DEALER ENGAGEMENT
Tony Pinto
Technical Sales Manager - North America | Bulk Materials Handling | Ports & Terminals | Mining | Industrial | Quarry
CONTENTS
1.?INTRODUCTION
2.?DEALER AGREEMENT
2.1.?Dealer Agreement Index Structure
3.?DEALER ENGAGEMENT MANUAL
3.1.?Dealer Engagement Manual Index Structure
1.????????????INTRODUCTION
For this new article on Dealer Engagement, as per previous LinkedIn articles, I will once again leverage on my real-life experience and knowledge to talk through this article.
As a short introduction, if your company designs and manufactures a product that has a route to market strategy through a dealer network, then it is highly recommended that a ‘dealer or distributor agreement’ be put in place to govern and secure the behaviour of the two parties.?
There are many benefits to be gained by having an agreement in writing that provides for continuity for e.g. the sales management team, ability to make short and long-term business decisions from investing in resources, facilities and equipment not to mention investing in the after sales strategy (parts and service trucks) to name but a few.
From the OEM perspective, it too provides clarity on the intended future partnership from product development, market penetration, reduction in ‘direct sales’ personnel, advertising and promotion, sales performance and many other disadvantages that can be listed here.
Figure 1: Verbal Contract
When everything is left to the ‘old guard’ who agreed in principle to work in a certain manner, well, the sad fact is that market conditions change, new industry demands are placed on companies and one cannot associate a value to a ‘hand-shake’ agreement when trying to valuate a company business during a Merger & Acquisition process.?When new employees join an organization on both sides of the camp, it is far easier to present ‘the agreement’ (with supporting annexures or notes) as opposed to relying on corporate memory or perceptions of interpretations of ‘what was said and agreed’.
2.????????????DEALER AGREEMENT
Now, in many cases, established and mature companies with strong management and corporate structures with policies and procedures generally do have this element in place.?This article is more so for the entrepreneur founded company that with time, establishes an informal distribution network through ‘friends in the industry’ and generally, this is conducted over a handshake.?
This may have worked 30 or 40 years ago but for today’s business model and financial due diligence in either mergers and acquisitions or even when one seeks a rather large loan to invest in your growth strategy, then this may pose to be a hurdle to be overcome.
Figure 2: Contract or agreement document
The primary reason for a contract is to make sure everyone is on the same page.?The back-up reason is to prevent someone from taking advantage of you, your company and your people.
As such, it is important that the entrepreneur owned and managed company secure the services of a professional management team or alternatively, works with either a legal or consulting firm to put in place the necessary agreements.
In this case, we are talking about a dealer or distributor agreement which is a legal contract that outlines the relationship between the manufacturer (let’s call it OEM to assist in this conversation) and multiple parties (the dealers). Although agreements may vary, certain elements are constant. An agreement will typically include the terms of the agreed contract, it will specify the length of the contract, the probation period and will include the named parties involved in the contract. Other things that may be included within the agreement include a non-compete clause, terms outlining performance, marketing and trademark rights, and the territory within which distributors / dealers can operate.
In many ways, a dealership or dealer is a partnership. Among other things, the parties need to decide who runs things, how they will be run, who will pay for what, and what happens if and when the relationship expires or terminates.
This document will not touch on how to go about identifying or selecting a particular dealer or distributor of your products suffice to say that there is an assumption that you have done your due diligence and now have a potential candidate with whom you would like to move forward in this new relationship.
You may have noticed that I have used the words dealers and distributors rather interchangeably but let’s explore the definition of the two and then I will bring it home to this example.?
Companies engaged as dealers get to deal directly with the public, while distributors spend more of their time in contact with manufacturing companies. Working as a dealer requires less capital and typically involves a locally focused business format. Although a successful distributorship is more lucrative, it requires a lot more investment. Distributors also spend more time traveling than dealers. However, many of the larger dealers have in reality a sophisticate structure in place, are cash flow positive, carry many product lines and may even have multiple branches either within the same state or in multiple states.?Hence this blurring of the lines between a dealer and a distributor.?In reality, the long and short of this relationship is that the nominated company is one that is an extension of your brand and represents and supports your product within a defined territory for a period of time.
Figure 3: Route to market
For purposes of this document, let’s assume that the OEM designs and manufactures ‘engineered products’ and in turn sells them to a dealer network who engages directly with the end users or customers.
Figure 4: Procurement buying process
In the same breath, it is also assumed that the ‘customers’ will engage with the dealer to purchase or procure equipment who in turn sources it from the OEM.
