Progressive Distributor - An old model revisited

An old model revisited

by Richard Vurva

The idea of buying from a wholesaler or master distributor rather than purchasing direct from a supplier is hardly new. One reason for the renewed interest in the concept is the slowdown in the manufacturing economy over the past 18 months. Distributors will consider any reasonable alternative that may help them cut inventory holding and other handling costs.

“The cost to carry inventory is so prohibitive that smaller distributors can’t compete with the catalog houses and the public companies,” says Howard Queller, president of David Queller & Company in Kenilworth, N.J. His company, which specializes in cutting tools, precision tools, hand tools and fasteners, sells exclusively to distributors, relieving them of the need to invest in high-cost inventory.

Queller says the 100,000-plus SKUs in his warehouse represent the complete lines of more than 30 suppliers, not just the fastest selling items that a typical distributor might stock. Providing blind-label drop shipping, so the end-use customer doesn’t know the order came from Queller, enables a local distributor to effectively increase inventory visibility without adding cost. He says distributors trust Queller to drop-ship to their customers because Queller does not sell direct to end-users; instead, it refers all end-user inquiries to distributors.

“We believe the role of the distributor will become more of a service provider. Their role is to solve customer problems and make recommendations that will help them run their businesses better, not necessarily carry stock,” Queller says.

Another reason for the growing interest in master wholesalers is because some traditional wholesalers have begun to put a new face on an old model. For example, Production Tool Supply in the Detroit area, which has been selling to distributors for about 50 years, has invested in a new information system, Internet technology and a warehouse management solution. The technology offers distributors customer-specific pricing, real-time order and delivery status and other pertinent information via the Web.

“It gives the distributor the opportunity to cut costs out of the transaction,” says PTS president Mark Kahn. “It eliminates repeated phone calls to check stock availability, to report that information back to the customer, another call to place the order and maybe a third call to check delivery on the order. All of this activity can be done interactively while the distributor is on the phone with a customer.”

Kahn says about 1,400 distributors have registered to use the online service and about 200 distributors access the site daily.

“We’re seeing 20 percent per month growth in the level of sales generated online,” he says.

The company’s newest service, WebXpress, is customized with the distributor’s identity, enabling the distributor’s customer to have fully functional, interactive, real-time ordering capability of products carried in PTS’ warehouse rather than on the local distributor’s shelves.

3PLs emerge
Another example of an emerging distribution model is Kenakore Solutions in Perrysburg, Ohio. It is a third-party demand fulfillment logistics provider, offering inventory planning and scheduling, warehouse management and transaction fulfillment for manufacturers and their channels of distribution.

Kenakore represents about eight manufacturers in the fluid power and heavy trucking industries, including two Fortune 200 companies. It integrates with the manufacturer, providing high-end inventory planning and fulfillment. This allows the manufacturer to focus on its core competencies, while Kenakore handles demand fulfillment logistics.

“We receive bulk shipments from our manufacturer partners and maintain inventory within a high-quality facility,” says Joe Holmes, director of business development. “As demand occurs, it’s electronically communicated to us either by the manufacturer or the distributor and we ship the product to the directed recipient.”

The process allows for quick order turnaround with significantly higher order fulfillment accuracy and reliability. Holmes says erratic demand patterns make order fulfillment an expensive process for manufacturers and leads to unnecessary inventory buildup in the channel.

A typical distributor sees demand only from its customer base. Kenakore sees the demand from a manufacturer’s entire channel of distribution.

“We can provide distributors with a deep breadth of product without any additional investment in inventory, in a timely and convenient fashion,” he says. “The manufacturer wins by gaining improved and quicker visibility to demand patterns, and the distributor wins by positioning themselves as the most reliable provider of products to their customers.”