Bigger is not better
It's time for small distributors to speak up and extol their virtues as good channel partners
By Richard Pappy -- Industrial Distribution, 1/1/1998
When I first entered distribution in 1975, I remember a time when successful selling had its foundation in human relationships, when OEMs and distributors generally worked together to achieve common goals. Contract selling was a new thing and terms like "bar coding,'' "JIT,'' "ISO 9000'' and "Quality is Free'' had not yet been introduced. Distribution was fun. It was full of humanity.Today, distribution is anxiety, particularly for the smaller-sized firms. OEMs can be savage in the way they treat their suppliers, price drives every decision, and the costs of quality and technology are larger items in the overhead than rent and insurance. Smaller distributors, in particular, are concerned for their very survival. But, I say to every smaller distributor, "Hang in there. Pretty soon the pendulum will begin to swing back".
The new procurement paradigm, "BIG IS BETTER,'' has conquered rationality. Many large OEMs want to do business with big distributors, and smaller OEMs want to imitate big OEMs. Yet, the mentality of bigness is a historically documented failure. Big doesn't work as well as small.
Big businesses can be ponderous. Small businesses are fast and responsive. Big distributors choke on their bureaucracies and management layers. Small business is efficient and flexible. Waste and abuse is a costly item in larger distributorships whereas the small distributor counts every penny.
Manufacturing strategies over the last fifteen years have embraced the concept of "smaller is better,'' which makes one wonder why purchasing has moved in the opposite direction.
Our culture demands simplistic visions and easily comprehended values. This is why the paradigm of big-is-better has been so heartily endorsed by some OEMs. This is also why the smart and rational concept of supply base consolidation has metamorphosed into the dumbest idea I've witnessed in 25 years in business -- sole-sourcing.
Sole-sourcing is all the rage in some purchasing circles. Yet, the practice is ineffective in controlling costs, and it closes down the vast opportunities available in a vibrant, competitive marketplace. Innovation must travel down a narrow path when only one supplier is entrusted with that responsibility. Supply base consolidation is sensible. But sole-sourcing represents a failure to manage one's own supply base.
Small distributors have been silent on this subject for too long. It's time for us to extol our own virtues, in part by exploding some of the myths that surround the "big-is-good" paradigm.
For example: Big distributors are price leaders. Nonsense! Most products sold by distributors are commodities. Commodities don't care who buys or owns them. They are sold at the lowest price to whoever has the order. And the ratio of overhead to sales is higher in the larger distributors than in the small, which forces the big distributor's prices up.
Another example: Only big distributors can bring high technology to OEMs. Baloney! There's nothing complex or expensive about JIT, bar codes, scanning systems, or EDI.
Here's another: Advanced quality systems are available only from the larger distributors. Not true! My company is not big, but we are ISO 9002 certified, and have been producing world-class quality for all of our customers, large and small.
Bigness is not a virtue, and one must be quite bold to attempt to defend it as a value at all. Small distributors, smartly managed, are in the best position to know and satisfy their customer needs. Their overhead structures generally make them extremely competitive, and many smaller distributors are leaders in quality and technology. But, unlike their giant brothers, they don't spend much of their customers' money marketing their capabilities.
So, take heart. Be passionate in your pursuit of excellence. Indulge your customers. And don't loose faith that, in time, the corporate purchasing agents who drive these changes in the marketplace will realize that the strategies that extol bigness for its own sake will crumble under the weight of common sense.
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