Over the years, we've seen a number of programs instituted in the distribution business designed to reduce costs for the customer and increase sales for the distributor.

For example, more than a decade ago there were some manufacturers who believed they didn't need distribution to service their plants. Some of these companies bought distributors and set up "captive" distribution programs so they themselves could provide all their MRO supplies. General Electric attempted to roll out such a system, initially to service their plastic plants and expand it to cover some of its other facilities.

It didn't work. In fact, in almost all cases where manufacturers bought distributors, the results were disastrous. One manufacturer who looked into buying a distributor but then backed off explained it this way: "We realized we knew how to make products. We didn't know how to inventory and distribute them."

There have been numerous other ways companies sought to change the way products were distributed. Consigned inventory, vendor managed inventory, blanket contracts, systems contracts and, of course, integrated supply. Some of these programs were somewhat successful, at least for a while. Integrated supply, despite some studies indcating it continues to grow, hasn't resulted in profitability for most distributors engaged in it.

All of these "changes" have come from the customer, who wants to slash his number of suppliers and reduce his transaction costs.

Now comes a new player in the game. The company is called MRO Direct, whose goal is to reduce costs for customers needing "commodity" type MRO products at major plants around the country and in Canada.

MRO Direct's business model calls for disintermediating industrial distributors, at least those who service the large Fortune 500 accounts. (See story p. 17.)

President and CEO Don Belt says he expects in the next year to have a minimum of 20 plants under contract in the U.S. and five in Canada — ambitious plans to say the least. MRO Direct will source these products from distributor cooperatives, master distributors and manufacturers who've agreed to ship direct to customers.

Maybe this is a wakeup call for distributors to reinforce that they can't be order takers for any customer. They need to document the value in the products (and services) they provide. No one can commoditize products unless a distributor allows it to happen.

Jack Keough, Editor/Aassociate Publisher jkeough@reedbusiness.com