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Monday, February 12, 2007

Balanced Distributor Agreements Create Poor Financial Results for Retailers

In researching a related topic I came across an excellent article written by Geln Balzer at ExperLaw in 2003.  The article titled Constructing a Balanced Distributor Agreement covers the importance of creating a balanced agreement, understanding how imbalance occurs and the competing dynamics of Perceived Value versus Terms and Conditions.

As a distribution contract manager for several years, I have seen hundreds of agreements come and go in many varieties.  This article expresses a very important kernel of wisdom that any supplier or distributor or retailer should learn.  A one sided unbalanced distribution agreement will not survive the test of time and usually ends with many potential business opportunities unrealized.

When a Supplier or a Distributor attempts to get the upper hand in a distribution agreement, the other party will lose a little and this will be the seed that grows up to be a renegotiation or an exit strategy for the losing party to the deal.  Many large retailers have extremely one side agreements that penalize distribution partners and distribution suppliers for many different issues.  Most of these same retailers have troubled businesses as well. 

It is important for companies to stay focused on what is really important and overly complicated and unbalanced agreements often time create situations where the retailer and distributor focus on the most painful metrics in the agreement instead of focusing on the fundamental and most important aspect of getting business done successfully.  When every department that has costs is transformed into a business with its own revenue center, the company transforms from a thorough bred horse into a multi headed hydra that can not focus on one course of direction.  Show many any retailer in the United States that has financial difficulties and I will show you an agreement that is too long, too complex and very unbalanced.