The role of a manufacturer is to sell product. While distributors may like to think that the manufacturers are supposed to sell product to / through them, the reality is that manufacturers, more than ever, are looking at alternative channels, including selling direct to the customer.
Why?
Either the customers are requesting it or other channels are seeking to diversify their product offerings to gain a greater share of the customer’s wallet.
What other channels? There are distributors in the medical field, petroleum industry, building material distributors, plumbing distributors, online entities, catalogs, farm supply houses, ESCOs and more vying to take a piece of the electrical industry.
But direct?
Yes. In speaking with manufacturers they are seeing an increase in the number of requests by end-users, typically for capital projects or by OEMs, for the manufacturer to serve them direct … sometimes with the distributor’s knowledge! The reason for the requests relate to:
- greater interaction and coordination with the manufacturer’s engineering department
- an OEMs ability to provide demand forecasting to a manufacturer, and
- reduced pricing
The OEMs do not see the value in the distributor as an inventory resource, a customer service expeditor or as a resource for other value.
In a number of instances the manufacturers are providing a nominal commission – 2-5% – to the distributor (who is happy to take the money and not do much, if anything). Sometimes the manufacturer is in the stream of commerce and hence can also make some back-end money.
And think of the myriad of lighting companies that sell direct (small to medium sized LED companies!)
No one knows what percentage of the business is bypassing the channel by going direct (and manufacturers don’t say what percentage of their business is direct) but anecdotally it is growing. It seems like there may be a couple of opportunities here …
- distributors need to better market themselves as a value-added resource for these types of companies
- for distributors to position themselves as an information conduit to coordinate engineering efforts (or have engineers on staff to support the interaction)
- alternative business models and pricing formats could be considered
- partnering with complementary suppliers to pursue OEMs within a marketplace (or vertical market)
- embrace the commission model
What do you think of manufacturers going direct? Is this a viable way for a manufacturer to grow their business? Should it be an opportunistic / defensive strategy for a manufacturer or should they actively market it as an alternative (and remember, they already have the sales organization in place – direct people and reps!)?
10 Comments
With distributors stocking less and ordering as needed from suppliers, thus using a manufacturer as their warehouse, why shouldn’t the manufacturer by pass them?
if the manufacture wants to take the credit risk and the hassle of dealing with 100 times more customers and at the same time alienate the distributors that can find an equal to any products that they offer —- i say let them go for it — they have had this opportunity since the beginning of time
we’re going to go whereever the customer is buying from and will sell him however he wants. Customers are more knowledgeable today than ever before and are willing to buy online, from whomever is easier to do business with or they want to buy direct so they are not beholden to a distributor who they feel doesn’t add value. Plus they want access to our engineers and service specialists. Some feel distributors are solely for storage, credit – which we can give, and golf or donuts.
It’s all about providing value. If there isn’t any, they’ll buy whichever way is cheaper, easier or they have more confidence in. We even have some reps taking the orders for us
Agreed, it is about providing value. As a distributor, I think our industry has been spoiled during the good times and sometimes forgotten that our role has to add value. We still do, but obviously when a customer doesnt want to pay for it, we are not adding enough of the right type of value.
We still offer the most efficient channel to market in many cases, and when we do what we’re supposed to do (stock, offer support from a knowledgable salesforce, deliver the right products in the right quanitities at the right time, carry the recievables, provide technical services, and shield our customers from the pain of dealing with manufacturers with poorly trained people or reps (that turn over faster than the printers can print new cards) lousy customer service organizations and the opposite of customer focused cultures) we provide a lot of value for our meager margins and high costs to serve.
Now that I think of it, I think a few direct transactions with one of our suppliers might help a customer see the value we provide a lot more clearly and might cure them of ever thinking dealing with our suppliers directly is a smart thing.
The larger question I like to ask is – Is The Platform Of Wholesale Distribution Burning?
I recently came across Nokia’s CEO Stephen Elop’s Burning Platform memo (you can read it with the link below). Great piece bluntly stating Nokia is standing on a burning platform and must radically change behavior. Best Buy & RIM are all over the business news with their unremarkable performance – should electrical distributors and our channel partners be learning from their mistakes? My premise – wholesalers and distributors should be innovating and finding ways to become the disrupter rather than the disrupted. Your thoughts – are we standing on a buying platform? If so what should we be doing?
Perhaps Anonymous #’s 1 & 3 could conduct roundtable discussions with #,s 2 & 4. Not sure about a “burning platform”. I am not currently feeling the heat. I will share a comment from a premier switchgear provider who recently indicated to us “well, that’s what we have distributors for” when asked about their willingness to accept certain project terms and conditions or equally obtuse financial payment terms.
Spoken like a true consultant. You state distributors ,”are willing to take the money, but do little for it, if anything”‘ nothing could be further from the truth. The distribution channel provides tremendous value to manufacturers; local inventory, local expertise, credit management, terms management, account development, local market development, product awareness, relationship management, delivery service, expansion/extension of there sales team, bad debt risk, the list continues. Manufacturers have relied on distributors for centuries to develop market awerness and sales for their products, if it weren’t for the distributor, the manufactures would never move their products. So what has changed? Technology. Technology has developed in such a manner that the manufacturer can now gain visibility better and easier than ever. The distributor channel has not failed the manufacturers, the manufacturers have discovered a new channel and the only way to justify thier participation is to say distributor are letting them down.
I think your info is pretty much right on the target. Money is cheap and Top line growth is driving public companies like never before. All this means let the M&A wars begin!
from a rep in LA
Written Distributor agreements can assist both the manufacturer and the Distributor where they both can be accoutable to each other. Why should a manufacturer sell thru a Distributor that has 4-5 competing lines of the same type product? Mfr’s reps and direct sales are more profitable often and many times a Distributor does not stock, but looks for the “cheapest price” or a means to work the margins down from the mfr.Too many distributor sales people are donut & paper boys. It’s good to be people focused but they need to know a little about the products they are “selling” also.
It seems you have had a poor experience with a distributor (perhaps distribution as a whole). Widdling it down to donut and paper boys is a simplistic view and is definitely not my experience.
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