Robert Vick addresses regional association meetings

One of the presenters during both the PSDA and NCWA regional conventions this year was industry veteran Robert Vick, who is vice president-business development with Legend Valve.

The crux of Vick’s message was that manufacturers should seek to provide more value -- such as higher fill rates, better customer service, customer driven policies -- and putting greater emphasis on their name brand. If not, he believes wholesalers will continue to move more toward private labeling, customer protectionism and auction buying.

Vick noted that the changes he has seen happen over many decades have led us to a crossroads that will determine the future of this industry. Vick focused on three key areas of discussion:

• The relationship between manufacturers and wholesalers -- Why we are where we are and what may lie ahead.
• Are we as manufacturers/wholesalers up for the supply chain commitment?
• Trends and issues that are changing the face of the pvf/phcp industry.

Following are excerpts from Vick’s presentations.

From early in his career, Vick “came to understand the function of the supply chain and how critical it is for manufacturers and wholesalers to work together to get the right material to the right place at the right time, error free. For our industry to work right, material has to flow smoothly and quickly down the supply chain from the manufacturer to the wholesaler to the contractor. ...

“When I first got started in this business I perceived the manufacturer’s relationship with the wholesaler to be one of a win-win relationship. There was a sense of shared prosperity between manufacturers and wholesalers. ...

“But what I didn’t realize at the time was that a lot of what I saw was happening out of economic necessity not necessarily from a desired business relationship. ...

“You have to remember that when the pvf/phcc wholesale distribution companies began to proliferate in the late 50s and 60s they desperately needed the support of the manufacturers. Manufacturers were generally much larger than wholesalers and had national recognition, while wholesalers were smaller and generally limited to a handful of local branches. In fact, many of the largest wholesaler supply houses at that time were owned by manufacturers’. ...

“In exchange for the manufacturer’s product and brand identity, the wholesalers provided the manufacturer with greater profits by assuming much of the marketing cost. Manufacturers enjoyed this relationship and the resulting position of power that it brought . And they used this power to dominate the wholesaler relationship and establish the rules of the game.

“Today the manufacturer no long has the power that they once had. The industry has changed dramatically. The seat of power has shifted from the manufacturer to the wholesaler. ...

“Wholesalers today are finding themselves empowered and independent of the traditional manufacturer’s dominance. There are numerous reasons as to why this reversal of power has taken place but the top contributors are as follows:

• The beginning and rapid growth of buying groups
• The consolidation of hundreds of independent wholesalers into a handful of mega-national companies
• Technology advancements
• The proliferation and acceptance of imported products
• The retail invasion
• Wholesalers name branding their own products
  

“I believe the changes that have taken place over my business career have brought the traditional manufacturer/ supplier relationship with the wholesaler very close to the end of its life cycle. ...

“There are two main reasons that the manufacturer and wholesaler’s traditional relationship is coming to an end:

• The wholesaler’s customers are now choosing him, not the product lines that he represents. Consequently the wholesaler’s closest relationship is now with his customers, not with his suppliers.
• Manufacturers are from Mars and wholesalers are from Venus. Basically what this means is that we have always had different approaches as to how we go about making a profit. We must recognize and manage these differences.

“We as an industry of manufacturers/suppliers and wholesalers are fast approaching a fork in the road. And the road that is chosen by both the manufacturer or supplier and the wholesaler will determine how the supply chain will be operated for decades to come. ...

“For manufacturers or suppliers, the fork leads to two distinctively different roads:

• One road is one of self protection, preserving margins at all cost, possibly even selling direct, making decisions independent of those further down the supply chain.
• The other road is just the opposite. It is one where the manufacturer concentrates solely on providing maximum value to downstream customers, adjusting his business model to meet their needs.
• “For those manufacturers that choose not to take either road, it will be business as usual and more than likely they will be left going nowhere.

“For wholesalers, the fork will either lead one of two ways:

• The first road will have the wholesalers breaking away from their traditional business model, moving more towards private labeling, auction buying and customer protectionism.
• The second road will have the wholesalers moving to a demand-driven channel with them having greater dependency on selected supply partners.

“The wholesalers that choose neither road will just idle while their competitors pass them by. ...

“Everyone has to realize that the rules of the game have changed and they aren’t the same as they were 20 years ago, or five years ago -- or even as they were last year. The rules of the game have become fluid and they are now in a constant state of change.

“For manufacturers and suppliers part of the problem is that we are no longer the captains of the industry that we once were -- even though many still think and operate as if nothing has changed. Today we compete in a world market that has become conditioned to regularly expect more benefits and lower prices.

“Unfortunately this has forced many manufacturers into a corner where they have become industry pawns in a ‘what have you done for me lately’ business environment. We have let ourselves get into this position because in the mind of the customer the value that we once provided has declined or in some cases become obsolete.

“Every day I see manufacturers’ customers -- both wholesalers and contractors -- becoming competitors through private labeling. This is not a good thing. This means that our customers think that they can do our job better than we can. And sadly this may be truer than we would want to believe. Customers becoming competitors through private labeling is not just a passing fad. It has become a standard business practice among wholesalers and even among some contractors.

“Adam Fein, who is the author of the series Facing the Forces of Change, stated that 23% of wholesalers that sell to contractors currently offer private label products. And he expects that to reach 52% by 2012. That’s just four years from now.

“There is no secret as to what we as manufacturers need to be doing. Our customers tell us everyday. They tell us to ship them what they order, delivery it when they need it, and price it competitively. We have let the importance of what we do slip away from us. The installer and owner should be asking for our product by name. If we are doing our job correctly, the selection of which brand to ship will not have to be left up to the wholesaler. ...

“The old saying that ‘products sit on customers’ shelves but brands sit in the customers’ minds’ could not be more appropriate than today. We have become an industry of order takers rather than features and benefits sellers. Consequently, it is increasingly difficult for a manufacturer to get his brand image across to the end user if neither he nor his wholesaler sells the differences. ...

“Whoever says that our industry doesn’t have its problems is not paying attention. Instead of manufacturers and wholesalers looking to each other for support we find ourselves looking inward forgetting that the other exists. But the greatest threat that I see in the future is the one that will come from taking a people business -- one built on trust and individual personal relationships -- and turning it into a self-centered, ‘every man for himself’ world. ...

“As manufacturers, we have to give the wholesaler a reason to want to partner with us. We have to provide superior value in service, brand recognition and yes, competitive pricing. Wholesalers will continue to substitute private label products for the manufacturer’s brand unless we give them a reason to want to market and sell our products.

“For wholesalers, I don’t think you can have all the cake and eat it too. You have to provide nourishment to the manufacturer in order to keep the partnership healthy. You cannot private label the all the ‘A’ items and expect the manufacturer to stay interested in supplying you just the ‘C’ and ‘D’ items. You cannot promote your private label over a manufacturer’s brand and expect him to continue with the same product training, marketing support and rebates that you have been receiving. ...

“Manufacturers and wholesalers have built a great supply chain channel on partnerships and personal relationships. We work much better as a team than we do as individual players. Let’s look to the future together and let’s let the future start today.”