Product Pipeline

The role of the wholesaler in the sanitary supply industry is a relatively new one, compared with the emergence of wholesalers in numerous other industries. Still, in 30 years — give or take a couple — the wholesaler has evolved into a crucial member of today’s supply chain, giving distributor-customers the ability to provide their customers a product line much more expansive than what they could warehouse on their own. The wholesaler removes the liability created by huge inventory, and allows for the practicality of carrying products a distributor’s warehouse or warehouses can realistically handle, all while providing distributors the timely and efficient service that keeps end users satisfied.

But wholesalers have their share of obstacles, too. Distributors still have reservations about the wholesaler’s intent — will wholesalers sell straight to the end user? There has also been unprecedented consolidation in the industry among both distributors and wholesalers, making competition that much tighter. Still, wholesalers are confident of their role as a product pipeline from the manufacturer to the distributor. Using a wholesaler might cost slightly more, but service and availability more than make up for it, they say. Wholesalers — or redistributors — tout the efficiencies they afford, and provide the crucial function of being an outlet for distributors’ access to broad product lines with speedy, reliable shipping. It’s a function that seems to be growing in importance and scope, according to the seven industry redistributors SM spoke with.

The most recent trend in wholesaling and distribution has been the concern that distributors would be disintermediated — manufacturers would sell straight to end users, according to Ron Schreibman, vice president of strategic direction for the National Association of Wholesaler-Distributors (NAW), Washington.

“It’s clear now that that’s not going to be the case. The functions performed by the distributor are core to getting products to the market. The question for the supply chain is who can best perform them,” he says. Distributors and wholesalers are very well-positioned in that regard, Schreibman adds.

“The No. 1 value-add that we supply our distributor-customers is quick, efficient access to a breadth of product offering that a distributor would have much more difficulty — logistically and economically — supplying on their own,” says Tim Feeheley president of Lagasse Inc., New Orleans. On a nationwide, multi-site basis or locally on a single-site basis, he says Lagasse can quickly and efficiently turn a wide variety and high volume of manufacturer truckload receipts into individual case or single item deliveries to or on behalf of its distributor customers. “The ability to do this across the entire supply chain I think is what wins the game for the wholesaler in the long run.”

And manufacturers are finding relationships with wholesalers more appealing and rewarding to their businesses as well, wholesalers say. As manufacturer minimums get higher, often distributors cannot afford to order and house the larger quantities. The wholesaler is one option for taking some of the burden off the distributor.

“If there’s a trend right now it’s that we see more and more manufacturers trying to get their product on our floor,” says Steve Brannum, president of Acme Wholesale Supply Co., Inc., headquartered in Atlanta. “Overall we’re going to listen to anyone that knocks on our door and see if it fits into our chemistry.”

Manufacturers are finding that using wholesalers allows them to warehouse product with the wholesaler, and manufacturers can then focus entirely on what they do best — product production — and leave the sales and redistribution functions in the capable hands of the wholesaler.

“More manufacturers are approaching us interested in becoming a partner, because they find it tougher and tougher to get to the small and mid-sized distributor,” says Brannum.

The benefits to the manufacturer are far-reaching, Hal Wolken, president of A.W. Mendenhall, a wholesaler based out of Elk Grove, Ill., agrees. “Wholesaling is important to the vendor side as well as the distributor-customer side. The wholesaler is providing a significant service that the manufacturer can’t and won’t do on their own,” says Wolken. Wholesalers can provide more salespeople, better delivery, and they can service the small distributor that the manufacturer can’t profitably reach. To the distributor-customer, the wholesaler is increasingly a more important link in the supply chain. Wholesalers allow the distributor to carry a much greater variety of products. The wholesaler is vital to the distributor that doesn’t have the space, money or relationship to buy direct, Wolken says.

“Wholesalers can react to the needs of their customers in a much more timely fashion and provide a high degree of service at a competitive price,” he adds.

“I think wholesalers are becoming more and more important because they’re filling that role of having product available,” says Ron Kahn, president of American Brenner Wholesale in Burlingame, Calif. Manufacturers introduce new products and end users want to try them but distributors are often reluctant to stock them without a track record. “Wholesalers minimize the risk level and provide access to it. The philosophy: ‘If you bought it, it’s yours,’ goes away,” he adds.

“I think in an uneven and complicated economy, the concern about inventory gets higher and the wholesaler gives you a way to hedge your bets on inventory,” says Dan Merkel, executive director of Advantage Marketing Associates, a wholesaler marketing group in Tracy, Calif. The wholesaler fulfills a legitimate business need — it houses product beyond the practical capabilities of a distributor.

Wholesalers claim the value they add — speedy service of a wide range of products and product lines — can actually save distributors in both long-term and short-term costs.

“The wholesaler doesn’t have to sell at the cheapest price in order for the distributor to make the most money. We sell the ability to better utilize the space and cash flow,” Wolken says. His company attempts to show distributors that a greater array of items with less inventory results in more turns, which will be more profitable. “Unfortunately, many purchasing agents who are not familiar with the benefits of the wholesaler are just concerned with price; they inadvertently lose out on all of the other benefits of the wholesaler.”

