Manufacturer and distributor relationship

manufacturer and distributor relationship

With concerns over supply chain stability, manufacturers and their distributors must work together. pdl-inc.info's Mike Keating illustrates steps. The Benefits of Brand Portals in Manufacturer-Distributor Relationships You may love one, both, or even neither; but, most of us can agree that. Building a manufacturing enterprise takes more than focus on equipment, process, & products. It requires building relationships with.

Socialization occurs when there is only tacit knowledge exchange. On the other hand, knowledge creation, identified as internalization, is present when the existing explicit or formalized knowledge creates new tacit knowledge. In this case, internalization is present in activities like learning-by-doing, training and exercises.

The processes through which firms organize and transfer knowledge are the most valuable in understanding the nature of the relationship between the manufacturer and other partners, like distributors J. Routine visits are used by firms to create and transfer tacit knowledge among them, because these allow organizational members and other external partners to share experiences, express their problems, and learn better ways to perform tasks J.

At the same time, there are also other forms of knowledge creation and transfer, such as formal meetings, negotiation processes, formal training sessions, and informal interactions, among many others. As a result of these interactions, Modi and Mabert showed that knowledge transfer throughout the supply chain may improve performance. Li, Liu and Liu found that co-operative activities improve knowledge acquisition by the manufacturer from the distributor. Thus, Frazier stressed that, as distributors play a central role in generating sales for manufacturers, the latter should transfer an amount of tacit, explicit knowledge on products and their benefits, and "encourage intermediate persons to process and integrate such knowledge to enhance their capabilities" Frazier,p.

Model Development and Hypothesis The proposed theoretical model is based on the organizational knowledge approach. It considers that the manufacturer relies on the distributor to sell its products. The presence of asymmetric information between seller and buyer or manufacturer and distributor may influence the second to behave opportunistically, diverging from the manufacturer's goals and increasing the need for monitoring by the manufacturer.

Manufacturer-Distributor Relationship 101

However, by monitoring the performance of the distributor, the manufacturer becomes involved and interacts with the distributor in order to ensure the proper development of tasks by the distributor Y. Zhou, Zhang, Zhuang and Zhou showed that relational governance combines relational norms and collaborative activities.

This interactive process, in turn, helps the knowledge transfer processes from the manufacturer to the distributor, which may increase the knowledge base of the distributor and improve its performance. Knowledge-sharing activities between manufacturer and its distributors can be an important factor affecting overall supply chain performance, as found by Hult, Ketchen and Slater in their study about how information-sharing and face-to-face discussions can improve supply chain performance.

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Figure 1 illustrates our proposed model. The reasons are explained by certain activities that demand investments and efforts, and are not perceived as useful or worthwhile by the distributor. At the same time, the manufacturer can invest in activities, such as monitoring the distributor's performance or training its team Y. In the case of the manufacturing-distributor relationship, the manufacturer can be viewed as the principal actor and the distributor as the agent.

Although the manufacturer and the distributors share the same goal of maximizing sales of the manufacturer's products and the distributors may diverge in the way that these products are sold.

In this case, for example, distributor may "carry insufficient inventories of the manufacturer's products, carry and promote competing products, set prices above or below the preferred range, advertise and promote the product inappropriately, train sales personnel improperly, fail to provide after-sale services, etc. In both cases, monitoring distributor performance may be a required activity conducted by the manufacturer to ensure proper distributor behavior, especially in the case of intensive technology products, which incur high investments in production and distribution.

This monitoring activity gathers information that can be used to qualify distributors in a close-looped process. In this aspect, knowledge transfer is central. It implies a constant process of evaluation and feedback between manufacturers and their distributors, maintaining the information flow between the companies involved in this process and stimulating information-sharing behavior.

Monitoring distributor performance helps manufacturers to keep track of flaws in distributor activities related to the product and consequently to prepare actions to deal with those flaws. A next step in performance evaluation is cooperation. Cooperation helps to develop trust and at the end to improve performance Huemer, Tacit knowledge acquisition Tacit knowledge acquisition is dependent of the activities conducted by manufacturers that require interaction and direct involvement with their distributors.

Lloria and Peris-Ortiz stated that network configuration influences knowledge transfer. Within this focus, Tseng showed that manufacturer's knowledge capability, supplier relationship management and corporate performance are related. Similar situations may occur when the relation between manufacturer and distributors is explored.

Influenced by lean management andkeiretsu configuration, transferring employees between companies is a common practice in Japanese organizations. This practice seeks to create a supply chain identity and mechanisms for knowledge transfer from manufacturers to suppliers. As an example, Toyota transferred more than employees per year to the suppliers throughout the 90s J. Toyota also employs this practice with its partners through monthly meetings in order to allow a knowledge transfer that includes dissemination of the best practices among the plants J.

As suggested by Siguaw, Baker and Simpsona good relationship with distributors may increase distributor commitment and trust.

manufacturer and distributor relationship

Thomas, Thomas, Manrodt and Rutner showed that an increase in levels of interdependence between manufacturers and suppliers might increase information exchange, communication quality, and operational knowledge transfer activities.

