By Ray Windsor
Distributors are accused of a lot of things in our industry. “Distributors don’t ‘sell’ anything, they just let people buy things,” is one complaint. And they sell to everyone and anyone–consumers, your competitors, discounters across the country, other distributors who will turn the inventory for less than cost, etc…
The reality is slightly better than that. But this reputation is not far fetched based on some of our experiences.
Still, the distributor is becoming a more important part of the supply chain. More important to the retailer. More important to the vendor. Follow this… Business is becoming more challenging for the retailer. There’s more margin pressure, price reductions, short product life span, and consumers are less brand loyal and better educated on features and prices. Retailers therefore and rightly so, are less willing to take on as much inventory risk as in olden times or even just a few years ago. That means when a retailer needs inventory, the distributor is a more “Just in Time” solution than waiting for the vendor.
Enter the capable distributor. He can ship inventory within a day to most of the retailers he serves. Retailers can keep two of a product on hand instead of 6. The retailer has lower freight costs, so improved profit. And the distributor makes sure retailers are serviced by a competent sales and technical support staff. Sound like a fairytale…?
More and more distributors who can’t create that reality are having a hard time keeping up. Distributors must rise to the changing circumstances. Just fulfilling demand and adding no other value is no longer satisfying retailers or vendors.
Distributors must offer improved inventory availability, product training and disciplined distribution or selective distribution to protect profits. Remote start training, camera installation training, are all part of the game now.
One of the biggest challenges for the distributor is to keep inventory flowing. That requires forecasting, and that is just not a routine practice in our industry. Instead, it is the end-of-the-month deal that manages inventory, and does so poorly.
Distributors, I believe, are going to need to lead the way away from those deals. That means imposing a little bit of tough love and saying “no.”
The days of distributors holding vendors hostage for the end of month deals AND the days of vendors holding distributors hostage for the end of the month deal must be eliminated. Without eliminating that practice, the just-in-time model breaks down. There is either too much product on the shelf or there isn’t enough product on the shelf because the distributor and vendor are playing “chicken” with each other. That is why inventory shows up in unpredictable places at unpredictable times at unpredictable prices.
It’s the brave distributor who approaches the vendor with forecasting and says let’s stick to it. Maybe his competitor got a better end-of-the-month deal and will gain slightly more business in the short run. But the improvement in mid and long term business relations between distributor and vendor will be well worth the risk.
As more distributors say no to the deals, they will start to diminish and the industry will start inventory planning.
What is clear is under the current roulette wheel games, no one wins.
Ray Windsor is Executive Director of the Elite Distributor Alliance (EDA)