More and more manufacturers have raised minimums because they’ve come to the realization that a good wholesaler can provide distributors better service on higher-frequency, less predictable, smaller orders than they can, says Feeheley.

“An effective wholesaler and distributor network reduces cycle times and removes inventory and logistical redundancy from the supply chain — the wholesaler can improve a manufacturer’s production efficiencies and mitigate their warehousing and distribution costs,” Feeheley says. And ideally, the end user associates the ability to get product more quickly in quantities that mirror their consumption patterns with the overall value proposition of the product used — and manufacturers as well as distributors are quick to realize this. The effective, forward-thinking, and growth-oriented wholesaler will continue to be very strong for a long time to come, he adds.

“This industry was late in coming to realize that the wholesaler was needed,” says Merkel. “The wholesaler is fulfilling a very legitimate function irrespective of the size of the customer.”

Shrinking Pool
The consolidation of the nation’s distributors has always been a source of concern for wholesalers, who rely on filling distributors’ orders to stay in business. Consolidation makes for a more narrow customer base from which to draw, each time forcing wholesalers to compete for the business of one distributor, instead of two. However, wholesalers agree that the level of service and support they provide the distributors they do have will help them keep that business. As distributors combine in an effort to trim out inefficiencies and streamline product offerings, the resulting smaller pool of distributor-customers forces wholesalers to beef up service, even though orders don’t necessarily increase.

“Sometimes when an acquisition takes place you either gain a customer or lose one. It depends on the relationship you have with them. Sometimes you do pick up a customer,” says Brannum. If you’ve provided a customer with reliable, fast service and they know they can count on you, their acquisition may be your gain, he adds. “Someone might buy one that you’ve had for years and they become one of your good customers.”

Consolidation is also prevalent among wholesalers, and recent years have seen the gap widen between the large and small players, with the existence of mid-sized wholesalers slowly dwindling, says Scott Bean, director of sales and marketing for Master Supplier, a smaller wholesaler located in Nashville, Tenn.

“There’s a lot of competition among wholesalers. But the acquisitions create opportunities for us if we develop a strategic market plan to combat that.”

Bean feels his company will always have a niche as long as the large get larger and the same thing happens to these large distributors as what happens to manufacturers — costs increase and minimums get higher, making it more difficult to do business with smaller distributors. “We’ll continue to take the smaller pieces of business that fall from a large wholesaler getting larger. We want those smaller orders and can take them and handle them for you.”

Feeheley predicts the number of distinct wholesalers will shrink in this industry, but says the ones that do survive will do so by being committed to investing in the infrastructure and technology that drives supply chain efficiencies.

“The successful wholesalers have the financial capability to expand rapidly while at the same time possessing the skill and discipline to reduce their cost structures,” he says.

So do wholesalers worry about distributor consolidation?

“Absolutely,” says Kahn. “If you specialize in jan/san and the number of distributors is decreasing, so is your customer base.” When a jan/san distributor is acquired by a larger company, with a product base that extends beyond strictly jan/san items, it is harder to make up that lost business. “You have to work harder for less,” says Kahn. “They’re just not buying as many of the products…If you’re selling to a paper and packaging company versus someone that specializes in janitorial, by nature they’re going to do less janitorial business. It takes more of them to replace that business.”

“Consolidation among wholesalers results in fewer choices to the distributor and ultimately causes their prices to go up. Without competition among wholesalers, the natural progression is to go up,” says Kahn. Support of independent — as well as large — wholesalers is important for keeping prices competitive, he adds.

Responsibility really falls on the specific wholesaler to remain beneficial to the distributor, says Wolken.

“As a wholesaler, I think one has to be concerned with the kind of job they’re doing in the market rather than the competition and what the competition is doing.” It’s important to react to consolidation among competitors, Wolken says, but consolidation is not what is going to make it tougher to compete. “As long as we’re doing our job we’ll be successful no matter how many consolidations occur.”

It’s just a fact of life, Wolken continues, that some wholesalers are going to grow while others disappear or are swallowed up. “The answer is you do what you have to do to compete in the marketplace. As long as you perform well, you’re going to get more than your fair share of the business.”

Even with the steady and significant consolidation among distributors in recent years, the entrepreneurial spirit is still alive and well, according to Wolken. Parts of companies break off and new companies spring up all the time. “Maybe not as fast in recent years as there had been, but there is new blood in the business.”

Success requires something much more than simply a larger customer base.

“The value proposition that you put in front of the distributor is going to allow you to continue to grow your business. Make sure your value proposition is more valuable than your competitor’s,” Wolken suggests.

“There’s been consolidation at all levels of the supply chain — customers, distributors and suppliers,” says Schreibman. He says having a strategic focus is the best weapon for preventing this from harming your business.

The Distributor-Customer
Distributors in the office supply and automotive industries buy almost exclusively through wholesalers, but jan/san distributors probably only buy 10 percent to 15 percent of their products through wholesalers — a number, though, that continues to grow, according to wholesalers. Besides being a relatively new sector of the supply chain, wholesalers are still trying to woo distributors into realizing what they can contribute to their businesses in the form of savings. And they’re doing just that. Most distributors, at one time or another, have used a wholesaler, and many realize the benefits of doing so. So to what extent are distributors using wholesalers to meet the needs of end users?

