With more and more people shopping online, many have been predicting the demise of distributors and wholesalers. It was believed that manufacturers could bypass channel intermediaries such as distributors, wholesalers, and retailers by “selling directly” to customers.
Theoretically, if customers could bypass distributors and retailers and buy direct from manufacturers it would lower costs, make the system more efficient, and eliminate the cost and profits siphoned by intermediaries.
Yet, distributors like Grainger are thriving today. Grainger’s website, shown in Figure 1 clearly articulates the value it offers as a distributor: “The One Item You Need + 1.5 Million More.”
FIGURE 1
Grainger Offerings & Value Proposition
When channel intermediaries buy products from manufacturers and sell it downstream to retailers or customers, they create a lot of value for manufactures. Manufacturers focus on producing goods and benefit by partnering with distributors in several ways. These benefits are shown in Figure 2.
FIGURE 2
How Distributors Benefit Manufacturers
GRAINGER – A CASE STUDY. Take Grainger as an example of these benefits. Founded in 1927, Grainger works with 5,000 manufactures and serves more than 3 million customers worldwide. Grainger stocks over 1.4 million products in its distribution centers and branches globally. For any given manufacturer, it would be virtually impossible to have Grainger’s reach and scale.
– Grainger retains title of the inventory shipped and provides manufacturers with credit.
– Grainger takes delivery from the manufacturers in large lots and assorts into smaller lots to match the quantity and assortment that customers desire.
– Grainger provides service and support to customers.
– Grainger can make substantial technology investments to improve logistics for manufacturers and customers worldwide.
CONCLUSION: As described in Figure 2, distributors like Grainger add substantial value to a supply chain by performing functions that manufacturers cannot perform or that would be cost prohibitive for them to perform. Distributors can typically perform these functions faster, at lower cost, and with higher accuracy and quality than manufacturers.
That is why, distributors and wholesalers are thriving in an era of ecommerce.
Learn more in Chapter 10 of Market-Based Management (7th edition).
Chapter 1 can be reviewed online at www.mbm-book.com.
References:
- James Anderson and James Narus (1990), “A model of distributor firm and manufacturer firm working partnerships,” Journal of Marketing 54(1), 42–58.
- Cespedes, Frank V and E. Raymond Corey (1990), “Managing multiple channels,” Business Horizons, 33(4), 67-72.