Dealers Benefit By Buying Through a Distributor
In today’s access control industry, the vast majority of dealers greatly benefit when they purchase products through distributors, rather than directly from manufacturers.
Unlike manufacturers, distributors often offer a wide range of services and talents that cater to specific dealer needs.
In order to make the most of these types of arrangements, dealers should identify their bottom line needs; Do you need the best pricing possible? Do you need local stocking arrangements or technical expertise?
Here are some of the main reasons why dealers should consider or reconsider distribution:
Is purchasing directly from a manufacturer always less expensive?
Not all purchasing habits are created equal. Some customers buy based on the relationship they share with their favorite sales rep. Others strictly consider price and cast all other factors aside. Most purchasers we see settle somewhere in the middle ground between the two extremes.
That said, the most common misconception amongst dealers is you’ll receive best possible product pricing purchasing straight through a manufacturer; The infamous “direct relationship.”
At face value, it’s certainly a logical thought: “We’re cutting out the “middle man” who also needs to make their profit and must mark up every item they resell to us.” And yet, this assumption is wrong in most cases.
Most manufacturers will tell you they prefer their dealers to buy through their distribution partners, as most of them are not built to handle the credit and collections side of business. Due to this unfamiliar territory, as well as several other factors, manufacturers will typically bend over backwards ensuring their dealers receive the best possible pricing through distribution. They do this by creating a distributor price level, or in some cases for larger integrators, Special Price Reductions (SPRs).
Manufacturers also tend to have a fair number of distribution partners all of whom typically receive a similar, heavily discounted distributor price level. This practice opens up the door for further competition, which secures even better product pricing.
So how can you ensure you’re getting the most beneficial pricing? Secure relationships with at least three different distributors, and obtain competitive quotes from when submitting RFQ’s (request for quotations) for each job/project.
This strategy works across the board, event though every counter sales person has different quoting habits. Some have predefined margin goals where they tend to quote every product at the same margin percentage. Others realize you are likely receiving quotes elsewhere and, depending on their branch numbers for the month, may decide to get extremely aggressive on their quote to win your project.
Better Credit Lines and Extended Terms
As previously mentioned, most manufacturers aren’t well equipped to handle credit and collections. Distributors, on the other hand, strive in this arena.
Where you may see a $2,500 credit limit with 15 day terms given by a manufacturer, you may comparatively see a 10k credit limit with 30 day terms given by a distributor. Depending on your specific company’s size and specifics, 60 – 90 day terms are often attainable as well. Additionally, many credit departments throughout different distributors have dedicated credit representatives who work directly with dealers to help maintain payments. When you have good payment history tied to your company name, distributors typically are willing to continue raising lines of credit.
Another benefit to consider is the ability to consolidate purchases, which keeps your books cleaner and easier to manage. For example, when ordering direct, you must place five separate orders due to working with five different manufacturers’ parts needed on a bill of material for a project. The alternative is placing one purchase order and submitting one payment to a distributor for that same bill of material, which lightens the load of your A/P department helps maintain order tracking.
Local Product Availability
Local dealers can often handle many of your overhead expenses when you negotiate a stocking arrangement. This is often the greatest perk and selling point for dealers who work through the distribution channel.
For example, a dealer that specializes in service work most likely requires consistent, local stocking arrangement to avoid unnecessary waits for standard replacement parts. Local distributors can often manage your overhead and stock specific products on the shelves, so you don’t have to.
I’ve personally converted quite a few direct dealers during my time in distribution, highlighting this advantage, partnered with price matching. It often is the “sweet spot” for most dealers, with the essential thinking as follows: Receive the same pricing as before, but eliminate waits by accessing locally-available products that technicians can pick up when needed.
Freight charges can also be removed from the equation when orders are picked up locally. Many dealers prefer this strategy when the alternative is personally stocking and tracking extra inventory that isn’t guaranteed to sell.
Of all the convincing arguments for working with distributors, I find the most striking and convincing is as follows: Stocking arrangements are not generally tied to dealer credit accounts, and do not tie up their credit line or ability to place orders.
Ready to give it a try? Here are a few suggestions.
Negotiating New Relationships with Distributors:
Try to keep the 80/20 rule in mind here when negotiating a stocking arrangement. There is no need to request your distributor keep every single part you have ever used on their shelves. Instead, 20 percent of the products that account for 80 percent of your overall business would be an ideal and fair place to start.
Keep in mind many distributors have been “burned” by dealers in the past, giving them too many parts with unrealistic usage rates. If they see you’ve taken care to consolidate your list down to your essential service needs and have provided realistic usage rates, it will help expedite the conversation and build trust in the relationship. The key, as in any success partnership, is not to take advantage and to hold up your end of the bargain.
For the dealers going after project/bid work, local availability can serve you in a different way. With most projects and bid work, there are usually many parts coming in from many different manufacturers. Another factor, depending on the dealer size, is the territory they cover, whether that be strictly local, state-wide, regional or national. These types of orders can quickly get disorganized and difficult to manage as a dealer. Distributors on the other hand, have a lot of experience managing these types of situations through the use of staging orders.
Staging orders allow for a larger orders to be delivered and stored in a distributor’s warehouse until all of the equipment arrives to complete and release the order. Many distributors have multiple branches, and some have multiple branches situated nationwide; the hub and spoke model. So, if you’re handling projects on a regional or national scale, take advantage of the opportunity to stage these orders in the branch closest to your project location. This method helps cut down on shipping costs and gives you better control on setting up a complete delivery to your job-site.
Dedicated Account Managers
Talking to a new sales person every time you reach out for pricing or product questions can be frustrating. Even worse, it’s not unheard of to receive different pricing on the same product(s) from different sales people in the same company.
Most distributors man their counters with “dedicated account managers.” Doing so allows a customer to call and provide their company name, which is tied to a specific account manager. This ensures the caller gets connected to the same sales person every time, which allows the sales representative to get to know their customer and their particular needs as a dealer. Good account managers get to know your purchasing history, habits, bottom line needs etc. Also, the stand-out branches tend to have an exceptional team of account managers that get to know each other’s accounts, so they can be properly covered while out or busy on another call.
Now that we’ve covered what an account manager is here are some of the essential things they can do for you:
- They know the industry and have countless manufacturers consistently walking in their doors showing them the latest and greatest technology.
- They are great source of information; use them to ask any and all questions.
- They know their company better than anyone and can help guide you through some of the other benefits they offer.
- They work for you to earn and keep your business.
- Let your account managers handle your RMA’s and project registrations among other tasks. They have streamlined processes for both of these and are happy to save you the time where they can.
This only breaches the surface in terms of describing potential benefits and services different distributors can offer. If you’re ready to give it a try, remember to ask about rewards programs, free freight terms, manufacturer product training etc. And most importantly, before you negotiate and find distribution partners, identify your true bottom line as a dealer.