There was a time when a master distributor's biggest selling point was the wide range of product lines it carried—and that the average small- to mid-sized distributor couldn't access directly. These aggregators and distributors of products and services have watched their role change significantly over the last five years, with most focusing today on becoming true partners to the distributors they serve.

"Today, even the [distributors] with access to the 600 lines ORS Nasco represents, buy product from us because it's more efficient from a supply chain and logistics standpoint," says Larry Davis, vice president of marketing for Muskogee, Okla.-based ORS Nasco. With eight locations, the 350-employee master distributor was "re-branded" in 1999 when industrial master distributor Oklahoma Rig & Supply Co. merged with welding and safety master distributor Nasco, Inc. The company specializes in industrial MRO, welding, safety and construction supplies and services.

Working on a "pure wholesale" philosophy that precludes the master from selling directly to end users, ORS Nasco has embraced the evolution by helping its distributor-customers overcome issues such as margin erosion, increased competition and economic uncertainty.

"We try to add value that goes beyond the supply chain and line access," says Davis, who points to ORS Nasco's marketing materials and catalogs, EDI capabilities and Web site offerings as three key areas where the company adds value to the relationship.

"We focus on the [distributor's] transactional costs and offer a variety of services to help mitigate those costs," says Davis. "We also help [distributors] understand when it makes sense to buy from us—and, quite frankly, when it doesn't."

If INDUSTRIAL DISTRIBUTION's 57th Annual Survey of Distributor Operations is any indication, the number of distributors working with master distributors such as ORS Nasco, OKI Bering, United American Tools Sales, Production Tool Supply and Field Tool Supply is on the rise. Released in 2003, the survey found that 56 percent of distributors buy products from master distributors, and that usage of master distributors fluctuates slightly with company size.

The smallest firms are most likely to rely on a master distributor, with 22 percent of those with less than $5 million in sales using them, 16 percent with $5-$10 million in sales buying from them, and 15 percent of companies with $10-$20 million in sales making such purchases.

Survey respondents revealed that 17 percent of their products were purchased from master distributors, down 4 percent from 2003. Sixteen percent of all distributors surveyed said they were buying "more than 25 percent" of their products from master distributors.

Mark Friefeld, who has watched his customer base grow steadily since purchasing Chicago-based Field Tool Supply Co., in 1983, isn't surprised by the increased use of masters. Specializing in industrial supplies, his company spun off the part of its business that sold direct to end users in December 2003, and is now "wholesale-only" according to Friefeld, who has witnessed a sea change in the way customers deal with masters over the last decade.

"Ten years ago, wholesalers were simply 'tolerated,'" says Friefeld. "Today, they're recognized for bringing true value to the supply chain."

And it's not just the small- to mid-sized distributor that recognizes that value, he says, but also the larger distributors who already have access to the desired lines.

"The larger, multi-branch distributor wants to deal with wholesalers because of issues such as [vendor reduction and increased inventory turns]," he explains. "They realize masters can facilitate that for them."

Also recognizing the value are manufacturers, who at one time would have rather dealt directly with industrial distributors than operate in a "two-tier" fashion. Now, those manufacturers are seeking out wholesalers to partner with, says Friefeld.

"I think we're going to see more of that," he adds. "They're looking for better ways to allocate resources and reduce expenses, and they're finding masters to be the answer."

Distribution channel strategist Bill McCleave, president of Charlotte, N.C.-based W.R. McCleave & Associates, says that over time, the definition of a master has changed, thanks to the emergence of marketing and buying groups that perform many of the same traditional functions of the master.

"We've seen consolidations of channel services, with some of the companies falling into pure master distributor companies," says McCleave. "The other firms or organizations are acting like master distributors."

The differentiation lies in who those companies are selling to, explains McCleave, who says a true partnership between a master and customer probably wouldn't find the former selling to one of the latter's customers.

"It's not to say a distributor won't occasionally buy from a master who sells direct, but it wouldn't be any kind of strategic relationship," McCleave says. "By definition, a pure master distributor is a pure wholesaler who sells only to specific resellers."

Where masters also are different is in their individual girth, scope and geographic reach. ORS Nasco and OKI Bering sit at the top of the heap. Several others also work nationally, albeit on a smaller scale. Further down the chain are the masters who cater to specific regions of the United States.

"There are basically two of us nationwide," says Gary Laudt, group vice president of marketing and procurement for OKI Bering in Cincinnati. "The others are regional players."

In business since 1966, the 18-location company has been selling welding, safety, industrial and contractor supplies and services since 1990, when OKI and Bering Sales merged into a single company.

Over the last five years, Laudt says OKI Bering's focus has shifted from a concentration on welding equipment and supplies to include more of an industrial slant.

"Up until the late-1990s, there really was no place for a master on the industrial side," says Laudt. "Manufacturers have since recognized the value of the master, and have positioned us to serve the industrial distributor base."

That shift in thinking has worked out well for distributors who work with the masters, and who are tightly focused on keeping inventory to a minimum while serving customers at optimal levels, says Laudt. Instead of buying large volumes from individual manufacturers, for example, a small- to mid-sized player can "pick and choose" among many lines and brands (which Laudt compares to shopping in a grocery store) to complete an order.

"The whole function of the master is to provide product at lower cost in the channel," says McCleave. "To get there, they continually add more services and value."

Where masters bring the most value, says McCleave, is by providing a wide product assortment, helping to reduce the distributor's inventory, offering technical support, and reducing the cost of goods sold and product purchase prices.

Where master distributors once focused on breaking down larger quantities of goods and selling them in digestible chunks to their customer bases, many have moved into more logistical roles. To accommodate the shift, Joe Sodini, president of United American Sales, Inc., in Wilmington, Ohio, says his firm has reduced its own overhead, beefed up its customized marketing offerings, and learned how to help create a more competitive redistribution network.

"We're providing distributors with more marketing tools, like safety product catalogs focused at a target market—something we've never done in the past," says Sodini, whose 6-location, 60-employee master distribution firm sells safety equipment and supplies on a wholesale basis to distributors nationwide. "Margins have been driven so low that we're teaming up to initiate business at the end-user level, and helping to pull it through."

Expect to see the master distributor's role expand over the next few years, as more companies realize the benefits of the grocery-store approach to purchasing. INDUSTRIAL DISTRIBUTION's recent survey found that those firms buying products from master distributors expect to purchase even more from them over the next three years, with the number increasing from 17 percent to a projected 20 percent across the board.

Smaller distributors are expected to buy an even larger percentage of their products from master distributors than large or mid-sized companies over the next three years. For example, 24 percent of companies with less than $5 million in sales expect to purchase more than 25 percent of their products from a master distributor. During the same period, just 6 percent of those with $10-$20 million in sales expect their master distributor purchases to exceed 25 percent.

"Clearly, there is a place for us," says Davis, who hints that masters could face more competition in the marketplace over the next few years. "I think we would be naïve not to expect new competitors, whether they are new, true master distributors or third-party logistic providers."

McCleave also sees the role of the master distributor expanding, provided the players continue to ferret out ways to create streamlined channel flows and reduced cost structures.

"This marketplace is always looking for a faster way to get the needed products to customers at lower costs," says McCleave. "If the master distributor can do that, then there will be a real need for them. However, the master distributor that is a cost center, and that ends up adding costs to the transaction, will struggle."