2. THE PATHWAY TO
MANAGING AGENTS
AND DISTRIBUTORS
FOR INTERNATIONAL
SUCCESS
CONTENTS
INTRODUCTION 1
Introducing active management 2
The Channel Partner Lifecycle 3
Types of Channel Partners 4
Agents and Distributors 5
Finding a Channel Partner 6
Assessing a Channel Partner 7
Appointing a Channel Partner 9
Relationships and the ‘Asian Contract’ 10
MANAGINGCHANGE 18
Handling problems with
Channel Partners 19
Exiting a Channel Partner relationship 21
What does success look like? 22
Appendix 23
MANAGINGACHANNELPARTNER 11
Active management 12
What does active management involve 13
The transparent relationship 14
Supporting your Channel Partner 15
Exclusivity and segmentation 16
Managing performance 17
3. PAGE 1
INTRODUCTION
Many New Zealand companies
rely on a variety of partners
in-market when exporting –
including agents, distributors,
joint ventures and licensors. (For
the purposes of this document,
we’ll call them Channel Partners.)
The success of your export business
relies on your Channel Partners doing a
good job, so managing them well is vital.
Get it right, and your business prospers
– get it wrong, and you can find yourself
wrestling with serious problems that
absorb your time and energy, and take
you away from running the rest of your
business.
This guide looks at several core concepts
and skills that will help you to actively
manage your Channel Partners. By
using these concepts and skills in a
structured, strategic way, you’ll be better
able to develop and maintain successful
relationships with Channel Partners – and
work with them to get superior results for
your business.
As you read through this guide you’ll find five core concepts that will help you
manage your Channel Partners:
Active management
Channel Partners need training, support and performance management, which means ongoing attention and
engagement to get the most out of your relationship with them. This is the central principle of success with
Channel Partners, and impacts all the other concepts and ideas in this guide.
The Channel Partner lifecycle
As your company grows and evolves, your relationship with your Channel Partner will also change – which
means knowing when and how to adjust the relationship, and make changes.
The transparent relationship
To succeed in an export market, you need to get to know the Channel Partner’s end customer just as well as
they do. This requires clear trust and commitment, going both ways.
Supporting your Channel Partner
You need to be important to your Channel Partner if you want them to focus on growing your business. This
means supporting them and becoming an essential part of what they do – going well beyond just
the margins or revenue they earn from you.
Performance management – the ‘dashboard’
Working successfully with Channel Partners means monitoring performance, setting reachable targets, and
having a shared commitment to identifying problems and solving them. Having a clear ‘dashboard’ is a good
way to keep performance visible and top of mind.
The ideal state of a Channel Partner relationship is for you and your Channel Partner to both become essential
parts of each other’s business – working in tune to grow sales, market share, revenue and profit. Getting to this
point, and staying there, involves time, effort and commitment – but working in a planned way towards it can
make a huge difference to your business growth and performance in-market.
4. PAGE 2
The heart of active management is the simple concept
that Channel Partners need training, support and
performance management – just like employees or
teams within your own business. Getting the best
results out of a Channel Partner means constant and
sustained attention to those needs.
Active management covers the full spectrum of performance-
related activities that make up how a business operates.
Sometimes this means helping your Channel Partner overcome
barriers to performance. For instance, you might provide training
in solution selling, systems, or inventory management.
At other times, active management involves performance
management – not just developing sales targets and scoring your
Channel Partner against them, but fully understanding the
opportunities for growth, the costs of achieving them, and the
threats that exist in the marketplace (and how they will be
overcome).
Once you have a shared understanding of the market, you can
set mutually agreed goals, with an understanding of how much
they will cost to achieve and how long it will take to achieve
them.
Active management involves treating your Channel Partner as an
essential part of your export business, from training and product
support through to shared goals and performance measures. In
return, it gives them the confidence to treat you as essential to
their business – which means they can put in maximum effort to
make your product or service a success.
INTRODUCING
ACTIVEMANAGEMENT
5. PAGE 3
When you start working with a Channel
Partner, sales will usually increase over
time through the start-up and growth
phases. In most cases, this growth will
slow and potentially level out, as the
relationship reaches maturity.
After maturity, sales might stagnate or
even drop over time – leading to a period
of chaos, choice and change, where you’ll
be faced with some choices about your
relationship with your Channel Partner.
Making the right changes at this point
may start a new trajectory of growth –
while making the wrong choices (or just
doing nothing) might see your sales and
market presence decline, or even lead to
an exit from the market.
Understanding that the Channel Partner
you start with may not be the most
suitable partner at all stages of your sales
growth cycle is important to managing
the problem later. Some companies build
a relationship with the first importer that
places an order, at the possible expense of
future growth, since the partner that gets
you into a market may not be best placed
to grow your business 3 – 5 years later, let
alone 10 years into the future.
One problem often reported by exporters
is that their growth in a market has
plateaued and stalled. They report an
excellent relationship with their Channel
Partner; sales are constant and significant
every year, but aren’t growing. The
question of what to do often arises from
frustrated exporters. They don’t want to
lose the business they have, but through
many meetings and sometimes years of
discussion with the Channel Partner, the
business is still not growing.
In many cases the exporter’s growth
aspirations have exceeded their Channel
Partner’s capacity – although their
current customers are loyal, the Channel
Partner has reached the limit of the new
prospects they can influence, or doesn’t
have the right sales force, logistics or
finance to grow the market further. With
the right support, you can sometimes
help a Channel Partner to get past these
challenges, and move the relationship
back into growth mode.
However, at other times, you might find
your partner simply no longer has the
ability or the resources to keep pace with
your growth needs. At these times, it’s
important to remember that although
changing Channel Partners can be risky,
and potentially cost you current business,
there’s also an opportunity cost to staying
with the wrong partner (in foregone sales
and growth opportunities).
The key to handling the Channel Partner
Lifecycle’s ups and downs, and keeping
your business in growth mode, is to have
a strong active management relationship
with your Channel Partner. This will give
you the information you need to spot
problems early, and work with your
Channel Partner to fix them and keep
your shared business growing – or to
know when it’s time to move on, and find
a new partner that will meet your needs
into the future.
THECHANNEL
PARTNER
LIFECYCLE
The first step to working
successfully with a Channel
Partner is to understand that the
relationship isn’t static – it will
change and mature over time,
and pass through several distinct
stages. Understanding these
common stages and how they
work is important so that you can
correctly manage the relationship,
identify problems and know when
it is time for change.
Over time, most Channel Partner relationships fit somewhere on the Channel
Partner Lifecycle. This is a simple tool to help you see where you are on the
maturity scale of your relationship with your Channel Partner.
