In today’s highly competitive market, industrial/contractor supplies distributors are looking for ways to increase profits without raising prices. What many don’t realize, is that the answer may not be in your pricing. The answer is often found in your supply chain.
In the example below, two distribution companies have the same sales volume but the “High-Profit Distributor” earns substantially more:
There are three key differences resulting in increased profit for the high-profit distributor. Those differences include cost-of-goods, operating expenses, and the most pronounced difference is that the high-profit distributor purchases 50 percent of their goods from suppliers that offer them a rebate. Even though the cost of goods sold and operational expenses only changed by 1 percent, it created $95,000 in additional profit.
The bottom line is that purchasing from the wrong suppliers can decrease your distribution company’s profits. Here are a few questions to ask when examining profits and your supply chain:
- Do you have too many suppliers with similar products?
- Could you receive a deeper discount if you combined the volume of several suppliers with fewer suppliers?
- Are you taking full advantage of programs offered by industrial buying groups?
A membership with an industrial buying group or co-op provides you with the opportunity to reduce cost-of-goods sold, reduce operational expenses and increase rebates. Companies that want to compete in 2018 would be wise to look at every opportunity to increase profit and that examination should start with your suppliers.
Paul Byrnes is NetPlus Alliance's vice president of distributor development.