Wholesale Distributors: What Are They Good For?
August 1, 2006

Decades ago, a popular group wrote a song that included the lyrics, "War, what is it good for?" The answer, as you may recall: "Absolutely nothing."

This song still resonates in my brain, almost 40 years later. In fact, it could have the lyrics, "Wholesale Distributors, what are they good for?" substituted, (well almost, there are a few more syllables), in place of the more famous lyrics. What would the answer be, I wonder?

Have I assaulted your sensibilities? I hope that I've at least made you a bit uncomfortable, or at least curious.

I think it is critical that wholesale distributors and their personnel question their reason for being. Just because wholesale distributors exist, doesn't mean that they should, at least in their current form. Peter Drucker admonished businesses to not get comfortable with status quo. Things change, and forces beyond our control, or that we choose to minimize, overrun even the healthiest organizations in a few years, or sometimes in a few months or even days.

So, I am asking you the question, "Wholesale Distributors, what are they good for?" I would like you to consider this question and stop reading for a few moments. Write down at least ten reasons why they exist. Think about this question from the perspective of the manufacturer, and the customer/consumer. Go.

What answers did you arrive at? Were they easy to think of? Were there any answers that were more hidden and less obvious?

It would be interesting to match up and compare responses from managers and employees working for the wholesale distributor, as compared with manufacturing and customer management and employees. And of course, don't forget the value the wholesale distributor provides its own employees, and its owners and shareholders. Why should owners/shareholders continue to invest in the wholesale distributor, and why should employees invest their working lives there?

My sense is that the wholesale distributor thinks his value is a great deal higher than his manufacturing suppliers and customers think. I would guess that manufacturers consider wholesale distributors as necessary evils, and that customers and consumers question why, in this world of electronic commerce, they can't circumvent the wholesale distributor and cut out the middleperson, reducing expense. We all know that this has been done.

Look at this picture:

In this simple picture, the Wholesale Distributor isn't portrayed as a conduit in the flow of goods and information between manufacturer and consumer. Rather, the wholesale distributor is being asked by both parties, "What do we need you for? Why do you exist?"

In a sense, the manufacturer may be asking: "Why am I paying you, in other words getting less money for my product by selling it to you instead of directly to the consumer?" And the consumer might be saying, "Why am I paying you more for this product than I can get it for from the manufacturer, or other types of logistics providers?"

The answers to these questions may appear obvious to the wholesale distributor, however my advice for this month is not to make that assumption that manufacturers and customers/consumers would readily agree. If you are a wholesale distributor, validate your reason for being in today's economy. Try the following:

1. Ask yourself why the wholesale distributor exists, and the value it provides, from both the manufacturer's and the consumer's perspective.
2. Challenge your personal assumptions by asking other managers and employees from a broad range of areas within your company why they think the wholesale distributor provides value to both manufacturer and consumer.
3. Ask key manufacturers their view, and in particular, how they perceive you as the wholesale distributor. Let them know that you want to find ways to continuously improve and demonstrate value to them.
4. Ask key customers their view, and how they perceive your company's performance compared to its past performance, as well as other potential product and solution providers.

My sense is that many of the services you as the wholesale distributor provide, that you believe have value and are therefore worth paying for, are in fact of value. However, I think you will find three things:

1. Things that you think have value are not necessarily understood by all of your employees
2. Manufacturers need to see evidence from the wholesale distributor that the investment in distributors, (including charging lower pricing to the wholesale distributor than could be gained by selling directly to the consumer), is worth it.
3. Customers need to see evidence, (on a consistent basis by the way), that the wholesale distributor is providing value through its services and performance that make the product price match up with perceived value.

There are several other action steps that can be taken to reinforce the wholesale distributor's value to both manufacturers and consumers. We will explore the concept of "Equity Letters" in next month's newsletter, which enable the wholesale distributor to demonstrate specific value to key manufacturer/suppliers and customers.

Wholesale Distributors, what are they good for? Absolutely something. Let's be clear about what this means, and find ways to say it again and again.