Manufacturers Talk Back

GAWDA suppliers speak out on their partnerships with distributors.

Manufacturers Talk Back

As the saying goes, it takes two to tango. And when it comes to the manufacturer-distributor partnership, it takes cooperation from both sides for the dance to go smoothly. Welding & Gases Today spoke with the leaders of four major manufacturing companies: James E. Cline, president of Harsco GasServ; Bill Kroll, chairman and CEO of Matheson Tri-Gas; John Stropki, chairman and CEO of The Lincoln Electric Company; and Sam Thomas, president, CEO and chairman of Chart Industries.

The four discussed what makes for a best-in-class manufacturer-supplier relationship, the obstacles facing both sides, and how distributors can most effectively invest in their businesses to achieve long-term success. In the end, though, just as in any dance, the secret to a successful partnership lies in two things: trust and communication.

Welding & Gases Today: What makes for a best-in-class relationship between a supplier and a distributor?

Bill Kroll: Trust. Absolute trust. Without it, the relationship doen’t work.

James E. Cline: Both parties should recognize their dependence on each other. There are needs that each of us has to fulfill for the other.

John Stropki: The manufacturer and the distributor should focus on opportunities that represent profitable growth for both in the long term.

Sam Thomas: Manufacturers should provide distributors with services that make those distributors more profitable and more successful.

Do you market exclusively through distributors?

John Stropki: About 85 percent of Lincoln Electric’s sales are through distributors. But we, like all other manufacturers in our class, sell a portion of our business direct to end-users because it’s the most efficient way for the market to succeed.

James E. Cline: Occasionally on project work, we sell to end-users. Harsco GasServ typically tries to work with our distributors to fill those needs, but occasionally people require that we quote them directly on large projects.

Sam Thomas, Chart Industries

“By our actions, we need to reassure distributors that we are not selling in competition to them and that we are treating them fairly against their competition.”

Sam Thomas
Chart Industries

Sam Thomas: Chart provides capital equipment primarily for the distribution of gases and cryogenic liquids, so we are selling equipment to both industrial gas distributors and industrial gas producers. Our products are typically not for resale.

Bill Kroll: In certain regions, Matheson Tri-Gas has its own retail operations, but in other regions we rely exclusively on distributors. Most products in our electronic gases product group are sold direct. With bulk gases, sometimes we work with a distributor on smaller loads, and then on larger pieces of business we have a pipeline or something else where we’re selling direct.

What do you expect from distributors?

Sam Thomas: That they treat us fairly and give us opportunities to sell our equipment.

James E. Cline: We expect that Harsco GasServ distributors deal with us in the same way they’d like us to deal with them, and that is to have an open, honest, respectful relationship, and to supply mutual support.

Bill Kroll: Our expectation is to work with the distributor as a partner. We’ve been able to develop relationships by creating value for each other and having a lot of trust in each other.

John Stropki: We expect Lincoln distributors to be deeply committed to the principles with which we try to approach the market, that is, bringing value-added products to our mutual end-user customers and focusing on helping them achieve gains through new product introductions.

How does that happen?

John Stropki: We have to be committed to product development, and the distributor has to understand the customer and the company’s product line.

Are there particular qualities you look for in a distributor?

John Stropki: We look for distributors who are investing in their people and facilities. With products becoming more technically sophisticated, we rely on distributors who are upgrading their employees’ skills as well as their facilities to demonstrate products and work with end-users.

James E. Cline: We also look for a distributor who’s able to maintain his business in good order so that he or she is there for the long term.

What does your company do really well when it comes to working with distributors?

Bill Kroll: We listen. Listening to the voice of our customers is how Matheson develops new products, how we innovate, and how we create a sustainable relationship.

Sam Thomas: Chart has experienced and knowledgeable customer contact people, including our salespeople, managers and customer service reps.

Bill Kroll: Matheson Tri-Gas has a lot of employees who either used to own distributorships or who have worked with distributors for many, many years.

James E. Cline: We’re able to find the best solution for a distributor and ultimately the end-user. Offering a full spectrum of products enables Harsco GasServ to offer the right solution, no matter what that end-user needs.

John Stropki: Lincoln Electric has regionally based facilities that distributors can rely on to train their people and bring their customers for demonstrations. But, most important, we’ve packaged our product line in a way that allows our distributors to focus on the process of welding, not the individual components.

