One of the biggest money-saving benefits of working with wholesalers is that they are helping distributors maintain smaller inventories. Instead of having to meet large order minimums by manufacturers, distributors are able to use wholesalers to purchase in small quantities, while also having access to a complete line of affordable products from a plethora of national suppliers, says Moon.

Often referred to as a distributor’s profit center, the warehouse is where money is made or lost. With distributors stocking a significant amount of inventory in their warehouses, inventory turns are a major driver of profitability says Jeff Heeren, immediate past president of the Sanitary Supply Wholesaling Association (SSWA) and senior vice president of R.J. Schinner Co., Menomonee Falls, Wisconsin.

“I often reference a conversation I had with [a distributor from Michigan],” says Heeren. “They wanted to turn over a line that was being purchased directly but had poor turns. In the transfer of the line to us, it would improve from three times per year to 26 times a year and the inventory commitment would be cut by 90 percent. Needless to say, it was a success.”

Getting a handle on inventory is essential to a profitable distribution operation. The quicker a distributor moves its inventory out of the warehouse and into the hands of customers means the quicker they are rewarded profit. It also reduces the amount of money spent on carrying inventory. A warehouse full of inventory that isn’t going anywhere translates into lost profits. In fact, getting stuck with an oversupply of product can take an enormous bite out of profit. Working with wholesalers, independent distributors are able to only bring in the product that they need, when they need it.

This approach of buying products on an as-needed basis is particularly useful for specialty products purchased by select customers. It is also a great strategy for testing out new markets. For example, instead of committing to a line of foodservice disposables or office supplies, distributors can rely on wholesalers to supply this need without risking inventory.

Purchasing direct from manufacturers will likely drive down per-unit pricing for distributors. However, the tradeoff is meeting large minimums on untested products. That can be costly to a distributor if the products don’t resonate with customers. As a result, distributors have begun to only stock fast-moving product lines in their warehouses and will use wholesalers to hold other items.

For example, distributors often run into situations where customers will request a product that they don’t stock. A distributor can easily turn to their wholesaler and after signing a stock agreement, the wholesaler will bring in the particular line. This allows distributors to not only keep their capital free, but also provide great customer service to customers on a particular product.

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