Healthy Distribution Channel

Let me put my biases aside, and write this from two perspectives. I sat on the electrical distributor side of the table for the majority of my career, I also took a gigantic leap of faith 10 years ago to be one of the first to introduce LED lighting to the market.

I’ve chosen a path for our company, and that is to sell and support one channel…..electrical distribution. Going back three generations in my family, this has always been a loyal, straight forward, honest, and talent rich channel. Electrical distributors and manufacturers have generally worked well together, the majority of the business written on both sides came from this alliance.

Perhaps the largest disruption in decades, LED lighting enters the market. I look back at the first 4 years in the LED business and view it as a time wherein I did more educating than any other single task. I made wild predictions that the traditional “Big 3” lamp companies would not remain on top, and that they’d experience massive change in the coming years. I was asked to participate on a panel at Lightfair several years ago, speaking to investment professionals with Piper Jaffray. The panel consisted of executives from Philips, GE, Sylvania….and me? I was the odd man in this scenario, and I was the lone man as I disagreed with their premises on almost every point. It was a lot of fun for me, and when time had ended, I spent another hour with the audience in the hallway answering questions and explaining why I thought the market would be dramatically different in 5 years. No need to elaborate here, we’ve all seen what has happened.

The general formula for a good relationship in the electrical distribution channel is balance. The manufacturer provides products and services at a consistent and fair price; the distributor provides the access to the channel for the manufacturers, through the product, service, pricing, and wide market coverage. Both sides rely on quality product, relationships, performance, continued growth, and most importantly profitability for both. This formula can only work with one intangible, trust.

It is a healthy process, that healthy distributors engage in often, and that is evaluating your suppliers. The basics of these evaluations cover a lot of data driven discussion, and not as often is there communication with the supplier. It’s common to review turns, service, sales, profit, product issues, warranty claims, ROI, etc. Note I did not include the intangible….trust. With all of the LED lighting suppliers that have sprung up over the last several years, it may seem as if it’s murky waters. Many times we’ll see distribution try “xyz” supplier this time. Next time it might be “abc” supplier, and again it maybe “123” supplier. But is there any review of these lines, wherein a cohesive bond and trust are fostered? My experience would tell me that while Salesperson Joe may like “abc” and Salesperson Diane may like “xyz”, the only time these lines are discussed is when something goes wrong. And many times “management” doesn’t even know what companies its salespeople are buying from. The so called “Manufacturer” may, or may not be available to talk when the problem occurs. He or She is off with a new Company (or calling on another distributor or maybe no longer in the job), and out of the loop. Now the problem is in the distributor’s hands, and it’s costing them money and damaging trust with their client.

So, should those lines be reviewed? Yes! It is vital that the distributor understand the basics of working with a “new” LED lighting manufacturer. As more and more Asian companies set up businesses in the U.S. selling LEDs (lamps and fixtures), understanding their approach to business is critical. They don’t follow the typical model, they are happy to sell it direct to your customer, sell it to your competitor down the street, or sell it to the end user. They don’t care or respect the model which has existed in the electrical channel for many decades. They are not going to change their “immediate sale” mentality to foster a long term partnership model.

Here are the five questions I’d ask any new “manufacturer” wanting to do business:

  1. How long have you been in business? – If the answer is less than 5+ years, I’d be concerned on how they plan to warrant their product for 10 years?
  2. Can you give me a list of distributors you have an active vendor status with? If they can’t produce any, that’s a red flag. I’ve had many LED companies ask me, “how can you afford the insurance that these distributors are asking for?”
  3. Do you go to market through manufacturer reps? If yes, ask the agents about the company and the positioning on their line card. If no, how do they market and support the distribution channel?
  4. What is your support structure? Who do we contact for sales, project management, quotations, technical support, and warranty claims? Most of these companies don’t have infrastructure built out to support distribution.
  5. Where is your manufacturing and/or warehouse located? If the answer is anything short of brick and mortar in the U.S., how can they supply and fulfill your orders?

Not all LED lighting companies are playing on the same field, as I mentioned previously.  Most don’t understand the role of distribution, or how to support it. These are the same companies selling on Amazon Business, E-bay, Build.com, etc. The key to success is trust, and if they aren’t squarely in your corner, then there is no way that trust can be built.

Perhaps you’ll give me a call and let me earn your trust?