Customers have always approached their suppliers in an
effort to reduce the price they pay and to have their suppliers
perform additional services. But the last few years have
seen a significant increase in the pressures customers are
putting on their distributors.
And this trend is growing. Not just because someone in
the market always seems to agree to the customers demands,
encouraging them to ask for more, but because the pressures
on the customer's profits continue to increase.
This pressure is felt throughout the supply chain. As customers
go to their distributors, the distributor often turns to
their manufacturers. But eventually neither will be able
to give anymore and still remain profitable….unless
they work together to make the distribution channel more
cost effective.
25% of the costs in the distribution channel are redundant.
And if Wholesale-Distribution as an industry does not find
the answers on how to reduce these redundant costs and become
an even more efficient supply chain, the customer will.
And in such cases it usually is not to the liking of the
distributor or the manufacturer.
Some companies are trying to cut costs on their own, but
the results, while advantageous for the company doing it
is good, often causes problems for the other company. For
example, distributors are trying to offer more products
to their customers and improve the profit ratio on sales
per order. But additional lines means less focus on a specific
manufacturer's products, sometimes resulting in lost market
share for an existing manufacturer. In an attempt to recover
this lost market share the manufacturer then adds on additional
distributors, further diluting the distinction the distributor
brings the customer.
In effect the value each channel partner is adding to the
other is diluted and the cost savings for one is often a
cost to the other. The bottom line is that we need to determine
how we can work better together to reduce the costs in the
channel for our mutual benefit. And for those companies
that do, they have the potential to create a real competitive
advantage: a more cost effective and efficient supply chain
with exactly what the customer needs and in a manner that
can make both the distributor and manufacturer more profitable
and competitive.
