The components distribution business is filled with acronyms, euphemisms, and other means of expression that people outside the industry might find odd. I've even thought that a drinking game could easily be built around an acronym challenge: Deliver a new acronym in a timely manner, or cite the meaning of one. If you fail, you take a shot.
Maybe I'll find some willing participants at the Electronics Distribution Show. For now, I have a word in mind: "rationalization." This word, when used in conjunction with "distributor," forms a euphemism for the termination of an authorized relationship between supplier and distributor.
It certainly seems less offensive to speak of a company's "distributor rationalization program," rather than "mass termination of distributors." In addition to taking a blow to their ego and image, distributors often face a significant loss in revenue and profit when they are rationalized. They are left with orphaned inventory, and they are exposed to the potential for layoffs. Distributor rationalization certainly seems like a textbook example of a euphemism, right?
Wrong.
A distributor rationalization program need not be traumatic, involve excessive risk, or offend in any way (bruised egos aside). A properly managed distributor rationalization program, when done in collaboration with a master wholesale distributor, allows terminated distributors to retain some or all of their business, continue to sell invested inventory, and retain staff.
Authorized distributors need not be terminated. For instance, suppliers can engage the affected distributors as authorized master resellers, with full marketing rights and warranty pass-through. Even if the supplier is not interested in a master reseller program, the master wholesale distributor (as a neutral third party) can continue to serve terminated distributors for the benefit of end customers.
Rationalization is sometimes painful for suppliers, too. Since many distributor agreements allow for inventory return in the event that the agreement is terminated, suppliers are often hesitant about making tough decisions to bring balance when a channel is suffering from acquisition-induced bloat or neglect, or when a change in strategy is mandated.
Since it is neutral and can reach thousands of distributors in different geographic and end-user markets, a master wholesale distributor helps ease the pain felt by manufacturers considering channel rationalization. Assigning saleable inventory to a master wholesale distributor allows the supplier to recover value for much of the product.
I can also see an advantage in terms of EOL product. Instead of a distributor selling off inventory after its has parted ways with a supplier, allowing that distributor to manage that inventory until it's gone can assist customers with long-lifecycle products. A win win for the distributor and its customers.
"Also, suppliers may appoint new distributors as Master Resellers, allowing the Master Resellers marketing privileges. The master distributor will handle service and logistics. A win-win-win-win situation for all parties (end user included)!"
I can see how it could be a good compromise until the economy picks up (picks up finally, or further, depending on your point of view).
Thanks for the intriguing post! I have sometimes joked that suppliers are quick to terminate Reps, but not distributors, because Reps don't hold stock. I'm sure there is more than one instance where reclassification as a Master Reseller was done to mitigate the impact of inventory return. Still, in a well-designed program, a master distributor is in the best position to gain value from existing inventory as part of the agreement to serve Master Resellers.
Also, suppliers may appoint new distributors as Master Resellers, allowing the Master Resellers marketing privileges. The master distributor will handle service and logistics. A win-win-win-win situation for all parties (end user included)!
Master reselling programs sound like a way to convince resellers to keep the inventory instead of returning it if their original reseller agreement calls for return in the event of cancellation of the distributorship, as a result of rationalization. Did I understand correctly?
EBN Dialogue enables and encourages you to participate in live chats with notable leaders and luminaries. Not only editors and journalists, but the entire EBN community is able to comment and ask questions. Listed below are upcoming and archived chats.
Archived Dialogues
Thailand Stages a Comeback Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Euro-Crisis: What It Means for High-Tech Firms Join EBN Editor in Chief Bolaji Ojo and Contributing Editor Jennifer Baljko on Thursday, July 12, at 10:00 a.m. EDT for a Live Chat on high-tech and Europe's economic difficulties.
Microsoft Surface: Potential Winners & Losers What are the implications for the electronics industry supply chain of Microsoft Corp.'s decision to launch its own tablet PC? Join industry veteran and EE Times' systems and OEM expert Rick Merritt on Tuesday, July 3, at 12:00 pm EDT for a Live Chat on this subject.
Join EBN contributor Jennifer Baljko on Thursday August 23, 2012, at 11:00 a.m. EST for a live chat on how electronic manufacturers in Thailand have shored up their supply chain to reduce the impact of future natural disasters.
Peter Drucker famously said "Trying to predict the future is like trying to drive down a country road at night with no lights while looking out the back window." Yet in the razor's-edge world of electronics—with a lean supply chain and just-in-time demands—the need to know the future is vital.
While no one really can accurately predict the future, we can take guidance from another Drucker saying which is the best way to predict the future is to create it.
You've heard the saying "the No. 1 supply chain risk is your people." That hasn't always been the case. But today's complex global supply chain requires a new type of multitalented employee. It's one who understands, finance, marketing, economics, is savvy with technology, graceful with relationships and can think analytically.
Where are these people? Are universities properly preparing the next generation supply chain professionals? How do train your existing workforce for these new, demanding positions?
Brian Fuller, editor-in-chief of EBN, will lead a 60-minute Avnet Velocity panel discussion that will ask and answer these and other questions swirling around today's supply-chain talent challenges.
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