Sales
Time
Startup
Growth
Maturity
Chaos
Choice
Change
Beginning
new chapter
new trajectory
Beginning
new chapter
new trajectory
6. PAGE 4
Distributors
The key feature of a distributor
relationship is that your Channel Partner
will directly take title to your goods in
market – meaning the end customer
actually buys the product from the
distributor, not from your company.
A distributor performs sales and
marketing functions, concludes contracts
in their own name, and takes full risks –
including inventory (stock), credit, foreign
exchange, warranties and so on – as well
as managing in-country activities and
route-to-market decisions.
Limited risk or ‘last mile’ distributors often
hold little or no stock, only ordering from
you when they themselves get orders
from end customers. They may also
have a reduced range of other functions
compared to a full distributor, depending
on what you agree with them.
Some distributor relationships work on a
licensee model, where you (as a licensor)
grant the Channel Partner permission to
sell products in a defined territory using
intellectual property that you own, such
as your brand or trademarks.
Agents
Unlike a distributor, a sales agent doesn’t directly take title to
goods – the end customer does not buy anything directly from
them. Sales agents maintain close relations with distributors,
and build local knowledge on channels and consumers, but
are essentially intermediaries, with limited functions and risks.
Depending on what has been agreed, they may sign contracts on
behalf of another enterprise.
Commissionaire agents typically conclude contracts on behalf
of another enterprise, and often have more limited functions still
than a full sales agent. This type of agent is most often found in
Japan.
Joint venture
A joint venture (or JV) is a cooperative business agreement
between two enterprises, in which the parties agree to establish
a new entity by contributing equity. The parties of the JV
exercise control over the entity, and consequently share revenues,
expenses and assets. A JV can sometimes act in much the same
way as a distributor or agent as outlined above, depending on
the agreed functions it performs, the risks it assumes and assets
it owns.
TYPESOF
CHANNEL
PARTNERS
The term ‘Channel Partner’
includes many types of
representation for an export
business to choose from when
entering a new market. This
section takes a brief look at
the most common types of
Channel Partners for New
Zealand companies in East
Asia, and a few pros and cons
to consider.
Please note that this isn’t a
comprehensive list – you should
consider professional advice, tailored
to the market you’re targeting, if
you’re unsure which type of Channel
Partner will suit you best.
Agents
1
2 4
ManufacturerPrincipal
LRD
Principal
4
ManufacturerPrincipal
2
1
1
2
3
CustomersSales agent
1
24
Manufacturer Principal
1
2
3
Customers
Manufacturer
LRD
Principal
3
4
Customers
Manufacturer
Franchisee
Principal
2
1
Manufacturer
Customers
Fully-fledgeddistributor
1
2
3
3
Customers Salesagent
1
24
Manufacturer Principal
1
2
3
Customers
Manufacturer
LRD
Principal
3
4
Customers
Manufacturer
Franchisee
Principal
2
1
Manufacturer
Customers
Fully-fledgeddistributor
1
2
3
3
Customers Salesagent
Fully-fledged distributor (FFD)
2
3
4
CustomersSales agent
2
3
CustomersLRD
3
4
Customers
Manufacturer
Franchisee
Principal
2
1
Manufacturer
Customers
Fully-fledged distributor
1
2
3
1
2
3
4
Customers
Manufacturer
Sales agent
Principal
1
2
3
Customers
Manufacturer
LRD
Principal
ManufacturerPrincipal Manufacturer
1
1
2
3
Customers
Manufacturer
Manufacturer
Customers
y-fledgeddistributor
Limited risk distributor
Services flow
Invoicing flow
Physical product flow
7. PAGE 5
Most Channel Partners for New Zealand companies in East Asia are either agents or distributors.
Below is a short guide to some of the differences between the two, and how the relationship generally works.
IMPORTANT: Choosing the right representation model for your business is very important
– if in doubt, please seek help from a trusted advisor or professional.
How does the relationship work? Agent Distributor
You control your product’s price and terms of sale
in market.
Yes No
You can control which customers your Channel Partner
sells to – they are effectively ‘your’ customers.
Yes No
You can exert close control over the marketing and
branding your Channel Partner uses.
Yes Depends on the
relationship and
agreement
The Channel Partner carries the risk of any unsold stock. No Yes
You’ll pay your Partner via a performance linked commission. Yes No – although bonuses
may be agreed
Your partner will get compensation from you if your agreement with
them is terminated or expires.
Yes No – but payment is
sometimes offered as
an ‘exit package’
Your partner will have a relatively high risk of competition law issues. No Yes
You’ll have a relatively simple tax position for income
you get from your Partner.
No Yes
Your Partner will directly take title to your goods before
they reach the end customer.
No Yes
If the end customer doesn’t pay their bill, you, not
your Channel Partner, carry the risk.
Yes No
AGENTSANDDISTRIBUTORS–
PROSANDCONS
8. PAGE 6
Before you start looking for a Channel Partner, understanding the market
you are approaching is essential. In fact, to develop a business plan,
allocate resources, and set performance targets, you need to know almost
as much about the market as your Channel Partner does.
This may seem contrary to the main
reason for using a Channel Partner in
the first place – they know where the
customers are in an overseas market,
and can sell them your products. But
depending on a Channel Partner’s market
knowledge, without developing your own,
puts you at a huge disadvantage and
reduces your options when problems arise
or growth doesn’t happen.
The major advantage of using a Channel
Partner is that you can avoid the expense
and commitment of resources that you’d
need to set up your own operating entity
in the market. Using a Channel Partner
avoids the investment of capital and the
management of corporate functions and
people, as well as the general removal of
HR, legal and tax liabilities.
In a Channel Partner relationship, the
partner carries many or all of these costs
and responsibilities. They also know where
the buyers are, represent your product
and act as your channel to market – but
you need to be very knowledgeable about
the market as well.
Market knowledge allows
you to:
• Understand your value proposition to
the end customer – what they need,
what they value and what they’re
prepared to pay for
• Understand the potential market size
and key market trends, pricing, and
margins through the value chain, as well
as regulations, tariffs and barriers to
entry
• Identify potential customers and
competitors
• Forecast market demand
• Allocate marketing and support
resources
• Set market penetration and sales KPIs,
for both you and your partner
• Identify and manage underperformance
by your Channel Partner.
If your Channel Partner owns the customer
and the channel to market, they own your
business in that market – and you’ve lost a
lot of control over your future growth. The
more independent knowledge you have
about the market, the better prepared you’ll
be to negotiate if any problems come up.
Be prepared to spend significant time
doing research in a target market before
signing any contracts. You can seek
help with this process from professional
agencies and consultants, from other
companies already active in-market, and
from NZTE.
Once you have a solid base of information,
conduct a SWOT analysis of your
competitors so you know where you truly
stand.
