There's a dichotomy in distribution that goes something like this:

These days, customers want access to all the products they need to run their businesses, and they want them now.

These days, distributors large and small are seeking to pare inventories as much as possible; many are moving to a lean “pull” supply model, where actual demand (rather than estimated need) drives the chain.

The tension between these competing dynamics poses a challenge for small and medium-sized distributors. To stay competitive, they must carry the absolute minimum amount of inventory, but to keep their customers happy they must carry enough stock to deliver product—even on last-minute orders or those that fall below suppliers' minimum requirements—in a timely manner.

Enter the master distributor. These “wholesalers' wholesalers,” which sell product to other distributors rather than to end users, can provide a vital service to smaller outfits and their customers.

“[Master distributors] allow that mid-sized distributor access to hundreds of lines that they wouldn't ordinarily have access to, and they do it cost-effectively too,” says Dan Burnham, president of the IBC distributors alliance, which consists of small to mid-size distributors nationwide with combined annual sales of more than $2 billion.

IBC recently added ORS-Nasco to its IndustrialSupplyPlus division as a preferred supplier, meaning the alliance's members can treat ORS-Nasco's line of more than 140,000 products from 600 manufacturers as their own.

“In doing so, they're not taking on the burden of working capital, they don't have 600 different suppliers calling on them, they don't have to pay freight, they pay one bill,” Burnham notes. “It allows them to never have to say no to a customer … and they can do so cost effectively.”

For alliance members' customers, that means direct drop shipments of any industrial, welding, oilfield, safety, electrical, construction, HVAC, MRO, PVF, plumbing and janitorial products they might need on short notice.

“The master distributors meet a need for distribution where a customer may only want to buy a few of a certain item that you don't want to stock. Rather than buy and load up your stock, you can use a master distributor to bring in the quantity you need and your customer needs, and do it seamlessly,” says Chuck Gray, CEO of Machinery & Factory Industrial Supply, a Racine, Wis.-based full-line industrial distributor. “They definitely have a place in today's world, probably more so today because distribution as a whole is trying to control inventory and turns. The room to put in stock the way we did probably 10 years ago isn't there today.”

Jeff Haggard, industrial sales manager for MRO distributor Haggard & Stocking Inc. of Indianapolis, says there are additional advantages to using a master distributor.

“We can use their technical minds in a partnership arrangement to help broaden our service level,” Haggard notes. “It also helps us get into areas we haven't in the past been very involved in, for example janitorial supplies. They can help us lessen our time on the learning curve.”

Asked for a specific incident, Haggard chuckles.

“There really isn't one single incident because it happens all the time,” he says. “It happens on a frequent basis with most of our integrated supply programs.”

Burnham says some distributors might hesitate to use a master distributor over fears that doing so will damage their all-important relationships with suppliers. Such fears are unfounded, he says, because though master distributors ship directly to end users, they don't approach those customers directly.

“There's a perceived negative that you may lose the relationship that you have with the supplier community,” he notes. “You want to know that that master distributor is not going to sell around you and start contacting those end user customers. … Even with a supplier that someone's been doing business with and has a relationship with, a distributor may not meet that large order requirement for a stocking order. Here they can fill in … so they can get that product to a customer in a timely manner.”

“It's all in how it's presented,” Haggard adds. “I'm not buying from them so that I won't be buying from a current supplier. They are a supplement to our primary lines.”

Steve Delgoffe, sales manager for cutting and machine tools distributor Christensen Machinery & Supply Co. Inc. of Menominee, Mich., says another possible disadvantage to master distribution is growing less and less common.

“The only con in there is that sometimes one thing that working through the master distributor doesn't do is hold your [sales] numbers with the actual manufacturer,” Delgoffe notes. “If you find yourself placing orders through the master distributor, then your numbers don't go through the manufacturer for your sales total, [but] some of the manufacturers are recognizing those sales.”

Rich Poole, vice president of marketing for IBC, says most master distributors send point-of-sale data back to manufacturers for geographic areas, rather than for individual distributor customers.

“This allows the manufacturer to give credit to the manufacturer's salespeople without revealing the actual customer,” Poole writes in an email. “Because suppliers make less margin on orders that go through master distributors or wholesalers, they are reluctant to extended additional discounts or credits to entities down the supply chain. So the discount extended to the wholesaler is the manufacturer's primary cost to go to market.”

At Production Tool Supply in Warren, Mich., which began as a traditional cutting tools and abrasives distributor, master distribution has become its primary business, says John Beaudoin, the company's sales and marketing director.

Production Tool still serves as a traditional distributor in its home market of Southern Michigan and Northern Ohio, Beaudoin says, but acts as a wholesaler for other distributors outside that home base.

“The traditional business has been around for a few years, but our main core business is the master distribution business,” he notes. “That is our focus by far.”

As such, he's noticed a trend in recent years: Master distribution is becoming more and more common among small and mid-sized players.

“It's becoming standard practice for many independent traditional distributors,” Beaudoin says.

That's due to economies of scale that benefit both the wholesaler and its distributor customers, he adds.

“We have volume to pass along savings to distributors. That's what allows us to do [master distribution],” Beaudoin explains. “We make a heavy investment in our 400,000 square feet of warehousing and inventory … to allow the independent distributors to focus on their core products while we stock all the incidental products.”

For Burnham, master distribution amounts to a simple equation.

“It's really a win-win, because the customer knows they now have one supplier they can trust for everything. Distributors win because they can service the needs of the customer, no matter how broad or bizarre they may be. That's really what that value proposition is,” he says. “The demands that the customer has today in industrial distribution is they want access to everything at a competitive price. … The end user customer drives everything we do and it's important that we know where our bread is buttered. We need to continue to change and evolve based on the needs that those customers have. This is a very cost-effective way to do that.”