The Importance of Distribution in the Supply Chain

The Importance of Distribution in the Supply Chain

While there might seem to be an incentive to purchase MRO products direct from the factory that manufactures them, seemingly “cutting out the middleman”, the hidden costs of doing so will inevitably far outweigh any short-term cost savings.

To understand the importance of a distributor’s role in the supply chain, let’s first take a look at why one may want to purchase products directly from a manufacturer. Often times, people are more inclined to acquire products from manufacturers when there is a need for routine products that are bought in the same quantities at regular intervals. Because the support for such products is so minimal, you may instinctively ask yourself, “Why pay a distributor a margin when I know what I want, and want it for the lowest price?”

From manufacturers’ perspectives, factories are built to make goods and ship them in large quantities. Therefore, they have little interest in holding finished goods of their entire portfolio of products, with little interest in selling attractively-priced goods to small users who buy far less than the average distributor. What’s more, manufacturers don’t want to incur the costs associated with taking orders, shipping small quantities, invoicing customers, collecting payments, handling returns and providing after-market services. As a result, production facilities try to avoid these issues by creating organized channels, known as industrial distributors, for their supply chain.

Let’s now return to looking at the purchasing process from customers’ standpoints. While their product needs are seemingly routine, are they positioned well enough to place orders directly with all manufacturers with whom they do business? Additionally, while most manufacturers have between five and ten production facilities and warehouses, a distribution network can contain about 3,000 locations that not only carry inventory, but are also staffed with service people and product experts. This large network allows locations to be closer to end users, providing them with not only the products they need, but the support they deserve.

So what about the value of the distribution? When individuals are placing routine orders that don’t require a tremendous amount of support, questions such as, “How much freight is being consumed?” and “Why are these items being ordered so routinely?” may arise. A distributor may be able to examine usage patterns and recommend substitute products that may last longer; whereas manufacturers that are shipping direct would not take on such an advisory role. Additionally, if a problem with a part were encountered, the manufacturer would send a representative at his or her convenience for a fee. Establishing a relationship with your local industrial distributor would ensure that he or she knows you plant, your applications, your usage and can be there when you them – whatever time of day or year it is.  Distributors don’t go on shutdown, close for the holidays or only work 9-5. The reps that service you are available 24/7/365. They minimize your freight, reduce your excess inventory and solve your maintenance and production problems so that you can get more for your money.

To sum it up, why would you buy direct? You will not get a lower price, lower freight or better service. In fact, you will lose all the things that you thought you were gaining while also losing the value of having a local rep to solve your plant’s problems. An organized supply chain was created for a reason and is the most efficient and effective way to get product from the production facility to the end user. If there was a better way to do this, then that way would exist. Using your distributor as much as possible allows you to achieve the lowest cost solution in the way that best meets your needs.

Estimated Reading Time: 3 minutes

David Mayer

One Reply to “The Importance of Distribution in the Supply Chain”

  1. Luke Smith says:

    It was very innovative knowing that industrial distributors are capable of pinpointing loopholes that can enable them to come up with a substitute product for long-term usage. My father is planning to open an industrial factory soon, because he wants to be his own boss. Thank you for this, I’ll make sure to help him by finding the best rural and industrial supplier in the market.

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