Looking for Channel Partners
You can search for Channel Partners in
a variety of ways:
• Talking to retailers or end customers,
to find out who they work with and
can recommend
• Going to trade fairs to find notable
distributors or agents, or their end
customers
• Reading trade magazines
• For packaged goods, looking at
similar products (or ones sold in the
same places) for distributor or agent
information
• Using social ties and networks –
backed up with formal due diligence.
NZTE, along with professional research
companies, can help to identify
companies active in your sector and
market and provide a list of potential
Channel Partners for you to review. In
some markets you may find consulting
businesses or business matching
websites that will offer to connect with
Channel Partners.
With all of these options, it’s still
important that you conduct your own
due diligence, both independently and
through a professional advisor.
FINDINGA
CHANNEL
PARTNER
9. PAGE 7
ASSESSINGA
CHANNELPARTNER
Once you’ve identified a likely
Channel Partner, it’s time to work
through the process of assessing
them to make sure that your
businesses can work successfully
together.
This involves both confirming
that the Channel Partner is a good
strategic fit for your business
(including your product, end
customers, and culture), and doing
the necessary due diligence to
confirm that they’re financially
and legally sound, and have a
track record of real results.
Strategic alignment
When considering potential
Channel Partners, you need to
consider the alignment of your
business to theirs:
Sales
• How big a percentage of their business
will you represent – too small to hold
their attention, or too big for their
resources and capability?
• For distributors – how much stock will
they purchase and hold?
• How many sales staff will they apply to
your products?
• How proactive are their marketing and
promotional efforts?
• What channels do they sell into,
and how do these align to growth
opportunities?
• Are your growth strategies aligned?
Management
• Is management committed to growing
your business?
• Will they invest in your success in the
market?
• How strong is the CEO to CEO
relationship?
Culture
• Is your business culture aligned?
• Will this Channel Partner respect your
values and represent your products as
you would like?
• Do you feel comfortable with this
Channel Partner representing your
company in the market?
Family business dynamics
In many East Asian markets, you may
find yourself working with family run
businesses which work in different ways
to businesses based in Western countries.
These businesses can be excellent
long-term partners, but it’s important
to understand the dynamics before
confirming a relationship:
• The founder or owner of the business
may serve as a patriarch or matriarch
- the head of the family as well as the
company. Others in the business will
defer to them, and it’s important to
maintain their ‘face’ and prestige
• These businesses may not share the
same Western-style governance
structure you are used to elsewhere.
Decision making may be relatively
hierarchical and ‘top down’
• CEO to CEO relationships are vitally
important – this is where trust is
generated and decisions are made
• Even relatively large businesses may
not have the level of sophistication
you’d expect for similar businesses
in other markets, including logistics,
stock management, risk control, health
and safety and so on. This is especially
apparent in emerging markets
• You may find your partner lacks
Western-style formal HR processes
• Succession planning may work along
family lines, or there may not be a
formal succession process at all – be
aware of the risks this may pose over
time.
10. PAGE 8
Due Diligence
Once you’ve confirmed a strategic
fit, and understand the culture
and processes of your potential
partner, it’s time to formally
confirm that they are a capable,
reputable business and can follow
through on any commitments they
make to you.
Remember that you’re forming a strategic
partnership, so be prepared to share a
similar level of information about your
business with your Channel Partner.
Basic information
• What is their turnover?
• How many employees do they have?
• What products do they handle?
• Do they sell or represent any competing
products?
• Are they a public company? Can you
see their financial accounts?
• What is their credit record – do they pay
their bills?
Dun and Bradstreet and Veda Advantage
offer international credit reports that
can provide valuable insights into the
creditworthiness of your potential Channel
Partner. NZTE can also access local credit
information providers in market -
it is well worth the investment.
Detailed information
• Who are their customers?
You need to know what products and
channels your Channel Partner is strong
in, what customers they reach, and
who they can’t reach. Few agents or
distributors can reach the whole market,
and you may need a strategy of different
Channel Partners on the basis of customer
or segment (making sure they understand
that they’re not competing with each
other)
• What do their suppliers or bankers have
to say?
Get references and talk to some of their
existing customers to reference check and
find out what their experience has been
like. See if you can also talk to their bank
(with the Channel Partner’s permission).
• What is their English language
capability?
Find out if the CEO or owner speaks
English and how many employees have
English language skills
• How skilled are their sales staff?
Ask for copies of the sales staffs’ CVs. Do
they have the technical expertise to sell
your product?
• What is their logistics capability?
Find out if they have their own warehouse,
sales fulfilment and logistics systems
• What are their normal payment terms?
• What is their attitude to bribery or
corruption?
Be aware – New Zealand law requires you
to conduct appropriate due diligence with
your partners or agents, to avoid bribery
and corruption. You can still potentially be
held liable in New Zealand for what your
agents or intermediates do overseas, even
if you don’t directly employ them.
Once you have all of the above
information, you should complete a
full risk analysis and mitigation plan.
Some Channel Partners may be nervous
about discussing these points, but
explaining why you’re doing this - as part
of a structured process, to maximise your
chances of success and minimise future
misunderstandings and problems – should
help to settle their concerns.
Proper due diligence not only protects
you, but it communicates important
information to your future partner about
the approach and commitment you are
making to enter the market:
• You are long-term oriented
• You are prepared to make the
investment in time and money to do
things right
• You are committed to making the
relationship successful.
ASSESSINGA
CHANNELPARTNER
11. PAGE 9
It is imperative that at this stage
you have:
• Developed a strong relationship with
the owner and/or CEO, and key decision
makers
• Set clear expectations about how you
want the relationship
to work:
– Transparent relationship
– Active management
– Agreed sales and marketing support
– Clear performance expectations
(KPIs)
– Clear exclusivity and market
segmentation
– A defined territory that the agreement
will cover
– Ownership and protection of IP
– A clear arrangement for stock and
sample holding
– Payment terms
– The duration of the agreement – when
it starts and ends
– Clear arrangements for setting and
controlling the sales price
– Commission and margins
– Reporting – including sales, warranty
claims, losses and wastage, product
expiry dates, forecasts, consumer
trends and insights, etc
– Dispute resolution – including
processes for arbitration
– Termination processes – including
reasons for termination, arrangements
for repurchase of stock, settlement of
outstanding payments, notice of
termination and each party’s
responsibilities.
When you appoint a Channel Partner you are generally entering into a legally binding agreement.
Documenting your agreement
in writing
Finally, capture the Channel Partner
Agreement in writing.
This is a critically important document
– it is legally binding and encapsulates
your agreement with the Channel
Partner.
If there is a dispute, this is the
document you will go back to,
so it is vital you have a mutually
agreed record of your Channel Partner
contract.
The complexity of the agreement
generally reflects the risk to your
business.
You’ll find an appendix with common
terms used in Channel Partner
agreements at the end of this guide.
