In the first of a two-part Q&A, Bob Segal, a principal at research firm Frank Lynn & Associates, addresses the critical role of effective communication in successful distributor plans.

IMT recently spoke with Bob Segal, a principal at Chicago-based consultancy and research firm Frank Lynn & Associates, about the importance of the manufacturer-distributor planning process — especially in 2010.

Founded in 1973, Frank Lynn & Associates offers a wealth of market experience and expertise to clients in a wide range of industries, including industrial equipment and supplies, building and construction products, technology, telecommunications, transportation and consumer goods.

Segal, who has been a channel consultant at the firm for 26 years, says that in an ideal world, a manufacturer’s key distributors would develop annual business plans for the product line and work closely with a manufacturer’s distributor account managers to get the plans implemented. In reality, however, many manufacturers skip the planning stage altogether.

In the first of a two-part Expert’s Corner Q&A, Segal addresses the critical role of effective communication in successful distributor plans. (IMT will publish Part 2 of this interview tomorrow.)

IMT: How important is communication between a distributor and manufacturer in the business-plan development process?

BS: Communication is critically important because it shouldn’t be a one-way planning document. As a manufacturer, you don’t ask all of your resellers to commit to a business plan, because they may not all be important enough, and vice versa as a reseller. You are only going to write business plans for your key vendors.

Having said that, if a vendor is important to you as a reseller, and the reseller is important to you as a vendor, then it has to be a two-way plan. So, even though I stress that it really should be a plan developed primarily by the reseller, saying, “Here’s what I’m going to do and commit to,” they should discuss it with the channel account manager who is responsible for business plans at the vendor/manufacturer. They will say, “Here’s what I’m thinking — What do you think? If I commit to doing this, will you back me up? If I want to do a marketing campaign on your behalf in the second quarter, will you guarantee that you’ll actually have the funds to help me do that, or the training to get my staff ready for your new product launch?”

In this context, the plan is really developed by both parties, and they need to communicate openly, frequently and honestly to come up with a business plan that stands any chance of actually being implemented.

IMT: So, developing the plan involves both written and verbal communication to get a strategy in place?

BS: It primarily involves verbal communication prior to the plan being created. It may require some written communication if there is actual funding to be provided by the manufacturer. I’m sure the reseller would want to know, in writing, “Do I have a 2 percent coop fund I can use for this? Will there be extra funds available, etc.?”

However, most of the preliminary communication would be verbal. The plan itself would be the written part of the communication, of course.

Now, would the channel account manager and the reseller ever exchange e-mail during the planning process? I’m certain they would. My point is, regardless of whether it’s verbal or written — I’m sure it will take both forms — there needs to be extensive communication before, during and even after the plan is set up. This will help to ensure that the plan reflects both parties’ commitments and both parties’ understanding of the situation.

IMT: Why should a manufacturing firm require its distributors to create written plans?

BS: The success of many manufacturers hinges on the actions of tens or even hundreds of independent, mostly small, distributors. However, each distributor has different customer targets, different product mixes and different sales and technical skills. Many lack strategic planning skills and marketing departments. As independent businesses, they’re free to do what they want.

Manufacturers can hope for the best or use distributor plans to gain greater control over their distribution future.

IMT: Is it realistic to expect or require plans from each distributor?

BS: No. Most manufacturers don’t have the capacity to handle hundreds of individual plans. Furthermore, most manufacturers experience the 80:20 Rule, where 80 percent of their revenue comes from 20 percent of their channel partners. At a minimum, suppliers should require plans from key partners.

Not all manufacturers have the clout to demand distributors create a plan. A small company selling through Wal-Mart might face an uphill battle to get a detailed, written plan. Still, vendors should “think big” and not retreat unless facing a true negotiating mismatch. Even in those cases, scale back the scope of the planning request instead of giving up altogether.

Part 2 of IMT’s interview with Segal will be published tomorrow.

This interview was conducted on behalf of IMT by Michael Keating, senior editor for Government Product News and a contributing editor for American City and County, both published by Penton Media Inc. Keating has written articles on the government market for more than 100 publications, including USA Today, Sanitary Maintenance, IndustryWeek and the Costco Connection. Mike can be reached through his website, MikeKeat.net.