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May 25, 2005
Reduce MRO Costs by "Freeing" Your Distributor
To cut costs and boost productivity, you should let your distributor help you with value-added for-fee support, says one industry expert. Find out how working to "free" your distributor is good for your bottom line:
"Help me help you," Tom Cruise's sports agent title character in "Jerry Maguire" urges his client Rod Tidwell (played by Cuba Gooding Jr.). That's the advice that Mark Dancer, vice president and principal with Chicago-based Pembroke Consulting, is giving to manufacturers. That is, help your distributors help you.
In particular, he writes in a recent issue of Industrial Maintenance & Plant Operations, don't just demand high levels of support and expect to pay nothing in return. Instead, he recommends working with distributors to adjust the way they charge for service and support. In short, try a strategy that will benefit you both.
He advises manufacturing customers to first elaborate on their strategic sourcing initiatives focusing on the following three things: spending analysis, strategic sourcing and contracting, and compliance management. Then, they should determine how the distributor could help in these areas. For example, the distributor could provide data when the customer's is not complete. Dancer stresses that "making a distributor an ally in strategic sourcing" entails fostering open communication between the companies' senior managers.
"In my experience, customers will consider buying for-fee services from distributors if the services reliably and measurably reduce customer costs and drive profits," writes Dancer in Industrial Maintenance & Plant Operations. By searching and spotting the ways that distributors can boost your profits, you are "freeing" them to serve you better, he points out. How do you "free" the distributor to help you? Dancer outlines some steps, including obtaining the facts, rigorously exploring ideas and asking for new competencies.
In conclusion, Dancer points out that paying for new value-added services from your distributor is NOT charity, but a "real ROI for customers, measured in hard metrics such as lowered costs and increased productivity."
Source:
Cut MRO Costs With Your Distributor's Help
Mark Dancer
Industrial Maintenance & Plant Operations, May 2005
redigitaleditions.com/activemagazine/welcome/imp/impo.asp
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12 CommentsSorry, Didn't get anything out of this article. I'm 'freeing' distributors to do what? I work in a small company, we don't have distributors. Don't most distributors get 20-30%? how much more do they need? Keith
May 25, 2005 12:50 PMI gotta go with Keith on this one. If you have enough volume to buy direct from the manufacturer, you do and not pay the middleman (Distributors) markup. If your volume isn't there, you are forced to go through a distributor. And isn't it the distributors (who often distributes for more than one manufacturer) job to offer other competitive products?
Unless I am missing some vital point, I didn't get anything from this article either.
May 25, 2005 3:28 PMI've had some good experiences using distributors, but it clearly depends on the particular items and program.
At a large manufacturing plant it was time consuming and expensive to store and then distributed drummed items in a timely manner. The actual movement time of drums to the needed location was 3 to 10 days! This resulted in inventory being ordered earlier then needed, stored in a remote locations belonging to the company, and of course it was paid for a month or so before using it.
Instead we gave a distributor 5 cents/lb, and he kept 2 months of the inventory in his warehouse until it was needed. We had the backup within a day's delivery. With electronic ordering, anything ordered by 3:30 pm was delivered to the using building door by 7 am the next day. Responding to quick needs was better then before! We changed to paying for the material in less then 30 days - but, the product was sold before we paid for the raw materials!
This resulted in a large inventory reduction, distribution personel concentrated on moving inventory we had prepared, and the cash paid out before billing the final product was reduced. The "total cost savings" were significant. Again, what the article said was true, you have to find the advantage for both of you, and then pay your distributor a bit for it.
Its not for everything, but there are some big opportunities there.
I agree with the article. If you are a small company you often times you are not offered the best price or the most competitive price a manufacture can offer. However, if you are buying from a large distributor you can often times buy the same product at a lower cost due to the distributor buying power and their capability to sell you the product at a lower cost.
I have evaluated buying direct versus buying through large distributors and the outcome is most always in favor of using a distributor. Stock availability and price are usually better.
May 26, 2005 8:44 AMDistributors are a very valuable partner. They are in multiple plants day in and day out and can generally spot cost savings opportunities easily. They can also provide detailed consolidated reports rather than the data dumps that most buyers are able to get out of their systems particularly if there are multiple plants on different systems. They free up space on your warehouse floor and provide JIT stock. there are mutiple reasons that Distributors are a great thoing IF you develop the proper relationship.
May 26, 2005 8:50 AMMaybe I'm not understanding this correctly. Everyone seems to be talking about their 'suppliers' not their distributors? Pushing control of your inventories down the chain is old news, distributors sell your product(s). How does giving them more money help the company, besides being more motivated to sell your stuff over other companies like product(s) that the distributors represent. Keith
May 26, 2005 3:15 PM
