The increased demand for independent manufacturers' representatives has resulted in the unique situation that reps now see their negotiating/bargaining position with principals to be more desirable than ever before.
Late last year, MANA President Joe Miller authored an article that presented a number of arguments backing that thesis. The article appeared in Agency Sales and received additional exposure in other industry publications. Among the points covered in Miller's article were:
* "Currently there is a high demand for manufacturers' representatives - While we don't count the number of telephone calls or inquiries we receive via the Internet each month, I know that close to 300 manufacturers each month ask about MANA and about manufacturers' representatives."
* "As the economy was moving positively as late as the end of 2000, manufacturers were quick to make capital improvements to their operations in order to meet increased demand. Once things slowed and some manufacturers lost 10-15% of their volume, that increased capacity turned around and worked against them. Many manufacturers have been caught with the expenses they incurred to meet increased need and closing plants is hardly an option they want to undertake. Hence, there's an obvious attraction for the role the manufacturers' representative can fill in marketing that excess. As reps help these manufacturers to solve their short-term capacity problem, the manufacturers begin to see the long-term benefits."
* "Complementing the aforementioned is the fact that the manufacturers' representative of today has rapidly ramped up the level of his professionalism - and with that comes serious improvements in productivity for both the manufacturer and the rep."
* "Changes in agency compensation plans - Sure, the common understanding is that the independent manufacturers' representative is only paid when he sells something. But, as extra demands have been placed on reps by manufacturers, reps have been able to negotiate from a position of strength when taking on new lines. Many are asking for and receiving retainers, some territory development cost assistance and longer post-termination commission periods."
* "Demands for increased productivity - The requirements that manufacturers and customers have placed on their reps to keep up-to-speed in terms of doing more with the same or less is a challenge the rep has accepted with pride. A visit to the typical rep firm will find a company loaded with today's 'tools of the trade.' The rep's dependence upon laptops, cell phones, web sites, PDAs, etc., to get the job done is accepted as a given in the marketplace."
Miller's is hardly the only voice on this subject. A sampling of reps' opinions backs what he's already put forward.
Changing of the Times
Fully armed with a long track record as a rep, Mike McCormick, McCormick & Assocs. Inc., Wilmington, Delaware, notes that "It's amazing how many principals come to you with some sort of 'boiler-plate' approach to the principal-rep relationship and expect you to be grateful. Things have changed. I don't mean to sound arrogant at all, but as a rep, I have the relationships, I know the marketplace, and quite frankly, I have the power in the marketplace. If they're not willing to bend in the establishment of a relationship, I don't necessarily need the line. It's no different than if you are applying for a job. It's all about negotiating before you're hired. That's what we as reps should be doing today."
McCormick adds that at the age of 47, he's already got close to 15 years of experience as a rep. "I'm in the industrial market. While it's not very glamorous, there aren't that many of us out there with real experience. In my marketplace there are few competitors. I've shown that I've got the staying power to serve that market. That works on my behalf and strengthens my position with principals."
Here's how that background and experience have worked in his favor: "In my exclusive territory, there are no house accounts. And then, depending upon the level of business for a principal, we decide whether we go with a retainer or not."
This approach obviously works for McCormick as he notes that "Most of my lines have been with me in excess of five years."
Positive View is "Right on the Money"
Ken Benjamin, the Benjamin Company, Port Clinton, Ohio, opines that the thought that reps are more in demand now than ever before is "right on the money." The situation is so good, in fact, that Benjamin, who recently returned from the Hannover Fair in Germany, maintains that "after walking the aisles of that show for a couple of days, I'd be thinking about starting another rep business if I were 30 instead of 69. Once people there found out what I did, I was turning them away."
Benjamin holds the opinion that "reps that have survived the 'test of time' are mature, experienced, professionals and have shown that they know how to run a business. At the same time, manufacturers today are in a hunt for profitable sales operations, and good reps are hard to find." That's a formula for success for the established rep firm.
He continues that there are plenty of new companies and others that have always gone to market with direct sales. "They'll be looking at reps for the very first time, and what they'll be looking for is an agency that has a following in the marketplace. In the rep's favor is the fact that in these down times, manufacturers that have people in the field at a cost of $100 to $300 daily, whether they sell anything or not, can no longer afford that expense. The rep on straight commission who is willing to assist in getting the manufacturer adjusted to the marketplace and will help him with marketing and advertising can be very selective with whom he wants to go to market."
Reps are on Outsourcing's Leading Edge
As far as reps are concerned, the "reality of it is that outsourcing is a phenomenon that is happening everywhere, and it's affecting all professionals. It's a manifestation of the belief that you have less of the liability associated with having employees, and at the same time, you're able to focus on the specific capabilities you desire in individuals." That's the view of Bill Greim, Engineered Production Components, Guilford, Connecticut.
As a result, Greim maintains that while many of the constants that make up the rep-principal relationship remain the same, the relationship has changed in other areas. "In some cases, we're in a better bargaining position than we've been in before," he notes. "For instance, consider the manufacturer that requires his reps to prospect for him. In the past, we may have just accepted the commission that was agreed upon and not considered all the extra work we have to put into working a new territory or a new product. Now, we don't simply have to accept what's offered. Instead, we can negotiate from a position of strength."
