Distributors: Times are changing
Doug Smock, Editor-in-Chief -- Purchasing, 5/6/2004 2:00:00 AM
One of the strongest links in the American supply chain over the past 50 years has been the industrial distributor. Companies that take title to products, inventory them and then provide rapid delivery to manufacturing plants have been the unheralded saviors of many a buyer.
In this annual issue we document the role of distributors, and take note that the traditional buyer-distributor alliance is under pressure and faces change. About four in ten respondents buy more than 70% of their maintenance, repair and operating supplies through distributors. Sixty-eight percent rate distributor performance as good or excellent. Distributors get good marks for developing e-commerce systems that reduce transaction costs.
It's clear, however, that the buyer distributor role has become more adversarial in the economically challenged atmosphere since 2000. It's not so much that distributors changed—their customers did. CEOs put significant new focus on cost in the past three years. Many purchasing departments were shaken up, and others were told to dramatically raise the bar. These issues face scrutiny in the next few years.
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Cost inflexibility. Many buyers say distributors are too reluctant to reduce prices to reflect changing market conditions. They're also too quick to pass on increases. Manufacturers are more flexible, buyers say.
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Information transparency. Buyers want complete visibility into status of products and shipment dates. How much inventory is available at any point in time? How much of that is mine? Lines of communication are most strained right now in the metals sector where service centers are struggling to meet delivery schedules.
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Better buying. Purchasing pros want their distributors to implement high levels of strategic sourcing for their own operations. Build leverage that results in better purchasing power.
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Attack complexity. Distributors are experts in the product lines they carry. There is opportunity to use that expertise to reduce supply chain complexity at customer plants. Technical experts can analyze all motor or fastener purchases at buyer locations and make recommendations on how products can be standardized or shipped less expensively.
There's no doubt distributors will continue to play important roles in the supply chain for general industrial products as well as for channels such as metals, chemicals and electronics. It's clear also that roles are evolving and there are opportunities for both buyers and distributors to profit from the changes.
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