Distributors often get a bad rap for adding costs to the supply chain by placing an additional layer between OEMs and component manufacturers. There's little doubt that there are circumstances when working with distribution doesn't make business sense. However, quality distributors provide services that most manufacturers cannot.
It boils down to core competency. Component manufacturers excel at designing, testing, and producing products while distributors excel at client support and supply chain management. Distributors exist because they add value. So instead of cutting distributors out of your supplier base, strategically choose which ones to include.
Here are just three reasons why you should be working with distributors:
1. More products, fewer suppliers. A key advantage of working with distributors is that they offer products from multiple manufacturers. Purchasing teams can effectively consolidate their supplier base and streamline the purchasing process by working with distributors. For example, a bill of materials (BOM) may require Panduit cable ties, Molex cable assemblies, and Brady labels which are all carried by a single distributor. Instead of cutting three separate purchase orders to Panduit, Molex, and Brady a buyer can cut one purchase order to the distributor. Not only are procurement teams able to spend less time placing and expediting orders but shipping costs are often reduced since multiple products can be consolidated in one shipment.
2. Products actually cost less. It's often assumed that products will cost less if they're purchased direct from the manufacturer but that's not always true. In many cases distributors actually charge less. For example, distributor Bisco Industries, currently offers Panduit item # CR4H-M for around $200 per thousand while Panduit's list price is $248 per thousand. Distributors are able to provide discounts like this for a couple reasons. First, distributors have established price agreements with component manufacturers, guaranteeing lower prices. Second, distributors overbuy and stock products, passing on the savings from buying at higher volumes to OEMs.
3. Lower inventory carrying costs. Distributors offer services that ensure just-in-time delivery of products allowing OEMs to avoid carrying large amounts of inventory. This translates into to smaller warehouses and fewer warehouse staff, all equaling cost savings. Distributors also help mitigate the risk of excess inventory. While demand forecasts are increasingly accurate there are still times when OEMs end up with excess product. Distributors can hold the inventory and offer cancellation options if demand changes. Although distributors may charge a cancellation fee, the overall cost tends to be less than the alternative of carrying unusable inventory.
The bottom line is that distributors play a key role in the supply chain. Not every distributor will be a fit for your supply chain but they shouldn't be written off. Instead, OEMs should strategically choose those distributors who best align with their organizational goals.