There are two options for industrial manufacturers to get their products to the end user; direct sales and distribution sales. The distribution channel has existed for as long as there have been manufacturers. Consider one well known manufacturer of fittings and valves. Beginning in the 1940’s, the company began to grow rapidly with a direct sales model but soon found demand outpacing their ability to effectively sell and ship direct to customers all across the country. The company quickly adopted a distribution model by funding independent, yet exclusive, distributors in major industrial markets. Exclusive, meaning the distributors sell only the company’s products. Though this model is somewhat unique in the industry, it has proven successful. However, many other major manufacturers in the same market have elected to use independent distributors who may be exclusive to their product line, yet sell additional “complimentary” products from other manufacturers to provide a broader category of ancillary products to the end user.
Also in the 1930’s and 40’s, a broader channel of industrial distributors began servicing the specific needs of maintenance, repair and operations at end users. MRO suppliers typically provide everything from nuts & bolts, to cutting tools, abrasives and even fittings & valves. They buy from manufacturers and mainline distributors, and inventory these parts at central locations in order to readily supply the end user. Though initially this distribution channel focused on automotive repair shops, it quickly began servicing manufacturing plants.
Companies often have millions of dollars invested in equipment, and their profitability depends on uptime. If a machine in a plant or heavy equipment on a construction site goes down and they do not have the right parts or tools for repair, it can cost the company many hundreds to many thousands of dollars per hour in lost productivity. This is where the MRO supply chain provides common parts to the customer’s inventory, or less common or specialty items in the most cost effective and shortest lead time possible. Often delivering the required item(s) the same day. Traditionally, the MRO supply business was referred to as “filling the bins”. Where the supplier has distribution centers that stock products from multiple manufacturers and sales agents that make regular stops at the customer’s location to resupply frequently used items and take orders for “special” items the company may need that day, week or month. Though this model is still used by many suppliers, times have changed and in most cases vendor managed inventory has taken the place of “filling the bins”. With vendor managed inventory (VMI), the customer shares their inventory data electronically with a vendor, allowing the vendor to determine required order size and frequency.
Understanding the Relationship
From MRO to major industrial supply companies, the manufacturer-distributor relationship is by nature an interdependent one. Though it appears very elementary, manufacturers depend on distributors to get their products to market and in turn distributors would not have a reason to exist without the manufacturers who supply them. However, at the core, each organization has their own objectives and goals. Though in order for the relationship to benefit each party they both have an obligation to work together to understand the needs of the partnership. The goal is to have a symbiotic relationship that will go beyond a simple transactional association to one that provides seamless communication at many levels.
This blog is an excerpt from our latest whitepaper, How Industrial Manufacturers Use Technology to Partner with Distributors. Click here or on the link below to download your free whitepaper!
Primary Sources Include:
- LeadLift, LLC
- LeadLift, LLC 2
- Industrial Distribution
- Industrial Distribution 2
- Industrial Distribution 3
- Conveyco
- SPS Commerce, Inc.
- LeadMethod, Inc.
- Motion Indsutries, Inc.
- Veridian
- Modern Pumping Today
