Entity or people? Management: we associate this word to a sort of control on employees, consultants or contractors. If this word is applied to an indirect channel, the type of control that the manager can have is definitely weaker because the real management you will put in place will not be on the indirect channel sales force. You will manage the relationship between two companies, not the people. The distributor appointed surely will be made up of people; sales, technical, marketing etc. but the reality will be that you will trying to manage an entity rather than individuals. At the same time you will need to manage all your internal stakeholders to ensure that all the processes are accurate to achieve the expected performance from both parties. That’s an important difference that creates a huge amount of complexity.

Accountability and risks: In a direct business model, usually, the organization structure, ita segregation of duties policy and its hierarchy ensure that a management and control process is in place, however talking about indirect channel the reporting relationship is indirect. In most of the time if the target of the business partner is not achieved, companies are often reluctant to immediately replace the local vendor due the difficulties to find a replacement one this will happen slowly in a mid-long term period after maybe another year or more generating most of the time a slowdown in revenue. Terminating a distributor could also have higher risk that a simple reduction in sales, in fact the termination of the partnership, if managed smoothly could become a win win situation for both parties however if the end of the partnership will be conflictual the risks for both parties are quite big. A manufacturer could face the total stop of the importation of its products in that country loosing not only the revenue but its footprint that will need to be rebuilt once the importation will receive a green light to be done. On the other side of the medal also a local vendor could face a huge risk, which is related to the future due diligence process it will need to do to get another multinational supplier. Due diligence report could describe the local supplier as a trouble maker, a partner that has pending law suit with other multinational and this could invalidate any further discussion on a future partnership with a new manufacturer letting the local vendor been black listed.

Is my priority also your priority? In the relationship between a manufacturer and a local distributor might often be misaligned. A different fiscal year between the parties might bring frictions between the parties in terms of orders and shipment requirements. As well as the products identified by the local vendor to penetrate the market could be different, actually often is different, from a global strategy. So it is fundamental for a manufacturer to understand what are the priorities of the local partner instead of pushing programs campaign that are not align with the local requirements and end user needs.

The partner “Caste”: Having different partner require adopting different engagement models. Vendors could have business with large organization such as procurement governmental entity or small and medium size customers. For a manufacturer been aligned with the different needs of the various partners is challenging and should require a customized strategy depending on the partner. Companies use to roll out local initiatives that most of the time are aligned with the needs of the biggest partner needs, therefore in many other markets these initiative will not have a real impact on Sales. Said that, partners are managed differently and the main variable to differentiate them is the revenue they bring. Higher is the contribution in the vendor’s revenue, higher is the importance the manufacturer gives to the vendor. For a manufacturer the alignment of the appropriate level of investment with a high volume/value and executional partner vs low volume/value and passive partner is critical. A misalignment on that could easily lead to a loss of focus in the channel management process.

Transparency: Let’s be honest, the relationship between a manufacturer and its local vendor is financially driven. One of the biggest mistake within the partnership between a manufacturer and a local partner is mainly related to a foggy communication and a lack of in market information. A partnership is built on trust. Once a partner is open to share his value chain and in margin for a manufacturer is very easy to build up a pricing strategy that could lead to a win - win situation instead of procrastinating a long term battle that will might lead to a vendor termination. On the other side of the medal the vendor need to understand that the manufacturer has all the interest that its partner is able to gain the highest level of profit in alignment with the manufacturer one. This will not only increase the loyalty between the parties but will also bring a continuous push and keep a long term momentum on the revenue growth.

Forecasting: Forecasting requirements is a never ending story in a partnership between manufacturer and a local distributor. While from a supply chain point of view the forecast is needed to ensure the production of the goods required from each local markets, internally, or better in the sales department of the organization of a manufacturer the forecast is often considered a commitment from the local distributor. This perception will continuously lead to a lack of forecast from the local distributor who is not willing to commit. In some situation the vendors will provide you the forecast but in most of the time it won’t especially in the scenario where the local vendor used to send bulk orders. Is the solution creating a sustainable business splitting the orders more consistently in months or quarters? Maybe yes..... theoretically, but even here the complexity of channel distribution become more evident. How are the incoterms with the local vendor? Is the local vendor responsible for the shipping in to the market of the goods from the manufacturer facility? If this is the case, you will not succeed in spreading the potential single bulk order in multiple orders scheduled monthly. Receiving forecast from a local vendor might be the biggest challenge an organization could face. All the pre-sales department of your organization and the local vendor should agree and come out with a user friendly forecasting model based on sales job practice rather than a complex supply chain excel file. Understanding various types of partners, their own sales velocity and the mix behind that velocity is critical. Without proper systems and processes in place, it is incredibly difficult for vendors to come up with these forecasts. The above mentioned channel management challenges are present in every indirect channel partnership. Other challenges vary from market to market and are basically differentiated by the local ecosystem, the maturity and the transparency of the vendor and the business potential.