Benefits Of Distributors Vs Selling To Resellers/Integrators Directly

With the news of Anixter purchasing Tri-Ed and the comments I've read that distributors are struggling to make profits and that the industry is starting to lean more towards internet sells, I'm interested in getting opinions on the preferred way manufactures should go to market. Are distributors still the preferred choice? Or with the internet and online sales, would it be more beneficial for manufacturers to sell directly to integrators and bypass distributors? Does it make more sense as a manufacturer to be able to reduce their final sales price in the market by cutting out part of the distribution channel? Or, do distributors still play such a vital role that it would be detrimental to the manufacturer not to continue to sell through distribution?


If you sell directly to the end user, you have to support the end user. Do you have a dedicated tech support team willing and able to hold the hand of someone who may be "good with comouters" but have no experience with surveillance video other than what they see on TV? If so, then selling direct to the end user may be your best option.

Distributors are mostly good for end user support headaches, billing headaches, and logistics headaches- keeping stuff in stock, getting it out fast enough, and turning around returns is tricker than you might think.

"If you sell directly to the end user, you have to support the end user."

Yes, but many times you end up doing this anyway. It's not uncommon for dealers to sell a job where the end user turns out to be a handful and they end up punting the support over to the manufacturer anyway.

In my experience, the tech support of the average distributor is the "mile wide and an inch deep" scenario. They know the most common basics, but are nowhere near an expert on any specific product and can't do a whole lot in terms of value-add support.

Skip distributors sell direct to dealers

Better pricing and protection

NO value add for distributors

Are payment terms when buying direct the same as when buying through distribution? (ie: net 45/90, etc?)

Distributors can be a key part of cashflow management, especially for small integrators doing big projects. Progress payments lag from the customer, so payments to the distributor are slow. I often have wondered if companies like Avigilon will carry a note like distributors will.

In the current market, the biggest value-add for using distributors is that you (as a small/medium manufacturer) do not need to build up a large shipping department, and you don't have to extend credit to a lot of questionable dealer/integrator businesses.

A lot of small integrators seem to operate with a tight budget. They'll ask for 30 or 60 day terms, but they really won't pay their bill until THEY get paid by the end user. Having guys paying on a 180 day cycle can be a real pain in the ass. If you're selling through disitribution your distributor is going to pay YOU immediately or on 30 day terms pretty reliably.

Storing inventory and packing/shipping lots of orders can take up a fair amount of real estate, plus a couple of employees. Letting a distributor hold your primary stock and fulfill orders is mostly a good thing (there can be some downsides to not having immediate hands-on access to your own inventory). However there are a lot of 3rd party logistics (3PL) companies that will handle that aspect of things with a cost that is frequently cheaper than the margin you give up to having a distributor in the middle of the mix.

Distributors claim to do demand-gen and things like that, but my experience is that this really doesn't just happen by default. They frequently want you to pay additional funds to "sponsor" email blasts, lunch-n-learn sessions, webinars or things like that. This means you're giving up somewhere between 5 and 10 points (typically) plus another $5,000-$30,000+ annually (per distributor) for their marketing services (I use that term loosly).

My advice to a small manufacturer would be to pick 1 or 2 national distributors (not reginals, not buying groups like PSA) and partner with them. Allocate about $6,000 per for marketing, but don't expect too much from it. You'll be primarily responsible for your own marketing and overall product awareness, the distributors are just your order fulfillment and credit department until you get large enough to justify doing that in-house.

Order fulfillment is an important aspect of building a strong brand/image and business in general. I don't advocate essentially outsourcing something that is a key part of your business and can affect customer (integrator) satisfaction in that way. But when you're small it's hard to justify the risk and overhead of doing it in-house.

If Distributors would just stick to Distribution/Logistics, we would not be having this conversation.

Instead, they have a sales force you cannot trust when bringing leads and opportunities to or selling directly to the end users. Many times, they also want to collect the manufacturers discount when they had nothing to do with getting the win. They also try to control everything about projects.

