Aren’t I better off Cutting the Middle man out and Going Direct?
In our pop-culture world today we are barraged with phrases like “buy factory direct” or “manufacturer direct cost savings to you”. Are these cost saving statements even true, or just snazzy marketing terms meant to get ones attention? Furthermore, is it relevant to your business decisions? I think its worth a laugh to imagine people traveling miles to stand in line for a gallon of milk outside of a dairy farm. We don’t really think about distributors on a day to day basis, but companies like Costco and Wal-mart helped make the term “just in time” (JIT) part of our common vocabulary and those organizations, by definition, are distributors. They build relationships with the dairy farmer, the bread baker, the shoe maker. They then buy in bulk and move product you need to places where it’s easy to buy them all in one place. (The one-stop shop.)
Let’s Apply Distribution to the Industrial Market
Let me illustrate these same principles of the use of distribution into the industrial marketplace. As an example lets consider a sector of the healthcare market. Medical
grade plastic shapes are used in the manufacture of surgical instruments and devices, healthcare equipment and the like. The raw material for medical grade plastics come in a variety of colors, sometimes its for ease of identification purposes between various sizes, sometimes colors may be valued for the aesthetics of an individual brand. The real problem could begin when a desired color isn’t a common/standard color. For example we can get a ‘flamingo pink’ produced but it will likely require both a lengthy lead time for the resin and a minimum quantity to extrude the shape. The volume needed for such customization is usually out of most individual customers reach especially while their end product is still in the proto-type stage. Now imagine this special color, along with other common ones, used by a large volume OEM and they perceive their best price is to buy direct from the mill. Let’s also keep in mind the price of material may not really be the same as the cost. So why might this company consider buying via a distributor instead of direct?
The ‘What-Ifs’ of What Could and Sometimes Does go Wrong
- There is a resin shortage in the market – it happens! Aside from the pain of the long lead time there’s now no room for error; in quality or inspection, quantity changes to accommodate an increase in demand.
- Outside forces affecting production or shipping and delivery – power outages, hurricanes or blizzards, fire or flood, etc.
- The mill accepted the order for the flamingo pink previously, but then there’s a capacity or another manufacturing issue. Now it’s a triage situation. Consider what then may happen with the common colors that this same customer needs or for that matter the whole industry is wanting to purchase.
The Benefits of Buying Through a Distributor
- Manufacturers produce material and they are experts at it!
- Our manufacturing partners are, and should be, the innovators of new and better plastic materials to the market.
- Most often manufacturers are single location facilities and many have a limited
- Tying up space in their facility in order to stock huge amounts of material for customers limits areas they could use to expand operations.
- The same great application and technical resources are still available to customers through an approved distributor. In fact, sales staff at distributors can also be a great resource for technical advice as they have relationships with multiple customers using the same product.
- A distributor ‘supplies’ material so managing and inventing inventory solutions and moving product to customers is what we do – its who we are.
- Multiple Locations Close to you. ThyssenKrupp AIN Plastics Division has multiple facilities and more people in a local area that can assist customers, and still helps them in meeting vendor reduction goals.
- Large Inventory all the Time. We already buy in bulk from all the world’s best manufactures of plastics shapes thus providing the same quality of material.
- Enjoy the Benefits of low Minimums and JIT. Combining volumes of special material may alleviate large minimums to any one customer. Keeping material in our warehouse and not the customer’s allows for product to be received only when its needed. This not only frees up space but inventory dollars that could be used for other business purposes.
- Less Lead Time, Fewer Headaches. A good stocking distributors who focuses on your particular industry helps ensure a smooth flow of product thus becoming a buffer between the end-user and the bumps in the market such as issues of lead-time, volatile pricing etc.
It Is Called a ‘Supply Chain’ –Let us Be Your Strongest Link!
ThyssenKrupp Materials NA
AIN Plastics Division
IAPD (international association of plastics distribution) “The Distribution Channel Value”, content provided from NAW (National Association of Wholesaler-Distributors) http://www.iapd.org/distribution value
Know This, marketing tutorial “Benefits Offered by Channel Members” http://www.knowthis.com/distribution
TexasA&MUniversity, Department of Engineering Technology and Industrial Distribution program, http://etidweb.tamu.edu