Give an example of a positive interaction your company has had with a distributor.

Bill Kroll: After Hurricanes Katrina and Rita in 2005, Matheson bent over backward to make sure that our distributor customers who were buying from our plants received product, and we worked especially hard with distributor customers who had hospitals they needed to service.

James E. Cline: Recently a distributor came to Harsco GasServ looking to expand their international sales. We helped them identify an opportunity. It was very good margin business for him, and it helped us to sell cylinders into a market we’re normally not as strong in.

Do you have personal interaction with distributors?

James E. Cline: I occasionally get involved with distributors when unique situations arise, where a business issue requires not only sales and finance but also a general management overview.

John Stropki, The Lincoln Electric Company

“All distributors handle multiple, competing product lines, and all manufacturers have multiple distributors within given market segments, which makes for a very challenging environment.”

John Stropki
The Lincoln Electric Company

Sam Thomas: I do interact with distributors, but less frequently recently because we went through an IPO a year ago. But Tom Carey, who is the president of our distribution and storage business, spends a very large part of his time with distributors.

John Stropki: My job scope is so large, I’m not the person who has day-to-day contact with distributors. But I attend every GAWDA meeting, and I encourage distributors to contact me with their concerns. I’ve been in the welding business for 35 years, so I know most of the distributors and their personnel on a first-name basis.

Bill Kroll: I try to be in contact with distributors as much as I can. For example, when Matheson purchased Linweld in 2006, the first thing I did was call all of our Enable distributors who were in the same area and tell them the news personally. And I always make myself available to speak at meetings when distributors ask me.

How do you get feedback from distributors?

Bill Kroll: Matheson Tri-Gas solicits feedback in a number of different ways. Certainly, one of our most important resources is through our sales and operations people.

John Stropki: Lincoln has around 185 technical sales representatives in North America talking directly with distributor partners almost on a daily basis. We also have distributor council meetings where we bring together select groups of distributors and have a very open forum with them.

Sam Thomas: In Chart’s Growth Partners program, we invite a group of distributors to get together with our senior management team and salespeople for direct interaction.

Bill Kroll: Matheson has a lot of benchmarking meetings with distributors. For example, for about nine months before we started the Enable program, we held focus group meetings with distributors and developed that program hand-in-hand. I also attend GAWDA meetings, as does Konosuke Ose, the chairman of our parent company in Japan.

James E. Cline, Harsco GasServ

“Some distributors like to keep information close to their vest and not share their future opportunities with their manufacturers. That puts a challenge on manufacturers, because we need to be able to respond to those needs.”

James E. Cline
Harsco GasServ

John Stropki: I too attend GAWDA meetings. I’m available at the Contact Booth Program for distributors to speak directly with me. I encourage distributors to call or e-mail me, and I communicate back.

Sam Thomas: Chart’s inside sales organization also conducts customer surveys on a regular basis, generally on a six-month cycle.

James E. Cline: Harsco GasServ also does surveys from time to time. We recently conducted a survey for the industrial gas business and expect to do another one within the next year or two to follow up.

What do you think are the biggest obstacles in the manufacturer-distributor relationship?

John Stropki: All distributors handle multiple, competing product lines, and all manufacturers have multiple distributors within given market segments. That makes for a very challenging environment.

Bill Kroll: Distributors and suppliers are, for the most part, working on much different goals, whether personal, financial or geographic. In some cases, those goals will never be aligned, and in some cases, they’ll be only somewhat aligned.

Give an example.

Bill Kroll: Take safety. I think some distributors focus so much on service that they don’t place the same emphasis on safety that we do. If we don’t feel that a distributor’s safety goals are aligned with ours, we won’t work with them.

Any other challenges?

James E. Cline: The question of how open to be with your suppliers is a challenge all businesses have. Many companies like to keep information close to their vest and not share their future opportunities with their manufacturers. That in turn puts a challenge on manufacturers, because we need to be able to respond to those needs.

Bill Kroll: Distributors have to choose to work with suppliers with whom they are comfortable enough to be forthright about getting their wants and needs across. That is very important. We have to be able to open up that dialogue.

Sam Thomas: One issue that’s always at the forefront for distributors is the concept of whether we are selling in competition to them or whether we’re treating them fairly against their competition.

How do you reassure distributors on that front?

