Distributors and Wholesalers: A Dynamic Duo
When Bob Kane created the character Batman (originally Bat-Man) for DC Comics in 1939, Gotham’s hero met comic-book readers with only moderate success. It wasn’t until his colorful partner, Robin, emerged a full year later that the comic’s popularity began to skyrocket.
It’s not such a reach, then, to say that superheroes and jan/san suppliers have something in common: they both require strong partnerships for success. As the economy has waned, many distributors have attempted to slug it out alone, and several have fallen by the wayside.
But just as Kane’s Batman began to thrive as part of a tandem, distributors are finding logistical efficiencies, increased warehouse space and inventory diversification with their partner: the wholesaler.
Wholesalers have been around as long as distributors, but new dynamics in the supply chain are turning hesitant partners into a dynamic duo.
As consolidation continues and powerful manufacturers flex their selling influence — sometimes even choosing to sell direct to end users — distributors and wholesalers find themselves on the same side, fighting to keep the supply chain intact.
“They really are becoming a dynamic duo,” says Dan Merkel, executive director of Advantage Marketing Associates, a Ripon, Calif.-based alliance of U.S. jan/san wholesalers. “As distributors and wholesalers forge a stronger partnership and there’s increased comfort between the two entities, they are serving two very different functions.”
These distinct functions emerge as distributors and wholesalers become more specialized and more dependent on each other, adds Merkel, who has observed the distributor-wholesaler relationship for more than 40 years.
“Our wholesalers are not equipped to work with end users, but distributors are,” he says. “Most distributors don’t want to focus their energy on inventory management, but that’s our specialty. Ours is a logistical fulfillment; theirs is a sales fulfillment.”
“The distributor-wholesaler relationship is about productivity,” says Mark Dancer, vice president of Pembroke Consulting, Philadelphia. “Distributors are about carrying less inventory, and wholesalers are about the integration of systems and visibility.”
This mutually beneficial distributor-wholesaler relationship should not be antagonistic toward manufacturers, but it should defend the interests of the supply chain, Dancer adds.
It would be inaccurate to say that distributors and wholesalers have not benefitted from each other’s support until recently. Starting in the 1980s, the number of strategic partnerships between the two entities began to grow, says Dancer.
However, it would also be a stretch to say that distributors and wholesalers have always gotten along. The two groups have a history that covers periods of distrust and even deception — a history that still creates hurdles for 21st century channels in the supply chain.
There was a time when distributors and wholesalers were often bumping heads in business, rarely working together to achieve mutual success. Twenty-five years ago, wholesalers were known as “master distributors,” a term that wholesalers coined to try to bridge the wholesaler-distributor credibility gap. Today, some distributors resent the phrase “master distributor,” explaining that they find it condescending. Other distributors are still learning to trust wholesalers again, after overcoming suspicion that some master distributors were just “very large distributors” selling to the same accounts.
“If you’re buying inventory from someone, and then you see that same supplier selling to your own customers, then of course you’re going to be distrustful,” says Aaron Leibowitz, vice president of Norshel Industries, a Croydon, Pa.-based wholesaler.
Today, most wholesalers sell exclusively to distributors. Wholesalers who sell only to distributors are often called “pure wholesalers.” Dual wholesalers (also known as dual-house wholesalers) sell to both distributors and end users.
“If you look at the relationship 25 years ago, and then look at the relationship today, I think we’ve come light-years from where we were,” says Merkel.
As pure wholesalers make it clear that they are not competing with distributors for accounts, those distributors tend to be less guarded, says Dancer. “Traditionally, the distributor who has direct contact with the end users has been protective of his customer base,” he says. “Now, it has moved toward being professional and less protective. Distributors are more open to pooling information with wholesalers.”
Occasionally, end users contact pure wholesalers hoping to purchase jan/san products. Pure wholesalers handle that situation differently. A few of them refuse to discuss sales with end users, while the majority help the end user get in contact with one of their partnering distributors.
“If an end user calls us for business, we recommend one of our distributors in their area,” says Teresa Fink, national market manager for Saalfeld Paper Co., a wholesaler headquartered in Cincinnati. “Then we usually go with the distributor to call on the potential customer, and we do whatever we can to help the distributor secure that business.”
Saalfeld’s hands-on approach appeals to many distributors, but others might see it as the wholesaler getting in the way, or even micromanaging distributor accounts. To be on the safe side, many wholesalers do everything they can to stay away from discussing business with end users.
“If you don’t have a tax resale certificate, then RDA won’t talk to you,” says Michael Hunt, vice president of sales and marketing for Redistributors of America (RDA), a national alliance of wholesalers based in New Orleans. “A tax resale certificate is usually given by the state and it shows us that our customers are distributors, not end users. It’s very important to us that distributors know we’re a pure wholesaler, so we don’t even talk to end users.”
RDA’s policy reflects the organization’s commitment to earning its distributor customers’ trust. This kind of commitment from wholesalers has helped distributors to part with manufacturer relationships when necessary.
Buying Direct: Handy or Hubris?
The dynamics of the entire supply chain have been affected by the strengthening of the distributor-wholesaler working relationship. One of the most significant changes: distributors are placing less importance on buying direct from manufacturers.
