Wholesalers: A Distributor's Ace In The 'Whole'
With 14 employees on its payroll, five delivery vehicles, and a 2,000-square-foot headquarters that includes its office space and warehouse, Raytown, Mo.-based Withers/KC Sanitary Supply is considered a small jan/san distributor in the truest form.
But don’t be fooled by the company’s brick-and-mortar appearance. Dig a little deeper into how the company operates and what surfaces is the fact that the company actually has hundreds of thousands of square feet of inventory space that houses an extensive number of product lines in multiple sectors. How is this possible? By working with industry wholesalers.
A former insurance agent, Kevin Oldvader purchased Withers Supply in 1990 at the age of 26. Since day one — where he once ran the company out of his parents’ basement and used several public storage units to store product — he has leaned on his wholesalers’ industry knowledge and guidance to teach him the ropes of jan/san distribution. As a result, Oldvader has grown his company into a reputable supply house over the years. So much that 11 years after purchasing Withers Supply, he was able to buy out a direct competitor in the Kansas City, Mo., market, Kansas City Sanitary, and merged the two companies together, forming Withers/KC Sanitary Supply in 2001.
Getting to the point where his company is today is based on the adoption of Oldvader’s business model of “sell, buy, ship,” instead of following the time-honored distribution business mantra of “buy, hold, sell, ship.” Following his model, he’s been able to eliminate the physical holding of inventory in his warehouse due to his company’s heavy reliance on purchasing products from wholesalers rather than buying direct from manufacturers.
“Obviously, I pay a little upcharge for the products, but I don’t have the overhead,” says Oldvader. “So as I grew and I could buy direct, I chose not to. I feel there is a good comfort level, and to me it doesn’t make financial sense to buy direct.”
Oldvader says he learned early in his distribution career that getting a handle on inventory is essential to a profitable distribution operation. The quicker he moves his inventory out of his company’s warehouse and into the hands of his customers means the quicker his company reaps 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, Oldvader says getting stuck with an oversupply of product can take a big bite out of profit.
“It’s one of those things that as a small company, I learned quickly that you only bring in what you need,” says Oldvader. “If I weren’t using wholesalers, I’d probably have a large warehouse with a lot of dead stock.”
With a warehouse smaller than 2,000 square feet, Withers/KC Sanitary Supply has extremely limited space for storing inventory. But that’s intentional, says Oldvader. His philosophy is to only stock certain fast-moving “A” line items, but only if they are guaranteed to turn every week. Otherwise, Oldvader’s company will order product from its wholesalers at the conclusion of each business day for next day delivery. The company’s main wholesaler then delivers the shipment of products for the next day at 5 a.m., so when Withers/KC Sanitary Supply’s drivers report to work in the morning, they can load the delivery trucks and go out and make their deliveries for the day.
The company’s delivery drivers also pick up product at the conclusion of their routes for the next day from the company’s secondary wholesaler. If customers are outside of the Kansas City metro area, the company will have its wholesalers drop-ship products to customers for a minimal cost.
By ordering from his wholesalers every business day, Oldvader says his company is able to successfully turn its inventory.
“We literally turn our inventory every day,” says Oldvader, who adds that in 2011 alone his company has already purchased more than 650 different line items from just one of his wholesalers.
By using multiple wholesalers, Oldvader rarely has to turn away business because he can’t get a certain product.
“A nice thing about wholesalers is we’ll run into a situation where a customer will request a product we don’t have,” says Oldvader. “And I’ll turn to my wholesalers and they will bring it in and I’ll sign a dedicated stock agreement that I will purchase it from them at the time I need it. It allows me to provide customer service to my customers on a dedicated product, but also keeps my capital free. Then when I need it, I buy it from them and they just replenish their stock.”
Purchasing direct from the manufacturer will likely drive down per-unit pricing. The tradeoff, however, is meeting large minimums on untested products. That can be costly to a distributor if the products don’t go over well with a distributor’s customers, according to Howard Coleman, principal of MCA Associates, Derby, Conn.
Oldvader’s wholesalers also allow his company to test new markets with very little financial investment.
New Line Expansion
Today’s customers enjoy being able to purchase multiple lines of products from one vendor on one purchase order ticket. Most often, wholesalers offer products that are indirectly related to jan/san, such as foodservice items, safety equipment, packaging and maintenance products. Often, these products are already being purchased by distributors’ customers.
Because wholesalers have access to thousands of SKUs and various product categories from different sectors, distributors are able to pick up extra business by bundling these diversified lines with traditional cleaning products on one purchase order, says Jon Schreibfeder, president of Effective Inventory Management, Coppell, Texas.
By affiliating itself with wholesalers, Withers/KC Sanitary Supply is able to be a one-stop shop without having to tie up money or be worried about the risk of buying into new lines.
“We go into foodservice disposables and packaging, lines that truthfully if I were to buy direct I couldn’t buy the volume and get the pricing I need,” says Oldvader. “But if a customer needs stretch film, for instance, we’re able to buy just that item and be able to be competitive instead of having to turn to a manufacturer and have to buy a truck load. We’re able to increase lines to our customers and go into new lines without having to tie up our capital.”
With a wholesaler, expansion presents less risk, says Schreibfeder. For one thing, a distributor can buy the new item from a wholesaler only as it is requested by customers. Purchasing on an as-needed basis lets the distributor grow demand for the new product before jumping in with both feet.
For example, say a distributor wants to add five lines to expand into a new market. If each new line has a minimum order of $2,500, the distributor has to make a total investment of $12,500 in products it isn’t even sure it can sell. Plus, the investment doesn’t end there. There is also the warehouse space needed to store the items until they are purchased and the shipping costs associated with delivering the products to customers.
Wholesalers allow distributors like Withers/KC Sanitary Supply the ability to test the waters of expansion with as little investment of time, money and effort as possible. With manufacturers placing order minimums and prepaid freight restrictions on distributor purchases, so many distributors, regardless of size, have found it to be more beneficial to go the wholesaler route than purchasing direct.
“A small to mid-size distributor can grow their business without the capital investment, which enables them to be price competitive. Even the large distributors can reap the benefits of purchasing from a wholesaler vs. going direct,” says Oldvader. “And with the right blend of wholesalers, distributors are able to offer customers just about any type of product they need.”
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