APPOINTINGA
CHANNELPARTNER
12. PAGE 10
RELATIONSHIPSAND
THE‘ASIANCONTRACT’
In Asia, as everywhere in the world, developing relationships
involves investing time and resources. Good relationships are not
won easily, but once developed can be worth their weight in gold.
In short, relationships are slow, but doing business is fast.
In traditional Asian thinking, the weight
of a contract is not seen as important as
the strength of the relationship – a strong
relationship comes first, and contracts
come second. Little value is placed on
a contract that merely structures a bad
relationship. Western business thinking
differs on this point. The key here is not
to judge, but to be aware of different
thought processes that will affect how
you work with Asian Channel Partners.
In a contract-driven scenario, the contract
defines how situations are dealt with.
There may be winners and losers, and
this is understood to be the nature of
business. In a relationship-driven scenario,
it’s understood that the parties will get
together to work out the best possible
result for both parties - which might or
might not match what is written in the
contract.
This approach can be seen in a traditional
Asian contract, which may contain a
clause that reads “If circumstances
change the parties agree to discuss…”,
or similar wording. To Western thinking,
this may defeat the purpose of a contract,
but to Asian thinking it highlights the need
to take the other party’s situation into
account, which can often work for your
benefit as well as theirs.
Many, if not all, Asian Channel Partners will
be used to doing business on a contract
basis, but be prepared to negotiate every
line of a long and complex Western-style
boiler plate agreement.
The ‘Asian contract’:
• Is built on trust and maintaining
relationships
• Can make it difficult to negotiate a
Western-style boiler plate agreement
• Includes the idea that “if things change
we agree to talk” – explicitly, or implicitly
• Does still allow for strong performance
management.
13. PAGE 11
Why management matters
Finding an Channel Partner is a relatively easy first step – but
getting results and maximising them is a lot more complicated.
More often than not, companies put the majority of their efforts
into finding a Channel Partner, but very little effort into managing
their performance. The Channel Partner is simply left to their own
devices and expected to produce results.
The value of an export market can be thought of as a triangle with
three main supporting points – market opportunities, pipeline or
value chain, and available resource.
Actively supporting your Channel Partner is a key part of
your resourcing for tackling any market. Without a properly
resourced partner, the potential for growth collapses, even if the
opportunities are significant and the Channel Partner and their
value chain are rock solid.
Market Pipeline/
Value Chain
Channel Partners Resources
Channels available
(bricks mortar, eCommerce,
own stores)
NZ Company
Resources
Time
Money
Support of the Channel
Partner
Market Opportunity
Size
Customers
Competition
In Market Success Factors
Research agency Bain Co recently conducted a study of 2,000
successful sales organisations, tracking their sales growth over 10
years. Only 25 percent of companies were able to achieve growth
rates over 5.5 percent a year – the rest followed a ‘conventional’
path, with some common features:
• Targets spread across territories
• Market selection based on trends or hot markets
• Channel Partners depended on as ‘rainmakers’ to generate
sales.
In order to achieve sales growth, companies that took this
approach had to increase sales resources or add new markets,
which in turn added cost. The result was lower profitability and
less resources for growth over time.
The 25 percent with superior sales performance took a more
structured approach to working with their Channel Partners and
growing their business:
• Identifying the most promising customers
• Customising products to meet customer demand
• Putting priority resource into key segments
• Having a systematic sales and marketing process
• Having clearly structured performance management
• Aligning sales metrics to maximise sales.
MANAGINGA
CHANNEL
PARTNER
14. PAGE 12
Active management is simply
the concept of being actively
engaged in your business with
the Channel Partner.
Channel Partners provide access to a lot
of valuable information and resources
– including existing customer bases,
networks and contacts, detailed local
knowledge, regulatory understanding,
and logistics support. However, none of
this means that they will automatically
understand your product and be best
placed to sell it – or that their sales force
will always be motivated to sell your
products.
Just like your own employees, Channel
Partners need guidance, training and
support to get the best outcomes for your
business. If they have to carry on alone
without help, but are simply expected to
‘get on with it’ and get results, you’ll never
see sales reach their full potential – or you
may never see any sales at all.
Too many exporters believe that profit on
sales, or commission, is all the motivation
a Channel Partner needs.
Taking on a new product means not just
opportunity for a Channel Partner, but
also real costs – including investment,
training, cashflow and resources taken
away from other parts of the Channel
Partner’s business.
Most effective Channel Partners are
frequently exposed to new products.
Over time, they’ll focus their efforts on
those that are well supported by active,
engaged suppliers – and away from those
that are poorly supported (and thus
harder to sell), or come from suppliers
who expect the Channel Partner to do all
of the work.
If you’re serious about making your
product a success in-market, the first step
is to look at your relationship with the
Channel Partner as a genuine partnership
- and your contribution to that
partnership is active management.
Active management includes several key
elements:
• Agreement, between you and your
Channel Partner, that your active
engagement is the best way to
achieve prolonged sales growth and
performance. Your Channel Partner
should understand and welcome the
idea that you are investing in their
success as well as yours, and that
this is a positive process – you’re
demonstrating your commitment
to them, and inviting them to show
commitment to you as well.
• The transparent relationship, which will
give you access and knowledge about
the Channel Partner’s end customers
– the ultimate buyer of your product.
For this to happen, you need to build
trust and an understanding with your
Channel Partner that you are there
to help them. Your Channel Partner
may own the channel to the buyer, but
nobody can sell your product better
than you.
• Exclusivity and segmentation of the
market. Almost all Channel Partners
will ask for at least partial exclusivity,
whether this is by customer, segment
or territory. In their eyes, they are
investing in developing the market
for you, and don’t want to see that
investment lost to competitors. Most
Channel Partners will have some
experience of developing new business
and then watching it walk away from
them, leaving no return on their effort
– so it’s important to understand and
manage their need for exclusivity.
• Providing support to your Channel
Partner to help them grow and sell –
which can mean more than just financial
support or collateral. This is vital as
active management is a two-way street,
and your contribution is required to
make the relationship work.
• Setting up a framework for ongoing
performance management. This
includes developing and agreeing
performance KPIs which are shared with
your Channel Partner, and which you
can both work to achieve. This might
also include a visible dashboard for both
sides to view and update.
Finally, keep the Channel Partner Lifecycle
in mind throughout the management
process – as your business changes, so
will the needs and requirements of your
Channel Partner.
Effective active management will let you
identify and understand these changes, so
you’ll know when adjustments are needed,
or when it may be time to move on to a
new relationship.
ACTIVE
MANAGEMENT
Working closely with a Channel
Partner to grow sales takes
time and effort - but it’s a
much better route to long-term
success than spreading your
efforts thinly, and expecting
several Channel Partners to do
the work for you.
15. PAGE 13
—— Regular communication with your
Channel Partner. Set up regular
weekly or bi-weekly sales update
calls to manage your sales channel,
review sales performance against your
budgets, and do regular customer
reviews.
