Creation of distributor agreement needs lots of care and attention or else it can result into various mistakes. here we discuss the 10 mistakes with the agreement that one should consider avoiding.
1. RUSHING INTO THINGS
Any new partnership is, in theory, like a marriage. This is especially true of the business relationship between distributors and manufacturers. Both bring equally important things to the table; both are equally responsible for the success or failure of the arrangement. Boundaries must be set and adhered to by both sides. Not moving things along too quickly, until each side knows the other’s goals, expectations, strengths and weaknesses is key. The companies have the opportunity to grow and together as long as the wishes of both sides are respected.
2. SACRIFICING CUSTOMER SATISFACTION FOR PROFITS
Produciing high volumes pf product quickly in an attempt to gain rapid profits will bring about failure for both sides for three main reasons: First, this type of business practice indicates that those involved are focused on the company rather than the customer. Therefore, customer satisfaction is being disregarded in favor of the almighty dollar. Second, this activity leaves no room for increase in lead times when necessary based on sales – yet another blow to customer satisfaction. Finally, this behavior directly interferes with profit increase. These issues can be avoided by overhauling your company outlook and focus to make it customer-oriented with flexibility built in where needed.
3. CLAUSES THAT INCLUDE TERMINATION “FOR CAUSE ONLY”
Agreements which include language indicating the allowance by either party for termination “for cause only” (or, even worse, for no cause whatsoever), in some instances involving a very limited set of specific circumstances, will cause internal conflict and in all likelihood, legal action at some point. Prior to any partnership agreement, take the time to specifically examine these points in particular and negotiate where necessary.
4. NON-FLEXIBILITY IN DEALING WITH CHANGING PRICES
Any arbitrary advantage of one partner over the other is not conducive to a successful partnership. Therefore, a distributor who seeks to gain an advantage over their competitors by having manufacturers who are only able to make price adjustments, say, once a year, may be advantageous for the distributor, but it will cause trhe supplier to suffer. Whenever there is a period of rising costs due to inflation or other factors, the manufacturer must have the means to pass along any cost increases.
5. LACK OF ADJUSTMENT BETWEEN MEASUREMENT SYSTEMS AND PREFERRED OUTCOMES
The goal of any company, any business partnership, is to generate revenue for both sides. This is most efficiently and successfully accomplished by demonstrating that your company has the ability to satisfy an ever-increasing number of customers better and more quickly than the competition. Therefore, archaic systems which are used to measure success, such as those which focus on labor variances, efficiency, etc, do not indicate or measure the information necessary to bring about continuous improvements, thereby increasing profits. By overhauling these outdated practices and instead focusing measurement efforts on inventory, cycle time, throughouts, quality, product mix, timely delivery and other points that are important to customers, these points will balance everything out and create a win-win situation.
6. LACK OF IMPROVEMENTS DUE TO LACK OF AWARENESS OF OPTIONS
Within both companies there must exist a willingness to identify and face issues which call for improvement and the initiative to discover within each company where these issues lie. By pretending that there is not room for improvement or by refusing to make the effort to educate the proper parties who can make the necessary improvements, both entities are simply handing over future profits to the competition.
7. INABILITY TO NEGOTIATE WITHOUT INVOLVING LEGAL REPRESENTATIVES
It is not unheard of for problems or errors to be discovered in agreements after they have been engotiated and signed. if this occurs, there should be reasonable ability for the two parties involved to be able to come together and resolve the issue, re-negotiate, and handle any corrections which may need to be made. By one side or the other stonewalling and insisting on even the smallest matter being handled by attornes, matters which should have been quickly worked out between the two companies have now entered a costly and time-consuming process that could have been avoided.
8. RELUCTANCE TO SEEK GUIDANCE FROM OUTSIDE SOURCES
Te best teacher is of course experience, and there are many resources available to assist companies and offer advice and instruction in the areas that are most crucial to success, such as manufacturing and distribution. Balking at the idea of turning to those who are in-the-know for their input as to how to increase efficiency and profits, how to best deal with various internal issues, how to amp up customer satisfaction, etc, will only lead to the possibility of having to involve an entity eventually who may lack the specialized knowledge of the resources available at the present time.
9. UNEQUAL DELEGATION OF RESPONSIBILITIES
Just as superiors sometimes mishandle the assignment of duties to thier subordinates, if one company or the other shifts too much of the responsibility onto the shoulders of the other company, the outcome can be negative and have adverse effects on business relations and operations, not to mention profits. While most responsibilities will clearly be specific to each entity, others will fall into a grey area and will need to be shared fairly and with the best possible outcome in mind in order for both parties to continue to operate in a harmonious and profitable manner.
10. TOO-FREQUENT AMENDMENTS
Changes to the original agreement will be inevitable from time to time. However, attempts by either side to constantly change things when there is no real cause or necessity to do so will create a strained and difficult working relationship. Before approaching the other company to request an amendment be made, it should first be determined how necessary the requested change is, how much work is going to be required to implement the change being requested, and how truly beneficial it will be to all parties involved. Insisting on making changes when doing so is redundant can result in confusion and inconsistency within the working relationship and adversely affect business.
This post is brought to you by Poly Postal Packaging, a National UK manufacturer of mailing bags & packaging.