"Master" or Partner? New Hampshire

In today's market, distributors often need an ally not just to survive, but to thrive. Filling that role are two main entities: master distributors — also known as wholesalers, pure wholesalers or redistributors — and buying groups. Both offer several benefits to the distributor, including better pricing and cost savings. And, with buying groups, distributors get, among other things, educational opportunities and access to other peers in the industry.

There was a time when master distributors' biggest selling point was the fact that they sold a wide range of product lines, many of which the small to mid-sized distributor could not access easily or directly. Today, their role has changed. Master distributors have become partners with many distributors.

However, their relationship has not always been a smooth one. For instance, just the use of the word "master" irked many distributors, who found the term — coined more than 25 years ago to identify the gap between manufacturers on the one end and distributors on the other — pompous and belittling.

In addition, there was suspicion, something that has taken years to overcome. Many distributors were concerned that redistributors would sell directly to end-users. How often this may have occurred is unknown, but if the master distributor is selling to the distributors' customers, then there is going to be distrust.

Today, most redistributors sell only to distributors. According to Michael Hunt of Redistributors of America, all of their member-wholesalers must have state tax certificates indicating that they can sell only to distributors and not to end-users directly.

In some cases, end-users may contact a master distributor for help or advice on a product purchased or considered. However, to be on the safe side and to focus on their major contributions to the distribution channel, most redistributors will refer such questions to the end-users' local distributors.

So if end-user service and advice is not a role the redistributors play, what are their key contributions for distributors? What has evolved and is becoming all the more critical is that the redistributors help in overcoming such issues as providing products in "bite-sized" quantities to lower inventory costs, addressing increasing competition from a variety of sources and better handling economic uncertainties and fluctuations.

Larry Davis is vice-president of ORS Nasco, redistributors for the welding, industrial, oil field, electrical, construction, plumbing and janitorial industries . According to Davis, "we focus on the distributor's transactional costs and offer a variety of services to help mitigate those costs."

Indeed, many distributors believe that redistributors have helped them save money in a variety of ways, especially in one critical area: by reducing overhead and fostering efficient inventory management. They do this by providing timely deliveries of products often on an as-needed basis in quantities that are easy to absorb — and sell.

According to Davis, other benefits of redistributors include providing single-source ordering, offering better pricing than distributors may get on their own, handling small orders and shorter sales "turns," improving inventory management and reducing costs for the distributor.

Growth of redistribution

With the resolution of most of the early issues that caused distributors and wholesalers to bump heads, the growth of the redistribution industry has been significant. According to a survey taken by this publication in 2006, 77 percent of the respondents indicated they now buy at least some products from redistributors.

Surveys in other major industry segments also indicate that this working relationship is on the rise. According to a report released in 2003, 56 percent of the distributors in several industries now purchase at least some products from redistributors.

The 2003 survey, Industrial Distribution magazine's "57th Annual Survey of Distributor Operations" conducted with Pembroke Consulting, also revealed:

• Smaller distributors are most likely to rely on redistributors, with 22 percent of those selling less than $5 million using them.
• Sixteen percent of distributors with gross sales of $5 million to $10 million use redistributors, as do 15 percent of distributors with sales from $10 million to $20 million.
• Sixteen percent indicated they are now buying "more than 25 percent" of their products from redistributors.

Mark Friefeld's Chicago-based company, Field Tool Supply, specializes in distributing industrial tools and supplies, including industrial cleaning products. He says that more large, multibranch distributors — not just the smaller firms — are also purchasing products from redistributors. "Ten years ago, [redistributors] were simply tolerated by most distributors, large and small. Today they are recognized for bringing true value to the supply chain."

Role of the buying group

Buying groups are paralleling the growth of redistributors and comfortably coexist with them. "With the near seventy percent drop in the number of U.S. Jan/San distributors from 1990 to 2000 due to mergers, acquisitions or businesses failing, those that survived did so by finding ways to streamline their costs and more aggressively compete," says Mike Nelson, vice-president of marketing for Pro-Link, a Jan/San-focused marketing and buying group. "Many have utilized redistributors while belonging to buying groups, taking advantage of both."

According to Nelson, a buying group is a consortium of member-distributors. Some specialize exclusively in the Jan/San industry, while others serve a variety of markets.

"As with working with redistributors, many distributors found that they could carry a wide range of products, including specialized or unique products at competitive pricing when part of a buying group," Nelson says. "This helped them meet the changing demands of their customers, especially the larger customers."

Nelson says some buying groups can also pass on product savings because as a group, the distributors have greater buying power. In addition, manufacturer rebates are passed on and buying groups help their members with inventory management and ordering. But he thinks what sets buying groups apart from redistribution wholesalers is the "value-added" services they offer.

"For instance, we recently developed a green educational program for our members," he says. "Created with leading experts in the industry, this helps our members better understand Green Cleaning and sell environmentally-preferable cleaning products. Redistributors focus primarily on logistics; some buying groups put a greater emphasis on providing education and knowledge to help their members market their products more successfully."

Additionally, Nelson believes buying groups offer something else that is actually much more valuable than people realize. "They offer camaraderie with other distributors in the industry to share their ideas and knowledge," he says.

He also indicates that buying groups can boost a distributor's company profile. "Independent distributors often find it difficult to market products under their own labels," he says. "With buying groups this is possible, and manufacturers often provide more support and attention to group members than they might to a small, independent distributor."

Some redistributors indicate they are expanding or are planning to expand their roles by providing more marketing tools for their distribution customers. However, it is expected that the delivery of products to distributors' doors will remain their major focus for some time to come. "The marketplace is always looking for a faster way to get needed products to a customer at a reduced cost," says Nelson. "Redistributors will play a growing and beneficial role here. And, as the Jan/San industry becomes increasingly sophisticated, with greater demands placed on professionalism and knowledge, the buying group's delivery of information will also play a major and growing role."

Robert Kravitz is a 30-year veteran of the cleaning industry, author of four books on the industry, a Jan/San writer and marketing consultant.