Now's the time for master distributors
Master distributors offer greater operating efficiency and reduced costs
By David Francis -- Industrial Distribution, 10/1/1999
These days, the industrial supply chain is like a predatory food chain. If your industrial supply company cannot adapt and grow, it may soon be extinct. End users are asking you to provide more and charge less. Using a full-service master distributor is one method of addressing the demands oftoday's highly competitive global marketplace and increasing the capabilities you offer without disrupting cash flow.
Today's industry goals are to achieve greater operating efficiency, reduce costs and increase profits. Customers have already identified two wasteful habits of the supply chain that distributors need to address: too many vendors and excessive product handling, both of which create costs for the customer.
During the next five to seven years, industrial supply distributors will witness a significant decline in the inventory support segment of their businesses, according to a report prepared by Frank Lynn & Associates titled, "What's Ahead for Industrial Distribution?" The report predicts that the master distributor, with its wide product range and low cost, will perform more of the traditional logistics and inventory functions being handled by small and specialty distributors today.
As a full-service master distributor, Production Tool Supply is witness to the expanding buying patterns of small and specialty distributors. We believe the increased reliance on drop shipping from a master distributor is strong evidence of the benefits of using this business strategy, which we expect more distributors to do.
The first reason for this is that when a distributor receives an order for product that he doesn't stock, he can call a master distributor who will drop ship the order complete, direct to the end user the same day with no reference to the master distributor. The distributor receives a discounted price on the item and doesn't have to rehandle the order or meet a manufacturer's minimum.
Secondly, if the order includes multiple lines from various manufacturers, the benefits multiply: the distributor issues one purchase order and makes one payment to the master distributor, and the customer receives only one package.
In addition, by using the master distributor's inventory, specialty distributors can offer customers thousands of items without having to stock slow-moving inventory. Cash flow is not compromised because the distributor buys from a master distributor after the sale is made.
Finally, the distributor reduces his customer's need to buy from competitors and can benefit from a variety of marketing support offered by a full-service master distributor including: customized catalogs, direct mail, promotional flyers, mailing list services, e-commerce, online ordering, and more.
Before the year 2000, we see master distributors increasing paperless electronic integration and e-commerce with local distributors, which will eliminate even more costs. Customers will be able to visit the local distributor's home page, unaware that they are actually linked to the master distributor's online catalog, online order desk, technical support links and application chat rooms. Fully integrated electronic orders will only need to be confirmed and uploaded into the distributor's order processing system using EDI.
Studies indicate that customers rate distributors based on performance and capability, not size. If the consultants and industry analysts are correct, successfully integrating the service and technical expertise of a local distributor with the capabilities and logistics of a full-service master distributor is a "win-win" situation.
David Francis is director of sales and marketing for Production Tool Supply of Warren, Mich.
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