What's happening in distribution?

I talked with 2 friends today.One has been in animal health distribution for “all his life”; the second teaches at “The B-School”. The subject with both was the role of distribution and the inevitable tension that exists across the channel, sometimes “exploding” into what is best termed “channel conflict.”

Our conversations were peppered with words such as “trust”, “consolidation”, “role”, “going direct”, “distrust”, etc. All signs of various levels of nervousness or fear; mistrust and apprehension: the realization that the world is much different today than when I was a kid 50 years ago. I was a B2B distributor early in my career. I “get it.” Emotions are roiling; it’s time for a change: it’s time to establish a new covenant among and across agribusiness partners – a customer-based, value-focused covenant. The battle is over familiar topics: who “owns” the customer? Who is “our customer”? What role will our channel partners play going forward? And so on. Sounds all too familiar, doesn’t it?

“The Channel” has played a pivotal role in agribusiness over the last century. Sadly and with the excitement of great potential, the role of the channel is changing dramatically.

Changes not withstanding, distribution has played, and has the opportunity to continue to play, a unique role in the United States. The channels’ processes and the roles of the players, off-shore, don’t “look” the same nor provide the same services nor do they offer the-potential-to-add-significant value, which our channel partners can play in North American agribusiness. Distributors, retailers, dealers, vets, agents and advisors all play critical roles.

Roles bring with them responsibilities and the concomitant obligation to give back and add value moving down the channel to the end-user. Each of the players in this distribution game understands their position and the reality of the changing world of agribusiness. Hence the growing distrust and channel conflict – all over customer knowledge and who owns the customer, it would seem.

A good Dealer or Distributor partner is invaluable: in the past, they were guaranteed the financial success they sought[1]. North American “Distribution Systems”, my academic friend reminded me, traditionally “owned” certain responsibilities:

a. Sales,

b. “Demand fulfillment,”

c. Physical distribution,

d. “Product modification and after-sale service, “ and,

e. “Risk assumption.”

In everyday language, the agribusiness “OEM”’s rely on their channel partners to be just that: “partners”.

Distribution is asked to generate demand, to sell their manufacturers’ products and to negotiate pricing; we ask them to run a business, stocking their shelves with inventory from our “plants” and at the same time to train their people to support us (and, we want them to support only us, knowing full-well they are, in most cases, multi-line outlets); we ask them to move product around the system and to customize it in the fields or barns; we ask them take on some major risks: inventory carrying, customer credit, investments in their own place to support the specific distribution and support of our products. We ask a lot. Good distribution partners give a lot – in some cases even more than we might have dared to imagine.

Those comfortable halcyon days of agribusiness have been disappearing ever since the mid-90’s. Information, transgenics, the power of the internet and the flattening of the world seem to be among “the root-causes.” There has been a blurring of roles, a continuing shrinkage in number of outlets there is also the threat – real or perceived - of manufacturers cutting out the middle guys, and a growing need to transform producer and grower data into actionable knowledge used sensitively to create a competitive advantage and noticeable point of differentiation.

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[1] I recognize that there are different naming conventions by industry: if we’re talking about the distribution value chain for seeds, crop chemicals, pharmaceuticals, etc. For ease, I’ve opted to use neutral words that work across multiple scenarios.