Pierpoint says. "I don’t know of another meeting where you as a manufacturer can go and spend 35 minutes with top distributors one-on-one in a meeting and discuss your mutual business interests. I cherish that opportunity, as do the people with whom I am associated. It allows us to further those relationships that are so important."
Some business partners will say there are no issues to discuss, Pierpoint notes. "You can’t be in business today and not have issues. You have people who want to live in LaLa Land, and then they ask, ‘where did all our business go?’"
Pierpoint knows, perhaps more than most, the importance of those partnerships nurtured through cooperation and communication; relationships that were tested and proven sound.
"The miracle (of the company’s return following the two hurricanes) was the support of the retail and manufacturer community, people who work with us here and who believe in what we are doing. I was never more proud to be part of an industry than I am today."
Surviving the storm
While it may not be a Category 4 or 5 hurricane that threatens to test the strength of today’s supply chain relationships, other less visible storms often lurk just beyond the horizon and threaten to disrupt successful business relationships between suppliers, distributors and retailers.
"I believe we need to understand each other’s business better and work toward a win-win solution," says Elvin V. Smythers, Merchants Grocery Company, Inc., Culpeper, VA. "If one of the parties is not making a reasonable profit, then it is a loss for everyone and the project will fail or die."
For Smythers, that is not just empty rhetoric. "We are currently working on projects that utilize vendor sponsorships to reward our customers, and as a result we are optimistic that our relationships with those customers will be better," he says. "In addition, we are developing better communication procedures to help us understand what we need to focus on for our customers instead of relying only on our own perceptions."
But all is not sweetness and light.
"The major area of concern would be the customers that are not loyal to any vendor and use multiple vendors for product. This type of customer is driven more on price than any service you offer or any relationship you can build through your sales representative," Smythers says. At the same time, the pressure of increased cost forces the company to spread sales reps too thin, which in turn can have a negative impact on building stronger retailer relationships.
In addition, Smythers says some suppliers have created problems by offering too many new items without keeping up with demand, resulting in out-of-stock situations that can last for months. "We feel that some manufacturers are offering too many programs without focus," he adds. "Funds are spread over too many programs and sometimes (that) doesn’t increase store presence."
Similar concerns are expressed by other distributors—as they were last year for a similar article in Distribution Channels.
Eby-Brown’s Jode Bunce says today’s relationships with both suppliers and retailers are "closer than ever as all parties involved try to maximize sales through the channel, and there is a great deal of communication on multiple levels within the organizations."
But, he says, areas of concern continue to be speed-to-market and execution on new items, order fill rates—especially during promotions or peak demand periods—accurate and timely communication of program details, follow through, the quality of representation, and "the flexibility to quickly adapt to changing and unique c-store market needs…"
"The more we understand the needs, objectives, limitations, and expectations of all parties involved, the more effective we will be," Bunce says. "Alone, we have the power of one; but when we combine and direct our efforts together, the efficiencies and positive results multiply."
Curt O’Rourke, vice president of merchandising at Eby-Brown, says some manufacturers do a better job than others of supporting new products at retail. "However," he says, "improvements need to be made involving the timing of new items, the presentation of complete program and item details at time of introduction, and the commitment to new item promotion."
He notes that new item entries are occurring so rapidly that there are often gaps in the planning process. "Important needs such as the lead times required for retail implementation, recommended planogram changes, suggested item replacements or elimination and exit plans for under-performing SKUs are not being addressed," he says.
Howard Stroud, director of merchandising/purchasing at Grocery Supply Company, Sulphur Spring, TX, concurs, noting that some major areas of concern for his company include lack of sufficient field representation due to buyouts, mergers and corporate cutbacks and exit strategies for discontinued and non-selling products.
New product lines, says Patrick Carrico, chief executive officer at Richmond-Master Distributors, Inc., are driving his company’s growth—"along with more efficient operations through communication with suppliers."
He points out that most new product lines involve general merchandise items like novelties or value-oriented goods, such as "dollar" items. "We have done a good job recommending seasonal items like gloves with a merchandiser and received good success," he says. "Other new product lines include expanded food distribution items."
Carrico sees some improvement in relations with suppliers, as does Keith Canning, vice president sales & marketing at Pine State Trading Company, Augusta, ME. "Past relationships were held a little closer to the vest," Carrico says. "In today’s world, we share a lot more sales and marketing information to find where items are selling well and where they are not. We need to not only be a distributor, but also a suggestion system to our customers on new items, new concepts and even good operational suggestions."
"Our current state of relations today with our suppliers and retailers, in my opinion, has never been better," contends Canning. "In these challenging times, everyone seems to understand that we are much more likely to survive or thrive working together than apart."
However, Carrico says planning is crucial. "Really getting out ahead of your business and having a plan on making it grow is key," he advises. "If you cooperate and make goals, everyone wins and the margin continues to support the extra business. You cannot just order each week; you need to concentrate on distribution, planogramming, and really helping to market items and concepts to our customers."
