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Cutting Out ‘The Middleman’ is a Fantasy: Why Distributors Matter

It continues to happen on a regular basis. 

The contractor contacts me and wants to discuss putting together a deal that cuts out the distributor. Or the large oil company gets a new VP Purchasing and sends out "feelers" about Request For Proposals (RFP) for direct quotations from the manufacturer to them, the installer/end user. Funny thing is, they also want all of the "value proposition" that distribution offers (special handling/stocking services, terms and conditions, local hand holding etc.) but for some reason feel that by "dealing directly" they can get a better price AND KEEP ALL THE THINGS DISTRIBUTORS DO FOR THEM.

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I have yet to see this work. It is a fantasy.

When it really comes down to the nuts and bolts of serving the contractor or industrial account, no one can do it better than distributors. The really savvy contractors have recognized this and are now willing to pay distributors to do things like storeroom/inventory management because they came to realize that distributors can do it better and cheaper than they can do it on their own.

Contractors also recognize that distributors do a lot of the work for them today that they are not set up to do themselves any longer. These services include submittals, managing the lighting and gear on projects, expediting material, staging product for multiple drops on the job-site, kitting different products together based on room templates/requirements, etc. Sure, the contractors pay for these services. Some of it is factored into the costs of the material. In some cases, the distributors negotiate a separate line charge for monthly storage fees, etc. But those contractors or industrial customers that really understand the cost of running a business figure out pretty quickly that paying the distributor, the masters of logistics, is cheaper, more accurate and overall more efficient than doing it on their own.

Bottom line: These things seem to go through cycles. We will continue to see contractors/industrials etc. feel out the market for ways to "cut out the middleman." And I also predict that we will also continue to see where they quickly come to realize that it doesn't make sense.

As distributors continue to invest in their businesses and offer even more services to help their customers become more efficient and more profitable, distributors will continue to become even more dovetailed into their customer's business, providing superior services that cannot be matched or ignored.

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Comments 4

Guest - Kathy Arnold on October 25, 2012

Great Article!!!!

Great Article!!!!
Guest - Jesse Jacobi on November 4, 2012

Great piece and a testimony to your commitment and appreciation of distributors value in the supply chain. If all we do is sell on price then soon the owner will cut all of us out including the contractors and labor will be all that is left and that would drastically affect our industry in ways unimaginable.

Great piece and a testimony to your commitment and appreciation of distributors value in the supply chain. If all we do is sell on price then soon the owner will cut all of us out including the contractors and labor will be all that is left and that would drastically affect our industry in ways unimaginable.
Guest - David Cook on November 4, 2012

But not all distributors are faithful to your brand and sometimes go for the lower price option that creates a bigger profit margin and commission for their company and the salesperson. I have worked with some salespeople that are committed to our products and sell the advantages but they are few and far between these days. If the manufacture offers the value to deal direct it can cost more but in the long run builds a strong and lasting relationship that creates a steady stream of revenue for many years.

But not all distributors are faithful to your brand and sometimes go for the lower price option that creates a bigger profit margin and commission for their company and the salesperson. I have worked with some salespeople that are committed to our products and sell the advantages but they are few and far between these days. If the manufacture offers the value to deal direct it can cost more but in the long run builds a strong and lasting relationship that creates a steady stream of revenue for many years.
Guest - Bruce Keith on November 6, 2012

With years of experience in both electrical construction management and distribution management. I am certain a close relationship between the two is extremely important. I have seen electrical contractors try to pass by distribution. They may win a project going direct but at the end of the day contractors need the support of the local distributors to build a lasting place in the market. Contracting needs Distribution.

With years of experience in both electrical construction management and distribution management. I am certain a close relationship between the two is extremely important. I have seen electrical contractors try to pass by distribution. They may win a project going direct but at the end of the day contractors need the support of the local distributors to build a lasting place in the market. Contracting needs Distribution.
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Sunday, 19 November 2017

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