Such interactions allow transfer of good practices from the manufacturer to the distributor J. Performance monitoring is positively associated with tacit knowledge acquisition by distributors from the manufacturer. Explicit knowledge acquisition The definition of explicit knowledge acquisition is related to the activities developed by the manufacturer to formally transfer information and knowledge to the distributor.

These activities can be formal long-term technical courses, short training sessions, sales promotion campaigns to educate the distributor's sales team, and all other forms of formal educational programs. These programs can be viewed as explicit knowledge transfer mechanisms, since knowledge is codified and transferred in more tangible forms e.

Modi and Mabert consider these activities as part of the operational knowledge transfer process.

The Relationship between Manufacturer and Distributors: Knowledge Transfer and Performance

In doing so, the manufacturer can propose and provide formal educational training sessions to the distributor that will increase the knowledge accumulated by the distributor. Knowledge about products, services and customers can be useful for distributors in attracting and maintaining a long-term relationship with customers by offering products and services that best match their needs.

Performance monitoring is positively associated with the explicit knowledge acquisition by distributors from the manufacturer. In addition, the tacit knowledge acquired by the distributors can be turned into explicit knowledge after the assimilation process, defined by Nonaka and Toyama as the externalization knowledge creation process. Thus, they might align their own policies with those of the manufacturer. Routines and practices can be formally changed once employees and managers update their manuals, reports, performance indicators, and use them in future training sessions.

Therefore, the implicit knowledge acquired by employees and managers can improve the bulk of the explicit knowledge acquired by the distributors.

Tacit knowledge acquisition is positively associated to explicit knowledge acquisition.

Manufacturer distributor relationship

A manufacturer may establish goals for the evaluation of the distributors' performance. At the same time, these goals may contribute to the development of the distributors' capabilities. Fugate, Stank and Mentzer analyzed the impact of the operations personnel's knowledge of logistics on operational and organizational performance. Their findings show that processes that stimulate knowledge creation, dissemination, shared interpretation, and responsiveness, have a positive impact on operational and organizational performance.

This happens because these processes allow the operations personnel to share knowledge and interpretation of their routine tasks.

For similar reasons, all these processes may, to some extent, also enable knowledge transfer between the manufacturer and the distributors, increasing the amount of knowledge acquired by the distributors, which, in turn, helps them to perform their activities better. Prahinski and Benton stated that performance measurement can be both financial and operational non-financial.

Operational measurements of performance are usually evaluated by the traditional competitive criteria of operations strategy, such as quality, delivery, cost, service and flexibility. On the other hand, business performance is usually analyzed based on measurements like profitability, market-share and revenues, among others. Tacit knowledge acquisition is positively associated with operational performance. Tacit knowledge acquisition is positively associated with business performance.

manufacturer and distributor relationship

Explicit knowledge acquisition is positively associated with operational performance. Explicit knowledge acquisition is positively associated with operational business performance.

manufacturer and distributor relationship

Thus, operational performance is assumed to be an antecedent of business performance Krause et al. Operational performance is positively related to business performance. Method A survey in the transport equipment industry was conducted, a sector that has technologically intensive products and faces great challenges to expand its sales in different markets. A measuring instrument was developed following a rigorous sequence of methodological procedures. First, the constructs were identified and clearly defined.

Second, it was identified measurement items developed in previous studies encountered in the literature review. Without commitment, there can be no meaningful change.

Without change, sales performance, profitability, and customer satisfaction continue to suffer. For manufacturers and distributors, the hardest part of the process will be changing the way their working relationships are viewed and managed.

Manufacturers and distributors develop and support core beliefs about the purpose of their working relationships and how these relationships should be managed.

These beliefs are passed on from one generation of management to the next. Over time, management teams tend to forget why they believe what they believe.

Yesterday's good idea becomes today's policy and tomorrow's mandate. People also come to believe that what they don't know isn't worth knowing. This is how industry participants come to believe that their circumstances and problems are unique. Unless these perceptual barriers are recognized and addressed, manufacturers and distributors will be unable to deal with the primary barriers to better working relationships: How Did These Beliefs Evolve?

For the past fifty years, the basis of competition in most industries has been high quality products at low prices. The value proposition product-pricing-availability-information was defined by manufacturers. The distributor's role was to provide market coverage, hold inventory, and process orders. Over time, however, most industries evolved to a point where all manufacturers made quality products and they all had low prices.

When this happened, manufacturers and distributors began looking for ways to improve profitability. The primary area of focus was cost cutting.

What they failed to realize was that their actions to accomplish gains in short-term profitability would have long-term impacts on their working relationships. During the s, manufacturers entered a period where restructuring, downsizing, and divesting became the common methods for improving profitability and shareholder value.

Manufacturers found that they could increase market share by adding distribution and that they could reduce costs by taking business direct.

In the short-term, these actions produced results for the manufacturers. However, in the long-term they have had a negative impact on distributor trust in and commitment to manufacturers.

NatCon 2016 Session - 7 Best Practices to Enrich the Distributor-Supplier Relationship