—— Regular visits to market. Aim to get
into market at least four times per
year – more if possible. Your Channel
Partner should also visit you from
time to time, for training, knowledge
of your company culture and general
deepening of the relationship.
—— A suitable marketing support kit and
sales materials. This might include
resources for sales staff, promotional
flyers, videos, or technical support
manuals. You should also consider
supporting your partner with
advertising, PR and so on as needed.
—— A jointly developed new product
launch programme. This should include
product information training, sales
training, and a shared promotional plan.
You should be prepared to co-invest in
the launch of your product (marketing,
advertising, PR, trade shows and so on).
—— A period of dedicated on-site sales
support from your company. This will
give the Channel Partner a head start
in learning how to sell and support
your product.
—— An agreed transparent relationship.
Your Channel Partner should be
comfortable with giving you access,
including regular end customer visits to
help you gain first-hand insights about
what your customers need and want.
—— Information seminars and training for
your end customers and buyers – to
ensure they are getting the most out of
your products.
—— A shared business and sales plan with
your Channel Partner. Set specific sales
goals and targets annually, and develop
a 3-5 year growth plan to reach bigger
goals (for instance, doubling sales over
the next 5 years).
—— An agreed set of financial and
performance KPIs. These should be
regularly monitored and reviewed.
—— Joint product development and
localisation. Shared development
can give you and your partner an
advantage in meeting end customers’
needs.
—— A defined process for dealing with
customer claims.
—— If possible, consider your own in-market
Business Development Manager. This
person can work proactively with your
Channel Partner to provide sales training,
organise media and promotional activity,
and develop your brand locally.
WHATDOESACTIVE
MANAGEMENTINVOLVE?
Active management of your Channel Partner should include as
many of the following elements as possible – depending on your
resources and the Channel Partner’s needs.
16. PAGE 14
Many Channel Partners will initially be
suspicious of suppliers that want to meet and
get to know their customers, worrying that this
will allow them to leave at any time for a better
deal and take the Channel Partner’s customers
with them.
Often this suspicion is justified - almost all
Channel Partners have been burnt in this way
at some time. To help get past these suspicions,
you need to build a strong bond of trust with
your Channel Partner, and explain that you work
in this way in order to generate the best results
for both sides.
The best way to generate this trust is to
demonstrate your commitment by visible, real
support for your Channel Partner, such as:
• Jointly developing and funding a marketing
programme for your product
• Providing and/or funding sales training
• Investing in marketing, social media and PR
on the Channel Partner’s behalf
• Investing in product development and
localisation.
Don’t forget - getting access to your Channel
Partner’s end customers puts the onus on you
to actively manage the relationship, and invest
time, money and effort in both sides’ success.
You can’t have the ‘take’ without the ‘give’.
Once your Channel Partner understands that
you’re committed to making the relationship a
success, and are working in good faith to give
both sides the highest return on investment,
they should be comfortable with working on a
transparent basis and helping you get a deep
understanding of your end customers.
The transparent relationship simply means that you know your Channel
Partner’s customers – the end buyer - very well. Knowing the people who
actually buy or use your products, and understanding their needs,
is essential to your success in the market.
THETRANSPARENTRELATIONSHIP
17. PAGE 15
At the simplest level, supporting your Channel
Partner involves putting in resources – funding,
people and time - to back your shared goals
around sales. This might include:
• Supporting joint marketing or promotional
campaigns in market – trade shows, social
media or digital promotions, advertising,
media activity, etc
• Initial sales training for the Channel Partner’s
staff, so they can credibly represent your
products
• Additional incentives tied to sales and
marketing – for instance, giving an ‘in kind’
bonus earmarked to support promotions if
the Channel Partner exceeds sales targets.
At the same time, bear in mind that support
can be provided in many ways, and doesn’t only
mean financial support, or assistance directly
linked to the sales process. If you can identify
other needs and appropriately suggest how you
can help, you may add much more value to your
Channel Partner’s business than just the margin
or commission they earn from selling your
products.
As well as standard sales and promotional
support, consider how you can support your
Channel Partner through:
• IP development and protection
• Assistance with developing operational
expertise, logistics, or inventory management
• Sharing and co-developing policies and
procedures, for instance health and safety
systems or HR frameworks for people
development
• Hosting key staff from your Channel
Partner in New Zealand, to learn more
about your products and the culture of
your business
• Embedding your own staff in their business
to support the sales process
• Running customer information seminars
• Working together on product development
and localisation
• Sharing governance insights – consider having
a full Board meeting in the Channel Partner’s
country, to give your Board exposure to the
market and deepen your relationship with
your Channel Partner.
Helping a Channel Partner in these ways can
have an impact that goes far beyond the dollar
value of your annual business with them.
Not only will you earn your partner’s trust and
appreciation, but you may be able to help them
eventually grow their sales capability beyond
current limits, and take your shared business
into a new phase of growth.
If you want to be important to your Channel Partner, it’s essential to provide
them with the right support. Channel Partners often work with a range of
suppliers, and becoming valued and important to your Channel Partner means
they are much more likely to prioritise your products and sales growth.
SUPPORTINGYOURCHANNELPARTNER
18. PAGE 16
Because it’s often a hot-button issue for
Channel Partners, exclusivity can be a
tricky issue to deal with in the early stages
of negotiation. However, giving blanket
exclusivity to a Channel Partner can
severely impact on your business later on
- especially if it becomes clear that they
aren’t suitable to grow your sales in the
long term.
Generally, exclusivity should be something
earnt by a Channel Partner, not given.
It can be very valuable to both parties,
but should not be entered into lightly,
and must come with performance
requirements that you intend to apply.
One common approach to handle a
Channel Partner’s demands is to set
performance criteria, such as minimum
sales volumes, in exchange for granting
full exclusivity. However, if the Channel
Partner fails to meet the criteria for
whatever reason, you’ll be left with two
unpleasant options – either letting the
criteria lapse (which undermines your
signed agreement, and makes it much
harder to manage based on performance
in future), or terminating the agreement
and changing partner, with all the
expense, lost time and wasted effort this
can involve.
A better approach is to use the
exclusivity discussion to learn about your
Channel Partner’s relationships, main
customers and breadth of coverage,
and then introduce the concepts of
active management and the transparent
relationship. This gives you an opportunity
to learn about your Channel Partner and
demonstrate your commitment to their
success, before getting into the details of
exclusivity arrangements.
Exclusivity does not always mean blanket
exclusivity, for ever – you can also offer
defined exclusivity by:
—— Market segment
—— Industry verticals
—— Specified customers
—— Types of customer
—— Distribution channel
—— Individual products, or bundles of
products, within your range
—— Territory – city, region or country.
The best way to tackle requests for
exclusivity is to try and understand what
your Channel Partner is trying to protect.
