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Service Improvement and Fill-Rate Economics

The second benefit provided by wholesalers is their ability to support improved service from the distributor
to his customers. The most obvious example is the significant reduction in order lead time, vs. sourcing
from the manufacturer. Two factors drive this benefit: “no minimum per manufacturer” and “geographic
proximity.” Because the wholesaler is making frequent deliveries to the distributor, it is a simple matter to
add exactly what is needed to an outstanding order, and receive it within 24 to 48 hours. When dealing
directly with a manufacturer, the distributor usually must wait until he can put together a minimum order,
then wait for the manufacturer’s delivery lead time until the product is received. The geographic proximity
of the wholesaler also contributes to short lead time from order to receipt, compared to longer transit
times from most manufacturers.

The shorter, more frequent order cycles offered by wholesalers allow manufacturers to respond quickly to
their customer’s needs.

The wholesaler also supports accelerated sampling response when a customer wants to try a new item.
Rather than putting the sample on the next manufacturer order, then waiting for it to come in, the distributor
can often find the product at a wholesaler, order it, and provide it to his customer quickly. The result is
improved customer satisfaction and a higher likelihood of new volume for the distributor and manufacturer
alike.

Of course, smaller, more frequent orders with no minimums and short lead times will mean fewer out-of-
stocks for the distributor. In a direct-buying situation, the mix of inventory for a given manufacturer rarely
matches the customer demand. As a result, when the distributor runs out of 3 of his 20 SKU’s from a given
manufacturer, he must wait until his next order cycle to correct the stockout and balance his inventory.
With a wholesaler, recovery from stockouts is simplified and accelerated, providing a higher level of service
from the distributor to his customers. We take a closer look at the impact of fill-rate economics in a case
study in Chapter 4.

Finally, wholesalers allow a distributor to market and sell a much wider variety of products than he could
profitably warehouse in his own location. For product lines with a vast range of sizes, colors, and labels,
the wholesaler is often the only logical source for a small-to-medium volume distributor. The distributor is
able to offer a broad product portfolio “as if” it were in stock at his own facility, knowing that the product is
within easy reach at his wholesaler whenever he needs it.

Revenue Improvement

Wholesalers also support distributor revenue growth. While taking on new product lines is often a key
growth strategy, it comes with risk. If buying directly from a new manufacturer supplier, a distributor must
invest considerable time in establishing credit, providing data, and updating internal systems before going
to market. Then he must be willing to invest in inventory while accepting uncertainty about product mix
and volumes. And all of the problems associated with manufacturer order minimums and lead times are
compounded by the small initial sales volume typical of a new product line.

By turning instead to a wholesaler, the distributor can virtually eliminate the risks of taking on a new
product line. By bringing in only what is needed on a frequent basis, the distributor is able to fine-tune
the product offering to match customer demand. He can focus his efforts on marketing and selling with
confidence, knowing that the wholesaler will allow him to respond appropriately as the new line grows.
And it is often the case that success in establishing a new line through a wholesaler can ultimately lead to
sufficient volume to make direct sourcing from the manufacturer the best option.

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