Sam Thomas: By our actions: We clearly do not compete with distributors, and we develop preferred partner relationships with our distributors.

In what areas should a distributor invest in order to grow their business?

Bill Kroll: Invest in the back room, specifically software, because if a distributor really wants to make money, they have to get their costs in line and their customer relationship management well under control.

Bill Kroll, Matheson Tri-Gas

“Distributors and suppliers are working on much different goals, whether personal, financial or geographic. In some cases, those goals will never be aligned, and in some cases, they’ll be only somewhat aligned.”

Bill Kroll
Matheson Tri-Gas

John Stropki: Another important investment is in facilities that allow the distributor to demonstrate new products and capture the end-user’s attention in a dynamic way. Distributors should have adequate stock on their showroom floor and in their warehouses.

Bill Kroll: Safety is an enormous issue as well. We’re a litigious society, and it’s not getting any better. Safety is a very important part of risk management.

Sam Thomas: Distributors should invest in hiring knowledgeable, capable people as sales and support personnel, and keeping them trained. Qualified and dedicated people are the most important investment distributors can make.

John Stropki: People are definitely number one—recruiting the best people and making a commitment to them to keep them educated.

So having well-trained employees reaps rewards.

Sam Thomas: Chart conducted a multi-day sales training program for a distributor’s sales personnel at his site—a traveling road show, if you will. The feedback we received was that the training program had significantly increased the distributor’s sales and profitability.

John Stropki: Lincoln Electric introduced a new training program for our distributors in the Southeast, and many of them are sending their best people to the programs in our Atlanta distribution and training center—in fact, our training program there is sold out for the next 18 months. That’s a pretty significant commitment on our distributors’ part, but those who are availing themselves of it are getting significant returns.

What struggles are facing distributors in the next 12 months?

Sam Thomas: In North America the industrial environment in some areas will become more challenging over the next year, so having the appropriate sales experience and service levels will be critical.

James E. Cline: Both distributors and manufacturers are facing a significant increase in transportation costs. For distributors, the more product they can deliver at one time to a user, the lower their distribution cost is going to be, and probably their total cost of product as well.

How are Harsco GasServ’s distributors gearing up for this?

James E. Cline: A number of distributors have embraced what we call mode change—that is, moving from high-pressure cylinders to liquid cylinders, and now into microbulk technology. It lets distributors supply customers with larger quantities of gas in a more cost-effective manner.

How are you working with distributors to help them cope with higher costs?

John Stropki: Lincoln Electric’s availability of local stock helps distributors reduce costs. We will direct ship to their end-user customers if they find that to be an attractive option.

Sam Thomas: Chart works with distributors to make sure they understand the price increases they’re seeing and are clear about what the trends are in terms of our material costs, so that they’re not surprised and they can plan effectively.

Bill Kroll: Nobody likes price increases, but many of the things that have caused Matheson to raise prices are out of our control. We’re doing all we can to lower the cost of our operations, whether it’s in buying power, hedging natural gas, or being more efficient in our vehicles.

Sam Thomas: We continue to look for ways to manufacture our products more effectively, use lower cost materials or provide higher value.

Bill Kroll: We have a very active Six Sigma and Six Sigma Lean program at Matheson and we’re using those programs to drive all sorts of costs out of our business, so when we do have to increase prices because our costs are rising, we make sure it’s the lowest amount that it can be.

What can GAWDA do to strengthen the relationship you have with distributors?

Sam Thomas: I think GAWDA does a good job, particularly through the forums that get manufacturers and distributors together.

John Stropki: Providing networking opportunities at a Spring Management Conference or an Annual Convention is a very significant part of GAWDA’s role.

Sam Thomas: Meetings that get good attendance and allow interaction to take place face-to-face are very effective for manufacturers to be able to see a large number of distributors at once. And I think it helps to give manufacturers opportunities to make presentations about topics that are of interest to distributors.

John Stropki: I think there’s value in providing best-in-class distribution discussions that extend beyond just welding distribution, i.e., what are other channels doing that address some of the challenges that our industry faces? GAWDA can be a facilitator for that.

James E. Cline: Overall, I believe that over the last three years, the exchange of information between GAWDA and the manufacturers has gotten significantly better and the interaction between the manufacturers and the distributors through the GAWDA relationship has been much stronger.

W&GT: Long may that continue! Thank you all for your insights.

Gases and Welding Distributors Association