For example, most Channel Partners
cannot cover the whole market, and may
have several key customers that account
for the majority of their sales – it might
work out well for both sides for you
to give them exclusivity just for those
customers, which will leave you free to
approach other Channel Partners to cover
the rest of the market.
All exclusivity agreements should be time
bound and tied to active management
principles and solid performance criteria.
As mentioned earlier, many Channel Partners will ask for
exclusivity when negotiating with you at the start of the
relationship. From their perspective, representing your product
means investing time and resources which could be used
elsewhere – and exclusivity offers protection from suppliers who
exploit their time and effort to build up their initial business, and
then jump the fence to another partner.
EXCLUSIVITYANDSEGMENTATION
19. PAGE 17
Managing performance isn’t
just about focusing on KPIs
– it involves the whole active
management process, which
involves a large commitment
of time and resources but also
gives you the highest chance of
success, as well as close control
over performance.
If you’ve selected your Channel Partner
carefully, confirmed that they’re a good
fit with your business and product,
and agreed on an active, transparent
relationship with the right structure and
terms, managing your Channel Partner’s
performance becomes much easier – but
you will still need to put in effort to keep
things on track.
It’s essential to hold your Channel
Partner accountable to the performance
standards you’ve jointly agreed.
Holding your partner accountable is not
necessarily about penalties, or changing
Channel Partners when they don’t meet
targets – but it does mean a commitment
to jointly look at what went wrong, and to
work out a plan to turn it around. Note
the reference to jointly - you are working
with the Channel Partner, and it is a
partnership.
Setting KPIs often isn’t hard – it’s having
your Channel Partner agree to them
that’s difficult. A common error made by
exporters is to set KPIs at the beginning
of the relationship with no regard to other
factors affecting them, such as active
management, a transparent relationship
and Channel Partner support.
When setting KPIs:
• Set them jointly, and term them ‘Channel Partner
Commitments’.
• Make them achievable, no matter how small the
targets in the first year.
• Incentivise your Channel Partner to meet them, with
a bonus payment for reaching targets.
• Support your Channel Partner with marketing and
other resources, including appropriate funding, to
help them reach targets. This approach can be very
helpful when setting stretch goals. Ask the Channel
Partner: “What support do you require from me to
meet these sales targets?”
• Spell out clearly what actions will be taken if KPIs
are not met. Nobody wants a smack on the hand,
but sometimes a thorough customer review session
supported by you, followed by an action plan,
can be hugely empowering and motivational for a
Channel Partner.
If your product is new, or if you’re a small or unknown
player in their market, asking a Channel Partner to
agree to sales KPIs is very difficult as there is simply
no sales data to go on. Most Channel Partners will be
reluctant to agree sales levels targets in the first year.
There are two scenarios to be aware of:
• If your partner doesn’t agree to first year sales
targets, make sure you have a firm agreement to
introduce them the next year, and tie your support
to the development and acceptance of those KPIs.
Make it clear that you expect to work on a KPI basis
for the rest of the relationship.
• If your partner does agree to first year targets, work
with them to make sure they’re achievable – and if
not, reduce them. If you accept impossible goals
which the partner doesn’t meet, you’ll be stuck with
either holding them to the goals and damaging
the relationship, or letting it slide and setting a bad
precedent for future management.
The dashboard
Setting up a visible and easily accessible KPI
dashboard is an effective way of making performance
accountable, on both sides of a Channel Partner
relationship. It is a form of continuous passive
management that seeks to make Channel Partner
performance transparent.
Setting up an online dashboard allows the Channel
Partner to see the relationship from your perspective,
and to align their behaviour accordingly. The
dashboard should capture the main KPIs you are
managing to, and importantly should be live and
continuously updated, allowing issues to be spotted
and fixed at the time - not at a performance review
months later.
A well set-up dashboard will allow you to link
incentives, support and bonuses more easily and
relevantly in a timely way.
An advanced form of the dashboard is the use of
the Balanced Scorecard approach, as developed by
Kaplan and Norton (http://balancedscorecard.org/
Resources/About-the-Balanced-Scorecard). This
requires customisation, but may give you the most
flexible and holistic management approach.
MANAGING
PERFORMANCE
20. PAGE 18
Active management involves
knowing when to make
adjustments, big or small,
to the way you work with
your Channel Partner.
Sometimes you might make
these changes in response to
specific problems – at other
times, they may simply reflect
how the market or your
respective businesses have
evolved over time.
In a healthy active management
relationship, there should be enough
trust for you to discuss any necessary
changes without causing offence or
losing existing business, as well as
keeping your partner motivated to
succeed.
MANAGING
CHANGE
Change within a Channel
Partner relationship might
include:
• Changes to commission or payment
structures
• Revised KPIs or performance
expectations
• Changes to exclusivity – expanding or
reducing scope
• Changing channel structure, eg.
engagement in eCommerce
The key to making the right changes
is to consider what will motivate and
enable your Channel Partner to do their
best, and also give your business the
best possible avenues for growth.
Trust and goodwill built through
active management can make a huge
difference to how your Channel Partner
responds to any changes. For example,
in a weak relationship, reducing your
partner’s exclusivity can come across
as a punishment – but in a strong
relationship they may be happy to focus
on areas where they can do best, and
leave you to focus on customers outside
their reach.
One-sided or punitive changes (which
only benefit you at your Channel
Partner’s expense) usually work out
badly. Even if you’re acting in response
to failure, keep the focus on the future,
and on what both parties will gain if the
right changes are made.
21. PAGE 19
Symptoms and causes
Below are a few tell-tale symptoms
that something has gone wrong in your
Channel Partner relationship:
• Intermittent replies, with 2-3 day
periods or more without response
• Response times that are growing longer
and longer
• Lack of English language skills, or
language skills that get worse in times
of conflict or difficulty
• No backup available when the key
person is not there
• Limited or no customer feedback
• Orders cancelled without reason or
explanation
• Price being cited as an issue in every
transaction
• Playing of the culture card - “You just
don’t understand, that is impossible”;
“This is the way things are done in Asia”
• Increasing technical problems or claims,
without supporting information
• Shielding of the end customer – the
partner won’t tell you who your end
user is, or won’t take you to meet
them (sometimes claiming they are
unavailable)
• Payment terms not honoured, with the
end customer blamed
• Payment terms blowing out without
explanation.
These symptoms can be caused by a
range of deeper problems, from both the
Channel Partner and supplier side.
Channel Partner problems
• General competence – overextended,
or not able to follow through on
commitments
• Size, coverage or ability of their sales
force
• Employee change or executive
succession – perhaps with loss of skills
or key relationships, impacting their
ability to sell or support customers
• Financial problems with the Channel
Partner
• Different growth expectations – the
partner may want more aggressive
growth earlier, or might not be
motivated to grow their business
beyond a certain point.
