In recent years, many new technologies and innovations have shortened the supply chain and eliminated some of the middlemen and go-betweens we’ve long relied on. The internet, in particular, has helped to expedite the process of moving a product from point A to point B. But these advancements also present some important questions: Does it make more sense to purchase directly, or from a distributor? Is the “added value” that distributors boast of actually worth the money?
Both purchase types can make a lot of sense for manufacturers, with the better option depending on a company’s specific needs and goals. Whether a manufacturer is sourcing raw materials for production, considering distributing finished goods directly to consumers, or weighing the benefits of distributing to a vendor first, each purchasing type comes with its own advantages and disadvantages.
Let’s take a look at both purchase methods, analyze their unique advantages and key differences, and explore how manufacturers may benefit from one over the other.
The Advantages of Direct Purchasing
Purchasing components and raw materials directly from fabricators offers obvious advantages for manufacturing companies. And when those raw materials are turned into salable products, selling them directly to your target audience comes with even more benefits — for both your workflow and your bottom line.
Key advantages include:
1. Generally Lower Costs
Whether you’re purchasing unfinished build materials directly from a factory or giving your customers the ability to purchase directly from you or a third party, the main advantage of purchasing direct is lower costs. As an example, the U.S. Department of Justice has observed that automobile purchases are typically inflated by a full one-third of their actual price in order to account for the added costs of distributors and dealers.
2. Complete Control Over the Sales Process
This is a double-edged sword. Choosing not to rely on third-party partners to distribute your merchandise means you have much more responsibility over your own processes, marketing, and product pipeline.
That’s a lot of work and responsibility. But for anybody who relishes the idea of keeping both hands on the tiller at all times, there’s no substitute for being your own distributor and selling directly to your intended audience. You know your product better than anyone, so you probably have a better idea of how to move it effectively.
3. Direct Feedback From Customers
Along with having fewer “cooks in the kitchen,” direct purchases also mean fewer barriers to receiving practical, actionable, and regular feedback from your customers. For example, it’s pretty common for manufacturers to issue literature with their products, imploring end customers to contact the manufacturer — rather than the store or distributor from whom they purchased the product — with problems or service requests.
Dealing directly with your customers eliminates quite a bit of this communication confusion and ensures that you are the party receiving the feedback, rather than a distributor who may not have the capability or the authorization to deal with issues themselves.
4. Better Shipping and Quality Oversight
Eliminating middlemen and intermediate steps from the shipping and distribution process also gives you a better idea of what’s happening in transit and whether steps need to be taken to reduce product damage or address problems in the “last mile” of product movement. If you’re the only party handling your merchandise before your end user receives it, you have total oversight over packaging and shipping, and therefore can handle any reported defects or damages far more efficiently.
The Advantages of Distributor-Based Purchasing and Selling
Dealing with distributors means you’ll find yourself operating in multiple sales channels. These channels may include retail stores, wholesalers, internet-based shopping portals, and even international dealers if you’re targeting a wide audience.
Below are some of the major advantages of doing business this way.
1. Ability to Purchase in Smaller Quantities
For the most part, the products and components required by manufacturers are sold by direct suppliers in large batches. This can make life difficult for small companies or those performing custom work in smaller batches.
Purchasing from a distributor offers a clear advantage for manufacturers because distributors, as a go-between, perform the bulk purchasing so that you don’t have to. They furnish the warehouse space and sell from their large inventories to a variety of smaller parties, including yours, thereby reducing your minimum purchase threshold for materials and components.
2. Lower Costs in Some Circumstances
Training and maintaining a sales force is difficult and expensive for any company that sells directly to end users. Research conducted by McGraw-Hill showed that after five sales calls, closing an industrial sale can cost as much as $685.10 for the average direct seller.
For manufacturers, which inevitably deal with various but generally thin profit margins, doing business with a distributor may actually help in avoiding some of the costs that are passed on when sales forces and marketing budgets are involved in the direct-sales mix.
3. Easier Scalability and a Wider Audience
When you sell directly to your end users, a great deal of the operational burden falls on your shoulders. Scaling up a manufacturing business when you sell directly to your own customers may seem like an easy route, as this keeps everything in-house.
But when you have multiple distributors selling your products, scaling up is as easy as adding another vendor. This means you can choose a business partner that already has an audience and, most likely, a geographical or online presence of its own.
Which Purchasing Option Is Right for You?
Whether you are committed to building your own distribution network and sales presence from the ground up or choosing to scale more quickly by seeking out third parties to sell your products for you, there’s no clear-cut answer regarding the better purchasing option. Every business is different and will be able to benefit from a different approach.
This same idea applies when you, yourself, are making a purchase and must choose between buying your raw materials from a manufacturer directly or choosing to work with an intermediate distributor. Knowing your current business status, the specific requirements of your products, and the scope of your future ambitions will all guide you in plotting the right course of action for your unique needs.
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