The dealer in turn is therefore responsible for managing amongst other:
·???????Facilities requirements
·???????Cost and availability of additional fleet
·???????Financing terms
·???????Parts pricing and availability
·???????In-territory sales by other dealers
·???????Software support
·???????Warranty obligations
·???????Specialized tooling needs
·???????Staffing requirements: sales and service personnel
·???????Replacement equipment availability and cost
·???????Marketing and advertising obligations and OEM support
·???????Customer financing options
So, without further ado, if you do not have a dealer agreement in place to manage the relationship, here is a framework (index) which you can use to ‘create’ your own dealer agreement.
However, a word of caution, please have it reviewed by your legal team / partners and take note that if you stick a bunch of legal jargon into the document that you do not understand, then you have just introduced lots of room for misunderstanding.
Figure 5: Legal Terminology
2.1.?????Dealer Agreement Index Structure[1]
SECTION 1 - INTRODUCTION
SECTION 2 - DEFINITIONS AND INTERPRETATION
SECTION 3 - APPOINTMENT, TERRITORY AND RESTRICTIONS
SECTION 4 - OEM DEALER OBLIGATIONS
SECTION 5 - OEM OBLIGATIONS
SECTION 6 - GENERAL
SECTION 7 - TERMINATION
SECTION 8 - ARBITRATION
SECTION 9 - LIMITS OF LIABILITY
SECTION 10 - CONSEQUENTIAL DAMAGES WAIVER
SECTION 11 – INDEMNITY
SECTION 12 – GENERAL
?APPENDIX A: Products / Technology Covered by the Agreement
APPENDIX B: The Territory
APPENDIX C: Cross Territorial Sales Agreement
APPENDIX D: Key Accounts or House Accounts
APPENDIX E: Market Sectors
Note: Appendixes are generic or typical.
3.????????????DEALER ENGAGEMENT MANUAL
The next document that should be developed and presented to the dealer is a Dealer Engagement Manual.?The Dealer Engagement Manual (DEM) should be developed to provide a generic overview of the principles and processes at the OEM to support the dealer network
The DEM is for use by dealers, key managers in sales, parts, product support and services. The manual is also for use by employees of the OEM who have a role and/or vested interest in the management or support of OEM dealers.
The purpose of this document is to support the commercial relationship and business operations between the OEM and the OEM’s dealers.
The DEM should contain information about policies, procedures, practices, products, training, orders and ordering, connectivity and other resources for doing day to day business.
Again, if you do not have a DEM in place, here is a framework that can be used.
3.1.?????Dealer Engagement Manual Index Structure[2]
1.?????????????OVERVIEW (of the OEM)
2.?????????????GENERAL INFORMATION ABOUT OEM AND ITS PRODUCTS
2.1.??????????EXPERIENCE & HISTORY
2.2.??????????WHERE IT ALL BEGAN
2.3.??????????OEM TODAY
2.4???????????OEM PRODUCTS
2.5.1.???????About OEM
2.5.2.???????The Challenge – operating in a challenging environment (Random title)
2.5.3.???????Harsh Environment vs Productivity (Random title)
2.5.4.???????Selecting the right solution for your operation (Random title)
2.5.5.???????Dealer Network and Technical Support (Random title)
2.5.6.???????Value Add Elements (Random title)
2.5.7.???????OEM MARKET SECTORS
3.?????????????SAFETY
3.1.??????????INTRODUCTION TO SAFETY ON OEM EQUIPMENT
3.2.??????????GENERAL OEM SAFETY
4.?????????????SALES, MARKETING & COMMUNICATIONS
4.1.??????????SALES & MARKETING
4.2.??????????OEM KEY CONTACTS LIST
4.3.??????????DEALER ORGANIZATION CHARTS & KEY CONTACT INFORMATION
4.4.??????????DEALER COMMUNICATIONS
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5.?????????????DEALER BUSINESS PLAN, SALES OBJECTIVES, KPIs, PERFORMANCE MEASUREMENT
5.1.??????????PLANNING AND PERFORMANCE REVIEWS
5.2.??????????FREQUENCY AND PARTICIPATION GUIDELINES