Supplier problems
• Products that don’t have a sound value
proposition in the market
• Product quality issues that haven’t been
addressed
• Lack of on time delivery, wrong product
or wrong specifications, shipping
damage
• Unrealistic pricing
Channel Partner problems usually develop
over months or years, and often the root
cause of the problem isn’t evident up
front. If left unaddressed, these problems
can drag on for years, limiting growth and
frustrating management on both sides,
and ultimately destroying the trust and
goodwill that underpins the relationship.
HANDLING
PROBLEMS
WITHCHANNEL
PARTNERS
By the time most companies
realise they have a Channel
Partner problem, they’ve already
made at least one of three major
mistakes:
• Inadequate market research, or poor
understanding of the end customer –
meaning they don’t know how to assess
whether they are succeeding or failing
• Lack of due diligence, or not
investigating other options, when
appointing the Channel Partner
• Not actively managing the Channel
Partner throughout the relationship.
Knowing the market, knowing your
Channel Partner, and actively managing
the relationship will help you stay clear
of the most serious Channel Partner
problems, and to resolve issues more
easily when they do happen.
However, problems can still crop up in
any Channel Partner relationship, and
knowing the warning signs and how to
act on them will help to put things back
on track.
22. PAGE 20
Key principles for resolving problems
Many Channel Partner problems can be resolved more easily
(or prevented in the first place) if you have been applying sound
active management principles, and if you’ve taken the time and
effort to learn about your Channel Partner and end customers in
detail.
If problems do still crop up, it’s critical to move quickly to discuss
them, and make concrete, time-bound plans for both parties
to fix them. Letting a problem slide once you are aware of it
will signal to the partner that you don’t care if things are going
wrong, which can cause other issues to snowball.
It’s essential that you work hard to understand the root cause
of the problem, and create a climate where the Channel Partner
feels safe and encouraged to open up to you. For instance, price
is by far the most common problem raised by Channel Partners
- sometimes this does mean the exporter simply hasn’t set up
their pricing correctly, but it might also indicate that your value
proposition isn’t convincing end customers to buy at any price,
meaning the product needs to be modified or repositioned
within the market.
Digging into the issues with your Channel Partner can ultimately
benefit your business, as long as you are willing to listen and act
on the answers you get. Be prepared to encourage and reassure
Channel Partners who may be too shy or polite to speak out
about problems - or afraid of your potential reaction.
Shielding of the end customer – and how to prevent it
Shielding of the end customer is the opposite of the transparent relationship, discussed earlier in this
guide. It can include a lot of the other irritating Channel Partner behaviours and symptoms listed above
– and once detected, it’s a strong indicator that the relationship is running into problems, or that you
haven’t set the right expectations and shared responsibilities at the outset.
A solid Channel Partner adds value to a sales transaction, and generally has a strong relationship with
the end customer. As such, they’ll be happy to make customer introductions and meetings for you, to
help both sides understand and improve what they offer to the end customer. They may still be nervous
at first, but once the mutual benefits of a transparent relationship are clearer, sharing contact with end
customers should become less of a problem.
By contrast, a Channel Partner who doesn’t add value will feel threatened by your interaction with the
end customer and react by shielding them from you. This is counterproductive and damaging – at best,
you become totally dependent on the Channel Partner for your sales, and at worst you become totally
unable to understand your customers’ needs and compete in the market at all.
It can be very difficult to claw an effective relationship back once you have allowed a Channel Partner
to shield you from end customers. You may need to effectively reset the relationship from first
principles – confirming that this partner is in fact still right for you, and agreeing a totally new working
model with them. If there is not enough trust in the relationship for this to work, or if the problem has
been occurring for a long time, you may need to make more radical changes, or move away from the
Channel Partner altogether.
The best solution for shielding of end customers is preventing it in the first place - by agreeing a
transparent relationship up front, putting processes in place to safeguard and maintain it, and by
following through on your own commitments to share information with your Channel Partner.
HANDLING
PROBLEMS
WITHCHANNEL
PARTNERS
23. PAGE 21
Changing Channel Partners can be
stressful and costly, with the risk of losing
existing business and disrupting your
connections to the market. The decision
to exit shouldn’t be taken lightly, but there
are times when it may be the only way to
move forward.
As a regular part of active management,
you should always have a prepared
exit plan that takes into account your
obligations to your Channel Partner, the
implications and costs of changing, and
any laws and conditions that apply in-
market. This should be kept up to date
throughout the relationship - not prepared
in a hurry once things have already gone
wrong.
If you do need to exit a Channel Partner
relationship, keep the following key points
in mind:
• First of all, talk to your partner
and explain why you’re ending the
relationship. If you’ve maintained active
management but the Channel Partner
has still not met KPIs or performance
expectations - after you’ve discussed it
with them, and given them time to sort
things out – they should understand and
respect your decision.
• Try to leave amicably. Make sure that
you meet your obligations, and treat the
Channel Partner respectfully throughout
the separation. The relationship may
have already soured – but don’t give
them excuses to hold onto a grudge, or
actively damage your business.
• Exit through negotiation or arbitration if
possible. Aim first for a clean negotiated
settlement, based on your Channel
Partner agreement. If that doesn’t work,
try arbitration through a third party
or registered specialist. Entering legal
disputes should be a last resort.
• Use a lawyer if needed to protect your
financial assets, IP or market position.
A good local legal counsel can also
help you tackle challenging situations
and find an amicable solution, without
entering a formal dispute.
• Make sure you understand any financial
obligations. These should be written
into your original Channel Partner
agreement. In some circumstances, your
Channel Partner may expect a financial
severance package, on top of your
buying out their remaining inventory
and (on occasion) paying partial costs
for staff redundancy.
• Get your end customers to understand
the change. Talk to them and explain
why you’re changing Channel Partners,
and how this will lead to better service
for them in the future. Invite them to
make the switch, but don’t run down
your former Channel Partner, especially
when the customer may have been
dealing through them for many years.
• Make sure customers switch smoothly to
your new partner. Customers who follow
you over to a new Channel Partner
should get the same level of service as
before – poor service may drive them
back to your old partner, or on to your
competitors. Pay close attention to
inventory supply, logistics, after-sales
support, returns and warranties, to
make the transition seamless for your
end customers.
EXITINGA
CHANNEL
PARTNER
RELATIONSHIP
Active management principles
will help you to keep tabs on
where your relationship sits on
the Channel Partner Lifecycle,
and whether your Channel Partner
will be able to adapt to meet your
future needs - or if you may need
to exit the relationship altogether.
