Progressive Distributor - The best of both worlds

The best of both worlds

Master wholesalers help distributors accomplish vendor consolidation without losing access to brands

by Rich Vurva

Distributors periodically put vendor consolidation plans into action for a variety of reasons. Consolidating purchases with one or two key vendors results in greater buying power and better pricing. Consolidation also spawns other benefits, such as a reduction in invoices and associated paperwork, improvement in product storage and movement in the warehouse, and a closer working relationship and familiarity with the product lines, people and business practices of primary suppliers.

But consolidation has drawbacks. For one, distributors lose access to brands that some customers prefer and risk losing sales if they can’t convert that customer to a competing brand. When companies don’t have tight control over their purchasing departments, salespeople convince buyers to bring in new lines to satisfy their favorite accounts. Before long, the consolidation effort is forgotten and its benefits are lost.

Some distributors have discovered that master distributors or wholesalers can help with their vendor consolidation efforts.

“Distributors are now looking at wholesalers as a tool for them to implement vendor reduction,” says Mark Friefeld of Field Tool Supply in Chicago, a master wholesaler of cutting tools, abrasives, hand tools, measuring instruments and other products.

If a distributor wants to consolidate from six to three major cutting tool lines, for example, the company may keep three brands in stock and purchase the additional lines from a wholesaler. As a result, the company reduces its inventory and carrying costs, but maintains access to a wider brand selection.

“They’re moving the sourcing of various vendors to a wholesaler who can handle five, 10 or 20 vendors for them and they don’t have to order direct. They’re getting the benefits of vendor consolidation without losing access to the product line,” he says.

Since most wholesalers have no minimum order requirements and lower thresholds than manufacturers for avoiding freight charges, distributors find it’s often more cost effective to do business with wholesalers on items they don’t sell on a daily basis.

There’s also the transactional impact, which generates back office savings, according to Larry Davis, vice-president of marketing for ORS Nasco in Muskogee, Okla., a wholesaler that represents about 600 suppliers in the welding, industrial, oilfield, safety, electrical, construction and other markets.

“You don’t have hundreds of different transactions and purchase orders to handle and salespeople calling on you. When you move your non-essential lines to us, that rolls all of that activity into one place. So, there are hard savings and soft savings,” he says.

Manufacturers benefit also
Master wholesalers also help manufacturers in their consolidation efforts, Friefeld says. Instead of shipping multiple small orders to distributors spread throughout the country, they can use the wholesaler as a centralized distribution center.

He adds that distributors expect the same support from wholesalers that they used to get from manufacturers. He cites inventory adjustment as one example. “Years ago, that was only something you talked about at the end of the year with a manufacturer. Now it’s not unusual for a distributor to look at the wholesaler and say, ‘I’ve got this product I would like to return. What’s your return policy?’” Friefeld says. He adds that Field Tool has no restocking charge for unused products returned within 25 days.

Logistics efficiencies
In addition to helping their vendor consolidation efforts, master wholesalers also help distributors improve their logistics capabilities, develop marketing and sales tools and with point-of-sale merchandising.

“In order to compete with national chains, distributors have to figure out how to develop a supply network the end-user expects. Our message to distributors is to let us be a consultant in their supply chain management so they can work on their core expertise and value-added services to customers,” says Joe Sodini of United American Sales Inc. (UASI) in Wilmington, Ohio, a master wholesaler specializing in safety supplies and personal protective equipment.

He says distributors expect one- or two-day delivery and many also require blind drop shipments to customers. “We expect to do 56 percent more drop shipments to end-users this year compared to last year,” Sodini says.

Distributors also expect wholesalers to provide them with product literature and other marketing support they would traditionally obtain from a manufacturer. United American Sales publishes three catalogs per year that distributors can personalize with their name and logo. The company plans to offer an electronic version of the catalog that distributors can integrate into their Web sites early in 2007. Sodini says companies that take advantage of the catalog program have doubled their business with UASI.

“Marketing programs are becoming more popular with distributors. The manufacturer can’t always respond equally to all customers from a marketing standpoint. We’re focused more on the independent, so we have the tools in order for our account managers to develop distributor materials quickly,” says Donna Bruno of Logistics Supply Company, a customer service provider in Charlotte, N.C. “We are devoted to growing the distributor’s business with very personalized service.”

Her company provides custom fliers and promotional material such as T-shirts, caps and canvas bags. Logistics Supply also publishes a quarterly eight-page print publication called Supply Leader that includes product information plus other timely tips that focus on the end-user. A recent edition included items about avian flu prevention, traffic safety tips and understanding heat stress.

“We spend a lot of time working with distributors on marketing programs that can provide growth with brand leaders,” Bruno says.

The company recently developed two point-of-sale merchandisers for use in distributor showrooms to display products. The fire safety and personal protection merchandisers create a focal point for customers to browse for merchandise on the sales floor where impulse buying takes place.

Bruno says the marketing and merchandising programs also help distributors test new product categories at low risk.

“Sometimes distributors may have interest in a new line, but because they’ve never sold it, they don’t know how successful it will be. There’s not as much risk to do that through us as there is through a manufacturer where they have a minimum buy in. If they’re not successful, now they’ve got inventory they have to get rid of. Since we don’t have a minimum order, they can see how it sells before increasing their order,” she says.

Master wholesalers are increasingly embracing technology to help distributors with their marketing efforts. When ORS Nasco sends e-mail announcements with promotional fliers, distributors can not only purchase the featured products, they can purchase the flier for their own promotional purposes.

“We have an online tool where if we do a direct mail piece and distributors like it, they can go online and make it their own. They put their logo in once, and from then on it becomes their flier or direct mail piece,” says Davis.

Other marketing programs include a customizable catalog, quarterly promotional fliers, line cards and supplier-specific promotional literature. Davis says the object is to open distributors to a world of marketing tools that an independent distributor would consider too expensive or too difficult to use by themselves.

“Our passion is to be a service provider that helps our customers grow their business. We’re not about breaking big boxes into little boxes. We exist to help our customers grow their business,” Davis says.