Agents and Distributors (3)

If a manufacturing or assembly supply chain is being operated by a company that is headquartered overseas, attention must be paid to cultivation and maintenance of the relationship between the manufacturer and its suppliers and, ideally, between supplier and supplier. The general consensus of current supply chain literature contends that greater visibility and knowledge sharing between supply chain notes generates deficiencies, economies, and provides for traceability, which, in the event of a supply chain/quality failure, could be crucial. If a fault can be traced to a particular supplier, the ripple effects of the disruption may be contained. The faulty supplier can be isolated and reparation can commence. Moreover, supplies that are upstream of the faulty supplier can continue to flow, so general disruption can be prevented.

Manufacturer investment in suppliers signifies goodwill, trust, and long-term orientation, which in some cultures (e.g. China) constitutes a highly significant gesture. If the relationship between supply chain connected companies is mutually favourable, general supply chain performance is likely to be enhanced. For this reason, manufacturers can improve their supply chain resilience/reduce supply chain risk by forming and maintaining good relationships with their suppliers. Technological and managerial assistance can also enhance supplier performance. If the supplier is native to the market into which the manufacturer intends to expand, the supplier becomes an important source of local business knowledge. The supplier’s connectivity with local business networks can offset the liabilities of foreignness faced by the overseas manufacturer, provided the relationship between supplier and the manufacturer is sufficiently and mutually cooperative and amicable. Supplier opportunism is also reduced by strong manufacturer-supplier interaction.

If the manufacturer has no physical presence in the overseas market, the distributor becomes the manufacturer’s representative, and sole point of customer interface. In countries where business is highly interpersonal (China, for example), the face of the company is a vital resource. This can provide the distributor or national agent with immense leverage over the manufacturer, especially if the agent’s contact book is the bridge between the manufacturer and every one of its buyers in a single country (in B2B scenarios in which distributors deal one-to-one with big retail buyers, such gatekeeping is quite possible). To avoid being disintermediated, the agent/distributor might conceal the particulars of his relationships from both sides. This gives the agent/distributor enormous strategic significance, especially if his buyers represent a significant portion of the manufacturers business. Any such agent/distributor must therefore be treated respectfully, paid a good commission, and not embarrassed by quality issues or ineffectual service or technical support. Unavailability of repairs and replacement parts and devices are a challenge for distributors in markets that are distant from the manufacturer and are often cited as a reason for failure to displace local products – even inferior local products. Such shortcomings represent supply chain weaknesses that impact directly on the overseas growth potential of companies.  This kind of problem could be resolved by the manufacturer sharing with the distributor the cost of safety and spares inventory in the country of sales. Sadly, too many companies are excessively focussed on achieving lean, so instinctively recoil from the notion of investing in inventory in order to address the shortcomings of extended supply.