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Chapter 2: How Does Wholesaler Redistribution Work?
At first glance, the presence of a wholesaler in the middle of the Jan-San supply chain appears
to be redundant. It is easy to dismiss redistribution as an “incremental cost” or an “unnecessary
middleman.” As we shall see, however, a proper redistribution program makes good economic sense
for the manufacturer, the distributor, and of course the wholesaler. Each perspective is explored below;
we’ll get into the numbers for manufacturers and distributors in the coming chapters.
Manufacturer Perspective
Before developing a redistribution program, a manufacturer should gain a solid understanding of how
redistribution will impact the P&L. There are three major areas to consider:
■ Cost Avoidance
■ Revenue Impact
■ Marketing Value
Let’s look at each factor in detail.
Cost Avoidance:
When existing business is switched from direct to wholesaler service, a manufacturer has the potential to
reduce both hard logistics costs, and softer order management costs. The challenge for manufacturers
is to quantify these costs for the specific set of customers who are redistribution candidates. Looking at
averages or company “rules of thumb” is inadequate, because small-order customers drive higher costs
throughout the supply chain.
The Order Management cost offsets are more difficult to quantify, but doing the work is often an eye-
opening experience. Order Management costs include all of the activity from receiving and entering orders
through booking loads to extending credit, billing, and collecting. When the “percent of orders” is compared
to the “percent of volume,” manufacturers begin to see that they are often “laboring like an elephant to
give birth to a mouse!”
Revenue Impact:
The second consideration for manufacturers is understanding the revenue impact of moving volume
through wholesalers.
On the positive side, redistribution offers the potential for increased sales volume on several fronts. The
ability to reach hundreds of previously unknown distributors, jobbers, cash & carries, etc. is an obvious
opportunity. But even existing direct customers who switch to redistribution may be sources of new volume,
as a result of:
■ Faster recovery from out-of-stocks
■ “No minimum per SKU” policies which improve sampling response and minimize new item risk
■ Ability to offer the manufacturer’s entire product line, without keeping it all in stock
But there may also be some important negative revenue impacts to consider.
Manufacturers who enforce strict bracket pricing will need to account for revenue slippage when a
wholesaler buys at free-on-board (FOB) plant prices to serve existing business that was billed at the highest
delivered price bracket. Special prices, bids, and trade deals all take on an added level of complexity
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