24. PAGE 22
We’ve seen that successful Channel Partner management
in East Asia has several key features:
• Active management throughout the
relationship
• Awareness of the Channel Partner
lifecycle and changes in the relationship
over time
• Deep knowledge of your target market,
including customers, channels and
cultural factors
• Structured and documented processes,
from recruitment and growth through to
management, change and a formal exit
strategy
• Strategic alignment to achieve common
goals
• A transparent relationship where you
are just as connected to end customers
as your Channel Partner
• Continual support to help your Channel
Partner achieve growth
• Clear exclusivity arrangements to focus
your partner’s efforts on what they can
do best, and give you flexibility to grow
• Performance measures that are clear,
achievable and enforced
• Sound procedures to resolve problems
when they occur
• Solid exit strategies and procedures so
you can move on, at the right time, to
the right Channel Partner for your next
stage of growth.
Channel Partner management at its best
means that your partner functions as
an extension of your business - sharing
your culture, values and performance
measures, and creating value for your
customers in partnership with you. The
structure of the relationship may change
over time, but both parties have common
interests and goals and work to achieve
them throughout the Channel Partner
lifecycle.
One key measure of success is a cash
positive relationship between you and
your Channel Partner. This signals that
they value you enough to fund your
business by paying for goods and services
in advance – making your business an
essential part of theirs, and aligning their
success with your own.
WHATDOES
SUCCESS
LOOKLIKE?
25. PAGE 23
Operational contract clauses such as those below are used in contracts to help drive cost efficiencies for the manufacturer
APPENDIX:KEYCHANNELPARTNERCONTRACTCLAUSES
Lever Purpose In Practice Key Benefit
Minimum Order
Quantity
Setting minimum order quantities will help manufacturers reduce costs across their warehouse through
less material handling at both the inbound and outbound points as it will reduce the need to breakdown
packaged stock to individual units
• Agree a minimum order quantity with distributor (at least for high volume product)
• Agree if minimum order quantity is not met whether order is to be fulfilled up to the minimum
order quantity for the item or rejected
Will reduce stock handling and associated
costs
Method of
Ordering
• Setting agreed ordering methods will limit the amount of overheads incurred by the manufacturer
• Mandating electronic ordering will also lower overheads and make enforcing ordering cut-off times
easier
Explicitly stating goods and services to be ordered directly through the system (rather than
manual PO’s, phone orders, etc.) to ensure they have electronic time stamps to link with order
cut-off times
Lowers administrative overhead
Account
Management
Relationship
• Agree the key personnel and roles that will be dedicated to the services set out in the contract
• Includes:
• Escalation points
• Onsite representatives
• Account managers
• Agree the visibility representatives will have into the distributors processes, data and forecasts
• Managed agreed commercial framework
Will aid in ensuring accuracy of data and
forecasts delivered
Distributor
Engagement
Reporting
• Agreeing the schedule for all performance meetings in advance along with the required attendees will
ensure the required personnel for each party will attend and disputes / performance problems can be
addressed in a timely manner
• Agreeing the reporting schedule is also an important part of this clause
Should set out meeting schedules including:
• Type of meeting and attendees
• Timing / frequency
• General agenda items
Should set out reporting schedules including:
• Type of reports and frequency
• Method of delivery
Should also set out operational reporting requirements including:
• Distribution of daily delivery schedules
• Notifications of stock issues
Ensures issues are raised before they
greatly effect performance standards
Shipping/ Delivery
Days
• If possible delivery days should be set in advance and agreed with distributor
• Having set delivery dates will allow for greater warehouse efficiencies through staffing requirements and
greater logistical efficiencies
• Agree the days of the week/month that goods will be delivered to the distributor (can be
broken at different levels either by store, region, state, volume, etc.)
• Should also cover the times that deliveries will have access to the site
• Will be linked to order cut-off times
Creates cost effective delivery routines
Core and
Additional
Services
• Contract with distributor should explicitly state what is covered in core services and what will be
regarded as additional services (such as after hours deliveries, etc.)
• This will help protect the manufacturer from scope creep and disputes about what is / is not covered by
the contract and associated pricing
This clause should set out the services involved in core services and should link to the clauses set
out above
Avoids scope creep
KPIs • Recommended to be in the form of a balanced scorecard and cover the requirements of both parties
• Ensuring this is as quantifiable where possible will help to create a set performance review metric that
will help to eliminate emotive views that may or may not be a fair representation
• All KPIs together with their relevant weightings should be set out in the contract
• Agreed criteria should be set outlining how each metric will be measured
• Any rewards / penalties should be agreed for performance / lack of performance, including
value and how when they will be paid / enacted (can be at both individual KPI level and as
an overall result)
Provides objective metrics for
performance evaluation
Demand Forecast
Incentive
• This clause provides a financial incentive to the purchaser of goods to provide accurate demand
forecasts
• Allows the manufacturer to better manage inventory and production processes
• Both annual and monthly forecasts will be provided to the manufacturer with an agreed
allowable tolerance (tolerance may vary by product type, etc.)
• Each month and annually the forecast accuracy will be calculated and will be deemed either
satisfactory or unsatisfactory – in the case of being unsatisfactory an agreed penalty will be
paid by the distributor to the manufacturer
• Should also be linked to the ‘in-full’ component of the DIFOT KPI
Provides visible financial reasons for
parties to share data
Payment Terms • Payment terms should be set out clearly including cut-off dates for invoicing
• Need to consider the cash flow effects of terms such as 60 days from date of invoice compared to 60
days EOM
60 days from date invoice would provide faster cash inflow than 60 days EOM Improved cash flow and working capital
Contract Length • Agreeing contract length along with any review periods is important to ensure both parties have a
chance to review the contract at agreed times if for any reason circumstances change during the life of
the contract
• Using a term plus option contract (i.e. a 3+3+2) provides some security of a long term contract with the
flexibility to adjust
The contract may be, for example, a eight year contract in the form of a 3+3+2 – this allows each
party to review the agreement every three years before extending for another three years
Provides a the timeframe to amortise
assets / recover costs
• a known out if the arrangement is not
working sufficiently
Schedule of Rates • All baseline prices should be agreed (including any formulas) to ensure there is a written record at the
contracts start date to minimise dispute
• This should also include classification of items in the case of having different conditions on different
groups of items
• A full product list should be provided with initial pricing and product classifications as a
schedule in the contract
• This will be supported by the clauses listed above and will form the basis to any price
adjustment mechanisms
Have a written record of agreed price
Price Adjustment
Mechanisms
• This will allow the manufacturer to pass through any unavoidable price increases they may be subject to
across their operations and protect margins
This may include (including relevant formulas):
• Upstream price increases
• Increases in EBA rates
• Fuel price increases past on from freight operations
• CPI
Provides transparency for both parties to
understand any cost movements
IDENTIFYING
PROBLEMS
MANAGING
PERFORMANCE
SUPPORTING
THE CHANNEL
PARTNER
MANAGINGAPPOINTINGFINDING