As a follow-up to that thought, Greim explains that it has been his practice over the years to search out principals "that didn't have existing business in the territory. I always felt that put me in a better position than another rep. What I would look for would be a quality principal with whom I could negotiate good contracts with long termination periods. Having said that, I've never had to make use of termination clauses with my principals."
Finally he offers that now is a good time to be a rep. "Sure it's a more difficult time to start an agency. Fifteen years ago all you had to do was hang out a shingle and you were in business. Now, we live in a more legally complex society than ever before, and there are more challenges to success. But today, if you're established and possess the talents and attributes that a total businessman must, you'll be successful."
Reps Must Take Advantage of Opportunities
Voicing agreement is Sam Johnson, Electra-Tek Carolinas, Inc., Greensboro, North Carolina. According to Johnson, "Because of the pressure in the marketplace and the speed with which things change, I'd have to say the rep's bargaining position with his principals is stronger today than ever before. Accordingly, I believe reps have a great opportunity to talk with their principals and propose new and creative ways to market together. Now, it's still the case that many manufacturers don't want to change the way they work with reps, but because of pressure and confusion in the marketplace, they're open to new ways to improve the bottom line. For instance:
* Suggest new approaches and doing some things differently with commission dollars, especially by looking at the products a manufacturer sells and considering the ones that are more profitable for the manufacturer.
* Consider setting up different commission schedules for the 'bread-and-butter' products and offering higher commissions for those products the manufacturer really wants to drive through the marketplace.
"This is a great time to start bringing up these types of ideas to your principals. You may find that even long-standing manufacturers that may have had a reluctance to change in the past, are today willing to entertain new and creative ways to motivate the sales force."
In the end, Johnson says "I'm a firm believer in the fact that it's an important part of the rep's value-add to his principal that he bring new approaches to business."
Both Sides Look for Mutual Benefit
Rick Guertin, Devon Marketing Company, Wayne, Pennsylvania, takes a somewhat tempered view of the statement that the rep's bargaining position has improved. "Sure, I agree that manufacturers are more active in seeking the services of independent rep firms. But, what is the quality of that manufacturer? What do they plan to accomplish with reps? What is their market for the product? Have they established a sales and marketing plan? Do they really understand the rep function and are they committed to the relationship? Has that manufacturer partnered with reps in the past? What was the outcome of that relationship?
"I could think of many other questions that are very important to this decision-making process, but I don't want to bore you to death.
"Having posed all those questions, I am not sure these days that either side could dictate the terms of the relationship due to the different levels of manufacturers' and rep firms' respective objectives. What is really important is that both sides enter into a fair agreement and both work for mutual benefits and focus on goals that will enhance the relationship over the years to come."
Principal Still Wields the Power
Only partial agreement with the thesis of this article is offered by Dennis McDonald, CPMR, partner, McDonald Associates, Inc., Arlington Heights, Illinois. "While I'll agree with the premise that reps are in demand today like no other time, I'm not sure our bargaining position has improved all that much with them. Remember, it's the manufacturer who still wields the power of the pen and the 30-day contract. Having said that, however, there's no question that given the state of business and the economy today, the future of the independent rep is extremely bright. Everyone in all industries is outsourcing, and we're the outsourced function for sales. That works in our benefit because time remains the most critical element in the sales cycle, and engineers and customers simply don't have the time to spend with nine or ten individual manufacturer salespeople. That's where I come in - they'd rather spend that valuable time with me."
Keeping an Eye on Value'Add
And, finally Brad Baxter, Intensa, Inc., Pontiac, Michigan, maintains that "if the rep keeps his eye on the 'value-add' he provides the principals, then he puts himself in the most advantageous bargaining position."
Baxter explains that in his opinion, "There may be some different practices that benefit reps on a company-specific basis, but I wouldn't say there is any change across the board on how principals approach reps. They all employ a philosophy covering how they're going to pay their reps, and no matter what demands the rep puts forth, that philosophy isn't really going to change. One example of what a rep could do to develop more leverage in the area of bargaining, however, would be to have an engineering staff that could develop product improvements. They could achieve additional leverage with their concepts and establish some cost targets up front so they can control their commissions a little better."
He continues that what he's really talking about is providing value-add for the principal. "Providing value-add will always point you in the right direction. Otherwise, the rep will always be at the mercy of the principal when it comes to establishing terms."
[Sidebar]
"...close to 300 manufacturers each month ask about MANA and about manufacturers' representatives."
[Sidebar]
"It's all about negotiating before you're hired. That's what we as reps should be doing today."
[Sidebar]
"...reps that have survived the 'test of time' are mature, experienced, professionals and have shown that they know how to run a business. At the same time, manufacturers today are in a hunt for profitable sales operations, and good reps are hard to find."
Ken Benjamin
[Sidebar]
"...we don't simply have to accept what's offered. Instead, we can negotiate from a position of strength. "
Bill Greim
"Because of the pressure in the marketplace and the speed with which things change, ... the rep's bargaining position with his principals is stronger today than ever before."
Sam Johnson
"What is really important is that both sides enter into a fair agreement... that will enhance the relationship over the years to come. "
Rick Guertin
[Sidebar]
"...there's no question that given the state of business and the economy today, the future of the independent rep is extremely bright."
Dennis McDonald, CPMR
[Sidebar]
"...if the rep keeps his eye on the 'value-add' he provides the principals, then he puts himself in the most advantageous bargaining position. "
Brad Baxter
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