Canning says his company’s major concerns continue to be the increasing cost of doing business. "Whether it’s fuel costs or benefit costs, there are not a lot of areas that are offering ‘us’ any savings opportunities," he adds, noting that efficiency and collaboration are crucial.
Recognizing value
"I feel that suppliers are effectively communicating with us regarding new programs that are being introduced to support their products at retail," Canning adds. "With all of the consolidation that has and is taking place in the industry, it is imperative that the support continues. I feel that this is an area where traditional distributors with ‘feet on the street’ can add the most value to the equation."
The issue of value is one that also concerns Elvin Smythers at Merchants Grocery Co.
"I believe there are suppliers that recognize the importance of building better relations with distributors and many are doing that by implementing better programs and communications," he says. "I think the suppliers need to be more in tune with our needs and realize that we are as important to them as we have always been, even before the large retail chains such as Wal-Marts, Targets, etc. emerged into the marketplace."
It’s a serious issue, he says, that affects performance and success.
"The feeling of less importance and even insignificance can lead us to believe that manufacturers think they do not need our services to get their products to the market," Smythers cautions. "This attitude or perception by the wholesale distribution community can be destructive and demoralizing."
Editor’s Note: AWMA is currently conducting a study intended to quantify the value brought to the marketplace by distributors as they serve both manufacturer suppliers and their retailer customers. The results of that study will be reported at the Summit in Las Vegas in September.
Bob Gatty is a writer/editor based in Poolesville, MD. He is a regular contributor to Distribution Channels and founder of Gatty Edits
A Key Supplier Speaks Out
The Hershey Company has worked hard to establish solid relations and effective communications with distributors, and Tom Joyce, vice president, customer and industry affairs, believes the company’s relationships with distributors "has never been better."
"We’ve developed a dedicated sales team to sell to this class of trade and to service their customers," Joyce says. "If there is an issue, it is with those companies that either don’t have dedicated representation or do not have the resources to service the distributor customer base."
Joyce says Hershey has been part of AWMA’s Multi-Vendor Endcap Committee since its inception, and has worked with distributors to help them grow their business with new products, innovation and in/out promotions.
He points out that many distributors are dependent upon tobacco for a major portion of sales and profits, and cautions that "dependence on one category for your existence should be a major concern." Joyce advises distributors to grow sales and profits in other categories.
"Involvement and understanding the key drivers of their operation will help the supplier deliver the necessary products and programs to complement what the candy and tobacco distributor and c-stores need," he says. "We sometimes only focus on our category, and do not understand the impact of other categories that they rely on." He stresses the importance of attending sales meetings, trade shows, and working with distributor sales reps to gain knowledge and understanding.
Joyce acknowledges that inventory and SKU proliferation is a concern.
"We want them to stock everything we make and keep their warehouses full of product," he says. "As business partners, we need to review our product offerings at both the wholesale and retail level to assure our customers are stocking our best selling items and help them move the slower selling products."
ABX Called ‘Vital to Our Operation’
Tom Joyce, vice president, customer and industry affairs at The Hershey Company, lauds the benefits of participating in the AWMA Business Exchange Summit, to be held September 11-14 in Lake Las Vegas, NV.
"In three days you can meet with all major distributors and suppliers at a strategic level to discuss the current year and review the next year," he says. "It is a very efficient and effective way to plan and manage your business."
Distributors interviewed for this article agree.
"The ABX is a very valuable tool for us," says Howard Stroud, director of merchandising/purchasing, Grocery Supply Company. "The ABX provides us with the opportunity to conduct short-term and long strategic planning regarding new items, deletions, promotions, and other marketing and merchandising issues. This forum expedites the resolution of any further pending issues either party may have. A great venue!"
"The ABX conference is great!" says Elvin Smythers, Merchant Grocery Company. "Being able to meet with the top persons from suppliers gets the job done. This meeting creates the atmosphere to build strong relationships and partnerships. We listen to each other, and each of us welcome any issues or opportunities that arise."
"The ABX is vital to our operation as we put together programs to grow our business," says Patrick Carrico, CEO, Richmond-Master Distributors. "This gives us the opportunity to partner with our suppliers."
Jode Bunce of Eby-Brown concurs. "The ABX is great as it allows executives on both sides to discuss issues and be able to do that with several companies in one venue. It's especially good for the smaller distributors who may not get the chance to ever meet with these types of executives," he says. "As far as Eby goes, we get a lot done in these meetings."
"I feel it is very important for us to participate in ABX vendor exchange," says Keith Canning, vice president sales & marketing, Pine State Trading Company. "The interaction with the manufacturers and our peers is extremely beneficial. The agenda and atmosphere allow for meaningful discussion and insight."
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