5.3.??????????GENERAL PROCEDURES
5.4.??????????DEALER BUSINESS PLAN OBJECTIVES
5.4.1.???????Marketing Topics
5.4.2.???????Dealer Topics
5.4.3.???????Product Support
5.4.4.???????Product Development
5.4.5.???????Projects and Opportunities
5.4.6.???????General
6.?????????????NEW EQUIPMENT ORDER PLACEMENT
6.1.??????????GENERALITIES REGARDING TERMS, CONDITIONS AND POLICIES
6.2.??????????DEALER’S ADDITIONAL OR CONFLICTING TERMS
6.3.??????????PRICES
6.4.??????????NEW EQUIPMENT DELIVERY & ASSEMBLY
6.5.??????????TAXES
6.6.??????????CREDIT
6.7.??????????PAYMENT TERMS
6.8.??????????LETTERS OF CREDIT
6.9.??????????ORDERING & ORDER REQUIREMENTS
6.10.????????DELIVERY ACCEPTANCE FORM (DAF)
6.11.????????ORDER CANCELLATION
6.12.????????PROHIBITION ON SALES OUTSIDE ASSIGNMENT OR TERRITORY
6.13.????????OEM INTERVENTION AND REMEDY FOR SALE OR LEASE OUTSIDE ASSIGNMENT OR TERRITORY
6.14.????????ASSIGNED TERRITORY
6.15.????????INSTALLED BASE DATABASE
7.?????????????TECHNICAL & SERVICE SUPPORT
7.1.??????????TECHNICAL SUPPORT
7.2.??????????TECHNICAL SUPPORT SPECIALTIES
7.3.??????????PAID TECHNICAL SUPPORT / SERVICE
7.4.??????????SERVICE INVOICING POLICY
8.?????????????SPARE PARTS
8.1.??????????INTRODUCTION
8.2.??????????OEM RECOMMENDED PARTS LIST (RPL)
8.3.??????????REQUESTS FOR PARTS
8.4.??????????SPARE PARTS PRICING
8.5.??????????PAYMENT TERMS
8.6.??????????PROHIBITION ON SALES OUTSIDE ASSIGNED TERRITORY
8.7.??????????PART ORDER TYPES AND DEFINITION
8.7.1.???????Stock Order
8.7.2.???????Express Order???????
8.7.3.???????Breakdown or Emergency Order
8.8.??????????EXPEDITING FEES
8.9.??????????ORDER CANCELLATION SHORT FORM POLICY STATEMENT
8.10.????????DEALER INVENTORY REQUIREMENTS - PARTS
8.10.1.?????Regularly Turning Parts
8.10.2.?????Recommended Parts List (RPL)
8.10.3.?????Critical Parts
8.11.????????DEALER INVENTORY REVIEWS WITH OEM
8.11.1.?????Dealer Inventory Review Process
8.11.1.1.??Review of Regularly Turning Parts
8.11.1.2.??Review of Critical Parts
8.12.????????DEALER RETURN POLICY OF SERVICE AND OBSOLETE PARTS
8.12.1.?????Scope
8.12.2.?????Return Rules from Dealers to OEM
8.12.2.1.??Return Limitation
8.12.2.2.??Communication of Budget Allowance Limitation
8.12.2.3.??Application for Parts Return
8.12.2.4.??Return type
8.12.2.5.??Communication of Pick Lists to the Dealer
8.12.2.6.??Dealer Picking and Packing
8.12.2.7.??General processing cycle time
8.12.2.8.??Part Quality Requirements / Inspection of Returned Parts
8.12.2.9.??Superseded and Obsolete Parts - New Parts Only
9.?????????????GUIDELINES TO THE OEM WARRANTY POLICY
9.1.??????????INTRODUCTION TO THE OEM WARRANTY POLICY
9.2.??????????OEM PRODUCTS COMMISSIONING AND WARRANTY REGISTRATION POLICY FOR NEW EQUIPMENT
9.2.1.???????Policy
9.2.2.???????Warranty Activation
9.3.??????????DEALER OBLIGATIONS FOR CONVEYANCE OF PRODUCT WARRANTY
9.4.??????????OEM’S WARRANTY OBLIGATION
9.5.??????????LABOR
9.6.??????????TRAVEL TIME
9.7.??????????TRAVEL MILEAGE
9.8.??????????TROUBLESHOOTING
9.9.??????????OVERTIME
9.10.????????FREIGHT
9.11.????????WARRANTY FOR SPARE PARTS
9.12.????????WARRANTY FOR WEAR PARTS
9.13.????????NON-ORIGINAL EQUIPMENT MANUFACTURER’S WARRANTY
9.14.????????EQUIPMENT IMPROVEMENT AND DESIGN CHANGES
9.15.????????WARRANTY CLAIMS & WARRANTY CLAIM PROCEDURES
10.???????????OEM ADVANTAGE PROGRAM WARRANTY
10.1.????????OEM PROGRAM WARRANTY DESCRIPTION
10.2.????????CONDITIONS
10.2.1.?????Commencement
10.2.2.?????Maintenance
10.2.3.?????Equipment Use
10.2.4.?????Changes to Equipment
10.2.5.?????Parts and Component Repair and Replacement
10.2.6.?????Warranty Parts Claims
10.2.7.?????Structural Warranty Claims
10.2.8.?????Application of Warranty
10.2.9.?????Approval
10.2.10.???Disclaimers
11.???????????OEM TERMS AND CONDITIONS OF SALE
12.???????????ANNEXURES
12.1.????????KEY CONTACT LIST
[1] Proposed
[2] Proposed