“In the past, the philosophy of most distributors toward wholesalers was, ‘I buy direct. If I need a fill-in, I’ll call you.’ But now, I think there’s less prestige with buying direct from a manufacturer. Distributors are more concerned with SKUs and increasing efficiency,” says Hunt.
Some distributors still believe that buying direct from a manufacturer gives them more credibility with end users, but throughout the supply chain there is generally less concern about where a product comes from, and more emphasis on price, product quality and service, says Merkel.
“A distributor still might think that it looks good if he says, ‘We buy from the factory,’ but I think the better bottom line is going to win out in the end — along with a more rapid turnover,” he says.
Manufacturers still want end users to develop “brand intimacy,” or name recognition, with their products. Distributors can easily misinterpret a manufacturer pursuing better understanding of end users as a move to sell direct. This is often not the case, says Dancer.
“We’ve found in our most recent Facing the Forces of Change study that manufacturers want a more selective distribution channel than they’ve had in the past,” he says. “They want better partnerships. As manufacturers’ businesses have become more competitive, they’ve reached downstream to the end customer, which can be threatening for both distributors and wholesalers. But the manufacturers don’t necessarily want to go direct — they just want to know the customers who are buying.”
Distributors and wholesalers have noticed that manufacturers feel the need to understand end users. “Many manufacturers want trace sales now,” says Alan Gangl, president of OmniSource, Seattle, another jan/san wholesaler. “When I make a sale to a distributor, [manufacturers] want to know who and where it went to, and they also want to know who and where distributors are selling to. It can make us a little nervous, but manufacturers still know the tremendous value that we bring to the table.”
To Everything, Turn, Turn, Turn
Distributors traditionally get frustrated with end users who select products based solely on price. They wonder why potential customers don’t consider the value-added services, delivery times, reliability and expertise when choosing a distributor. The irony is that distributors often lose sight of those same considerations when choosing a wholesaler.
“Distributors just looking to buy on price probably aren’t going to choose a wholesaler,” says Leibowitz. “But those distributors who really look at the cost of inventory know the value of the wholesaler — those are the distributors who really pay attention to the overall cost of running a business.”
If distributors had to choose one word to describe where wholesalers save them money, it would probably be “overhead.” Timely deliveries, increasing monthly sales “turns,” lowering energy bills, maximizing warehouse space — these are the benefits of working with a wholesaler.
However, distributors are overlooking these benefits less than in the past. “If anything, I see that distributors are becoming more savvy in their understanding of terms like inventory turns and lead times,” says Jeff Scheck, vice president of Sweet Paper, a Hialeah, Fla.-based jan/san wholesaler. “When it makes sense for them to buy direct on those fast-moving items, then they’re buying direct, but they’re also very aware of the benefits to dealing with a wholesaler.”
Scheck says that Sweet Paper rarely performs extensive presentations that detail the benefits of working with a wholesaler. At one time they did many such presentations, but now there isn’t a need, he says.
“Most distributors are just very, very in-tune with all of those costs because they have to be in order to survive,” Scheck explains. “We have all kinds of charts and graphs that show that even if a distributor pays 5 percent more, or an extra dollar more on a $21 item, the overall profit will still be much higher when you factor in all the other issues. Recently, we just haven’t had to make that presentation as often because distributors are more educated now, and they read up on all the cost-saving trends.”
“What we do, virtually every day, is all about turnover,” says Merkel. “We can vastly improve turnover for a distributor, and then improve return on investment. Most of our distributor accounts buy every day. Some buy once a week, but no one buys any quantities that require them to hold on to it very long.”
So-called jan/san commodities are the inventory items that make the most sense for using a wholesaler. The margins on most commodities, like paper, are low. Buying paper from a wholesaler helps eliminate operational costs that would cut into an already-slim margin.
“We have hammered home the fact that margin on paper is theoretical,” says Merkel. “In a perfect world, you would have high margins and high turnover, but it’s not reality. We can offer 50 turns a year, and no manufacturer can do that. Then, when you consider the full spectrum of services and product choices, you see that the wholesaler has a lot to offer.”
Help Is On The Way
Without the worry of product logistics, distributors can concentrate on their core competency: service.
Leibowitz shares one anecdote about how a negative situation actually underscored the newfound advantages that a distributor was gaining with Norshell Industries.
“Unfortunately, this distributor recently lost one of his better salespeople, but the good thing was that he was able to keep a lot of that salesperson’s accounts,” says Leibowitz. “The distributor told us that prior to working with us, he would have agonized over each of those lost accounts. But now, he has new flexibility to say no to some accounts and work more directly with others. We’re saving him so much money on inventory costs, that he’s making more money than ever before — even with a few lost accounts.”
Norshell delivers inventory to most distributors three times per week and that reliable delivery is where the distributor benefits. “A distributor may have 200 lines, but only 40 lines are real movers. We stock more than 4,000 items, and we can deliver as soon as a distributor needs something,” he says.
Perhaps the biggest reason that distributors and wholesalers are finally learning to maximize their partnerships is that they are finally understanding each other’s needs. Distributors know that wholesalers need to establish more long-term partnerships with their customers, and wholesalers know that distributors need to move product.
Distributors and wholesalers continue to find ways to breathe new life into old supply-chain partnerships.
“Our job is to help distributors improve on the areas that they already do well,” says Hunt. “We just give them a little more muscle.”
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