Dave Baiocchi

Vendor Management-embracing mutual expectations

Posted on Nov 16, 2018 in Features

Let’s face it.  Suppliers are a requisite part of our business.  Without them, we have no product, no parts, no sales, and no profits.  We are distributors, so we need something to “distribute”.   If we choose to create those items ourselves, we then cease to be distributors, and become manufacturers.  So, a great part of how efficiently and profitably we operate, depends in great part on how well we manage our relationships with those who supply the goods and services we need to allow us to satisfy our customers. 

When we hear the words “vendor management” we usually take that to mean “vendor reduction”.  Although reducing vendors is not a bad thing, I think it’s more important to understand WHY we do business with the vendors we choose, and if those reasons are strategic, or simply convenient.  Furthermore, I feel that it is critical that we build deeper relationships with our suppliers, where both parties are committed to a long-term relationship, governed by mutual goals and objectives.

Cultivating these relationships is not as easy as it seems.  The way I see it, there are two types of supplier interactions that the dealer has to manage.  The first one is the OEM-dealer relationship.  The second is the what I refer to as the standard supplier relationship.  I want to explore both of these relationships in detail. This month we will consider how we interface with the OEM.  Next month we will tackle the broader spectrum of suppliers.

The OEM relationship

The OEM relationship is by far the most important and financially significant relationship a dealer will have.  The connection between dealers and OEM’s is symbiotic, and is affected by a series of expectations that both parties have from the outset.

The OEM expects the dealer to:

• Establish and maintain a minimum amount of market share for the products.
• Purchase a sufficient amount of inventory consistent with sales goals.
• Provide a B2B sales team to advertise and promote the product line.
• Purchase and promote the sale of genuine OEM replacement parts consistent with sales goals.
• Provide technical and field service support for end users of the products.

The dealer expects the OEM to:

• Provide durable and serviceable products.
• Provide technical data and training for dealer service personnel.
• Provide competitive and responsible warranty coverage.
• Provide reasonable manufacturing lead times.
• Offer inventory flooring programs.
• Offer competitive financial merchandising tools to help sell the product.
• Allow for a reasonable profit on both parts and equipment

Both sides have much to gain if the relationship is strong.  A well-managed OEM relationship results in a GROWING population of equipment in the market area, that serves both the dealer and the OEM by building a perpetual base of parts sales, and a respected product reputation.

A poorly managed OEM relationship on the other hand, usually stems from a lack of commitment from either party (or both).  The loss of product reputation normally begins when end users get lost in the shuffle as the dealer and OEM struggle to protect their own interests. Penalties are levied, and threats are traded.  This is the beginning of the end, and the customers can sense it a mile away. 

So how do we “manage” this relationship for the mutual benefit of both parties?  My observation over the years is that much of the OEM-dealer discord is rooted in unrealistic expectations on both sides.  Look at the expectations listed above.   I think we can all agree that both the dealer and the OEM assume that their expectations will be fulfilled, but we rarely quantify what that will mean.  Fully understanding the needs and expectations of the other party is the key to navigating a successful relationship.  We seldom do this in a tangible way. 

Look around our industry.  With a little investigation, you will find that the strongest OEM-dealer relationships exist between parties that truly understand and embrace not only the content of the other party’s expectations, but also their business philosophy, market approach and overall long-term objectives.

I saw one example of this when visiting a Toyota dealer recently.  While getting a tour of the facility, I noticed that the parts department inventory and shelving was noticeably clean, organized, properly faced, and rotated.  When I asked how they were able to keep everything so tidy, I was told that the entire dealership embraced the 5S business practice.  5S is a clean manufacturing standard used primarily by the OEM.   Here was an example of the dealer and OEM being so aligned, that they adopted these manufacturing standards into their own dealership operations.   Doing so did two things.  First, it signaled to the OEM that this dealer was committed not only to their common goals, but also to common practices.  This kind of alignment moves both parties past a simple “agreement” and moves them into a true “partnership”.   Secondly, the adoption of this practice IMPROVED the dealership!  The practice became a touchstone for employees; and a standard that everyone understood and could support.

Too many dealers don’t have this level of reciprocity with their OEM.  Too many dealers feel disconnected and disenfranchised by the practices of the OEM.  Just look at the “goal setting” process.  How many times have I heard dealer principals complain that the OEM sets their sales and parts goals without regard to their input?  Many OEM’s and dealers have to know that this process is broken.  The dealer provides all of the available historical data, and sets a goal based on what he knows about his marketplace.  The OEM then unilaterally CHANGES that goal to meet mandates created by corporate managers who have no connection to the dealer or the marketplace.  The resulting in-fighting does nothing to strengthen the alliance. 

I think we can do better.  At minimum, we can enact some strategy to improve the process for both parties. 

• Try to hit the “reset” button by having an open discussion about the list of expectations that are salient to both of your interests. Just the act of admitting that each side has specific expectations that need to be met will go a long way to building faith in the relationship.

• Understand that GOALS are seldom achieved without TOOLS. Pair expectations with programs, campaigns, specials, and financial incentives that help the dealer embrace not only the goal, but also the process.  Many dealers expect aftermarket sales to happen “all by themselves”.  We can’t afford to be that passive.  The OEM may show more pricing flexibility if dealers can demonstrate their plan to purposely accelerate their sales and marketing activity.

• Don’t ignore the elephant in the room. Many times, both sides pretend that certain inequities and obstacles don’t exist.  Neither side addresses the problem, so that both sides can maintain the status quo.  The list of items is wide and varied.  A few examples:

1. Unreasonable OEM parts prices
2. Insufficient warranty reimbursement allowances
3. Delays in addressing technical problems
4. Certification requirements

The willingness to actually address issues like this “head on” usually results in solutions that serve both parties.

Embarking on this journey to strengthen our OEM relationship is complicated, especially when we have more than one OEM to satisfy.  Representing multiple equipment lines within the dealership has become more prevalent in recent years.  Having multiple OEM expectations to manage makes this process even more important.   Every dealer should have a definable plan for each of their OEM lines.  Perhaps the choices are based on price sensitivity.  Perhaps certain lines are reserved primarily for specific industries or applications.   Whatever the case, having a strategic battle plan for each OEM you represent is necessary if you want to properly manage expectations.  Having that OEM both understand and respect your plan only helps this process succeed.  

Dave Baiocchi is the president of Resonant Dealer Services LLC.  He has spent 35 years in the equipment business as a sales manager, aftermarket director and dealer principal.  Dave now consults with dealerships nationwide to establish and enhance best practices, especially in the area of aftermarket development and performance.  E-mail [email protected] to contact Dave.