“Some [are using them] more than less,” says Kahn, “but virtually every distributor today uses a wholesaler of some kind for some of their business. Some of the most sophisticated are actually using the wholesaler more, because I think they understand the dynamics of moving product and the cost of handling it.”

“I don’t think we have a typical distributor-customer,” says Feeheley. “We have distributors with a very wide range of business scope and scale — distributors focused more narrowly on a specific business channel, or niche, and some that sell as many products to as to as many different types of end users as possible.”

One complaint some distributors have made is that wholesalers, in offering small quantities of broad product lines, have allowed a bunch of small businesses to start up, competing with established distributors that own warehouses and trucks. Wholesalers are quick to refute the claim that they enable small “distributor” start-ups.

“In many cases some of these large distributors of today were the small distributors of the past. When they’re legitimately starting a business they’re going to be small,” says Kahn. Kahn says he understands where mid-sized distributors are coming from with their arguments, but it’s important to be accepting of a sector that represents entrepreneurship. Kahn is firm, though, that his customers have a place from which to work to qualify as an account.

The “mom and pops” would be there with or without the wholesaler, says Merkel. Wholesalers just react to market conditions and demand — they don’t facilitate the market’s dynamics.

Communication
In order for the wholesaler/distributor function to work best, there is a certain level of trust that must be reached. From a distributor’s viewpoint, a wholesaler must never sell direct to the end user, and most reputable wholesalers have no intention of doing so.

“You have to have high levels of trust and sharing of information so that each level of the distribution chain has a better idea of what’s taking place,” says Kahn. “The philosophy that the wholesaler association was founded on is that the wholesaler is there to sell to the distributor and is not going to be selling to the end user. The second issue is if the distributor is going to support a specific product line, share the information so that the wholesaler can have the product there for them, and the information,” Kahn continues.

The role of an industry association is an important one, especially when its focus relies on a few key rules that true redistributors live by — namely, not selling direct to end users — and provides reputable wholesalers a venue for the exchange of information that optimally leads to increased efficiencies for all involved. The Sanitary Supply Wholesaler Association’s (SSWA) annual meeting will take place June 18-21 in Sedona, Ariz., and will concentrate on education, as well as provide a time where manufacturers and wholesalers can discuss important issues and strengthen working relationships. The overall goal is to make product availability, movement and wholesaler/manufacturer communication as smooth as possible.

This year’s agenda focuses on partnering between manufacturers and wholesalers, according to Chuck Wuttke, president of SSWA, in Sylvania, Ohio.

Though the group — 2/3 manufacturers and 1/3 wholesalers — doesn’t discuss pricing issues, a lot of other issues can be ironed out during the conference that ultimately benefit the speed and accuracy of product getting to the end user. Things like minimum orders, product introductions and the role of manufacturer’s reps are just a few of the topics that will be addressed.

“There are also one-on-one meetings where the manufacturer has time to spend with the wholesaler to talk about new programs,” says Wuttke. “Mainly things that can make you operate more efficiently and effectively. Most of all, it’s a time to get to know people one-on-one.”

The overall goal of the conference is a simple one: “We get together and see how we mutually can become more efficient in getting product to market,” says Wuttke.

And this type of information sharing is extremely beneficial in achieving the efficiencies that make businesses thrive.

“The goal of the supply chain is to reduce costs within each intermediary and to reduce the cost between them,” says NAW’s Schreibman. Technology, including e-commerce and advanced ERP systems, is one step toward ultimate efficiency, as well as honing some of the basics. “Some things haven’t changed, and salesmanship is still very important. Also, having a vision — strategic planning,” says Schreibman.

Wholesaling’s Future
Most wholesalers agree that redistribution is going to become a more predominant link in the supply chain. Distributors, to combat rising minimum orders, will look to the wholesaler more and more to meet their product requirements. Vast product lines with less warehousing costs are always attractive to distributors. The key for wholesalers, though, is finding the right niche and servicing distributor-customers effectively.

“I think the larger ones will get larger and the smaller ones will have to make a key decision on what we’re going to do in the market,” says Bean. Wholesalers are going to have a place within the structure, but they’re going to have to figure out how their companies can be most successful by determining their value to the distributor. “Manufacturers’ cost of business is going to continue to go up and that’s going to create different opportunities for us. The smaller distributor isn’t going to be able to order from the manufacturers anymore.”

“We look to the future very positively,” says Wuttke. “We know that we have a very important place in the channel of distribution and we’re vital to our manufacturers and the distributors we sell to.”

“Because speed and quality of the delivery mechanism is king, the progressive wholesaler has evolved its business model to allow for overall greater frequency, unpredictability, and variety of customer order patterns at significantly lower line-item order amounts while also being able to fulfill such orders more quickly and less costly than ever before,” says Feeheley.

Predicting the future is more difficult today than ever before, says Merkel. Technology issues are one key reason, but wholesalers will need to continue adding value for distributors by offering the right products, when they need them, with a high level of service.

“Maybe the future will be determined by those who still do the basics best.”