Distributor Dialog – Published in APPMA Advisor
May/June 2003

The Other Side of the Coin: What Manufacturers Can Expect Distributors to Bring to the Table

When we launched this dialog between distributors and manufacturers, we told you about the things distributors like manufacturers to bring to the table in order to make the relationship work successfully. Now, let's put the shoe on the other foot and discuss the distributors' side of the bargain.

When distributors sit down at the table, each brings relationships with hundreds of retailers. Each brings a system that allows manufacturers to consolidate inventory management and sales costs while getting products one step closer to the consumer.

It's All About People
Without exception, distributors point to their customer relationships as the biggest asset they bring to the supply chain.

"When you get your products to one distributor, those products can go to hundreds or even thousands of stores that might not otherwise see them," says Brian Brady of the Joseph M. Brady Co., Inc. in Needham, Mass.

Whether by phone or in person, distributor sales representatives have weekly contact with their customers. They build relationships that would be both difficult and very expensive for manufacturers to duplicate.

These relationships are also the first thing manufacturers point to when asked about the value of distributors.

"Our distributors provide a level of service to the dealer network that is more focused and more targeted than we can provide," says Jim Stout of Coastal Pet Products in Alliance, Ohio. "Distributors have closer relationships with each individual store. They understand the retail stores' needs better than our representatives."

How much of this attention distributors can give to a single manufacturer canbe an issue.

The average distributor has 12,000 to 15,000 line items and represents about 200 manufacturers.

"Obviously, a distributor has a lot more to sell than just my products," says Frank Koch of Natural Balance Pet Foods. "From a sales standpoint, all I ask is that they make time to ride with my people to their key accounts to ensure that they are informed about our products. The bottom line is making sure retailers know about our products and get them in a timely fashion. "

Also, distributors caution that their customer relationships should supplement manufacturers' sales and marketing efforts, not replace them.

"Distributors don't assume the primary functions of the manufacturers," says Terry Boyd of Lee-Mar Aquarium & Pet Supplies in Vista Calif. "Manufacturers still need to advertise, promote and have sales reps in the field to position their products."

Taking Inventory
In addition sales relationships, distributors add value by managing inventory. For manufacturers, that value manifests itself in terms of fewer shipments in larger quantities.

"Containing costs though consolidation is at the core of our existence," Brady says. "It's much more cost efficient for a manufacturer to send me five pallets worth of freight than to send 500 boxes to 500 different retailers."

Credit and collections factor into this equation as well. Because distributors shoulder this responsibility for retailers, manufacturers do not need the personnel, systems and equipment necessary to provide and track credit for thousands of businesses.

There is also value on the retail side. Retailers can order in quantities they can turn rather than ordering a six-month supply because of manufacturers' minimums. Their money isn't tied up in inventory and they can use it more effectively.

"The distributor can do a better job of maintaining fill rates," Boyd says. "We have the products close to the store. We keep them in stock. We help manage their inventory."

Distributors' obligation to retailers is another factor that can influence their relationships with manufacturers and, ultimately, add value.

"We have to justify our existence on both sides of the supply chain," Brady says. "We have to add value for retailers as well as manufacturers."

In addition to inventory management, distributors help retailers find products and ideas to grow their businesses, bring in point-of-purchase displays to enhance sales, offer advice on management issues and keep them apprised of industry news.

In the end, good distributors make more effective retailers. Better retailers sell more products. When that happens, everybody wins.

The Bottom Line
"Whether you're a retailer or a manufacturer, you can avoid the distributor, but you can't avoid the cost of distribution," Boyd says. "From the manufacturer's standpoint, are you prepared to deal with small, fragmented shipments, collection problems and transactional costs? Are you prepared to be in thousands of retail locations, keep them stocked and get them product when they need it?"

Even if manufacturers could do all of those things well and economically, they would still be hard-pressed to duplicate the bond between distributors and retailers. That bond and the services that cement it are what distributors bring to the trading table and what makes them an integral part of the supply chain.

Have a question on distributor relations that you would like to have addressed in a future column? E-mail questions or comments on something you've read in this column to Steve King at steve@kingmgmt.org.