Tuesday, April 17, 2007

Cut Out the Middle Man and Pay More.

I read an interesting book on distribution called, Working At Cross-Purposes How Distributors and Manufacturers Can Manage Conflict Successfully.

One thing that I don’t like about the title of the book is it makes the assumption that there is going to be conflict. In many cases I find manufacturer/distributor relationships are quite symbiotic - both parties win. This does not mean there is no conflict.

Since SYNNEX is a distributor, clearly, I believe in distribution. The biggest reason for conflict (and something that is misunderstood by much of the buying public) is when different manufacturers do not see the value in distribution despite the fact from my view it is glaring obviously.

Many times when I tell someone that I am in computer distribution and sell over one billion dollars a year (and they have never heard of SYNNEX), they often say things like we need to cut out the middle man. Unfortunately, I don’t think most of these same people would be willing to pay the higher prices they would have to pay if the middle man was cut out.

The basics of distribution is the sharing of overheads; for example, SYNNEX can take a booth at a trade show and exhibit Hewlett-Packard, Apple, Microsoft, Acer, Toshiba, and Symantec products at a fraction of the cost of any one of those manufacturers having their own booth. We can also make a sales call in Winnipeg and present multiple product lines during the same call for a much lower price. These savings flow back through all of the areas from marketing, training, selling, service (no finger pointing on whose problem it is) and even logistics and shipping. For example, we ship to most Staples stores every single day and it costs almost nothing more to add a few more pieces to the shipment.

Distributors also provides credit.

Because distributors are highly focused on their logistics, they tend to be faster and better. They tend to have better computerization (This is one of SYNNEX's strengths). I always say that distributors are cruelly efficient; for example, our delivery standards are such that orders can be placed up to 6:00 at night and the customer still receives the shipment the next morning and in many cases orders can be placed as late as 8:00 p.m. or 9:00 p.m. the day before and the product is still received.

Because distributors are such low margin, there is a hugely high focus on cost. Any manufacturers who do a cost analysis of how much distributor does cost will generally find tremendous savings. So in the end, distribution is more about economics than anything else. Distributors just help save people money.


At 2:51 PM, Anonymous Anonymous said...

For the most part I'de agree with all of the points you address here. Where we see this not being as effective is with specialty products, ( which require high touch) and are not as tangible as some others, which would tend to be less efficiently distributed ( at teh end point., not a simple drop ship ). If not for the large network of partners ( resellers ) the model would not work as effectively as it does, because scale is still a large part of distribution ( unfortunately ). The move to specialized Business units was a good one.

At 11:46 AM, Blogger Unknown said...

In the past I found distributors were able to offer a different set of value add. They would have in-house expertise on products, offer advise on applications and provide good communications paths to the manufacturer.

Today most distributors have become more or less "order takers". The account person does have some level of product training and knowledge but not like in the past. You have to know exactly what you are after these days.

The industry has turned into commodity electronics and the added value is price and delivery.

At 7:28 PM, Blogger BigDaddyGonzoVents said...

When you are dealing with a manufacturer that is adhering to principles like LEAN manufacturing and eliminating cost accounting and going with throughput principles. Chances are you are going to pay a very good wholesale direct pricing from the manufacturer.

So I do disagree to a point with cutting out the middleman. It more of getting to know how your suppliers operate.


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