Manufacturers and Integrators are tired of Distribution.

"If Distributors would just stick to Distribution/Logistics, we would not be having this conversation."

I agree with you. The problem is that they don't want to be the "dumb pipe", similar to the problems we're seeing with ISP's today. Large businesses like that don't like being simply a faceless cog in the middle of the line, even if that is the best purpose they can serve.

Distribution:

1) Credit

2) Logistics

3) Inventory

4) Bonus-anything beyond

The lack of "adhered" to "standards" ONVIF, etc..will plague this market....

"Inventory" ???

Then why when we order everything is dropped shipped from manufacture?

Because there are more scenarios out there than just what you are involved in.

It's possible the manufacturer uses the distributor primarily for the credit purposes, but does their own shipping. This would be more common more manufacturers that do some dealer-direct sales, and some distribution sales. In that case the manufacturer is already setup to handle shipping orders (either directly, or with a 3PL), so the drop-shipping approach is easier or better for them.

It's possible the manufacturer uses the distributor primarily for the credit purposes...

Insomuch as that is true, then Alex's point is only amplified, since a distributor may provide many value-added services on top of their core distribution functions (inventory management/ownership and/or logistics). But to the degree that they don't provide those core services, they are not really distributing, no?

IMHO, the primary reason that distribution even exists to begin with is because it dramatically improves the efficiency of shipping multiple origin items to a single destination, due to the fact that items are physically co-located. (It's why I don't order online from General Mills for Cheerios and from Post for Rasin Bran.)

Everything flows out of this core raison detre, pure logistics, return procesing, bundling, kitting, finance, etc, not the other way around.

If distribution's number one function has become credit then it needs a name change.

Because unless you're Amazon, it's absolutely impossible to stock everything. If you stock the most common things, you're doing okay. Another alternative is having a really good drop-ship guy or, more likely, a drop ship team, who can jump on an order and get the manufacturer to ship out the item on the same day. Taking an order down, transmitting the order to the warehouse, putting it in a box, getting that box on a delivery vehicle, and getting the delivery vehicle to drop that box off at the right place at a predetermined time and date isn't a science, it's an art. All that effort for 30 or 60 day terms that all too often turn into 180 day terms if you're lucky.

A photography store with which I am familiar ships, well, a lot of stuff. As in, multiple tractor trailer loads worth of stuff, daily. I took a tour of the warehouse once. I'm glad I don't work in logistics.

I wonder what do you think

Is the distributer needed for successful selling of security software?

For example if we take "IP Video System Design Tool" software.

In case of software there is no "inventory" and almost no "logistics". For sure direct sales for software in the internet era is a God-given advantage. But maybe distributors can add something, like their mailing lists, marketing force e.t.c?

My impression of distribution efforts is that you are not going to get much pro-active marketing efforts from them unless you pay for it. Manufacturers mention regularly all the requests / demands for co-op marketing funding.

The other challenge you have is that the dollar sales volume of your offering is lower than the cameras, recorders, controllers, they normally sell, so it is likely to be less motivating to them. However, you might try to pitch it them as a strategic advantage for them to empower all their dealers with your software, etc.

Do distributors often setup credit terms directy with end-users as a service to integrators?

Alex,

1) Think of a distributor as an insurance company...risk adverse

a) They are beholden to the manfs.-if they can't ship

b) The size of the manf. correlates with their willingness to stock

c) The # of sku's and run-rate dictates the breadth and depth

Certain distributors carry 1000+ manfs...multiple available sku's...could be 400K+

The ROI takes this and multiple other factors....

The point is anything those are the primary benefits...beyond that it's gravy...

The same could be said about credit....there are limits due to the late pay/deadbeats/poorly

run integrators, etc.

They are not nirvana, but add the body count/investment to carry their piece and more times then

not they provide a value.

Manufacturers who distributors well and are willing to invest in relationships with them may find benefits. For instance, if you smoke cigars with Pat Communale at OTB, you might find working with distributors beneficial.

However, if you just want them to add you as manufacturer 101 to their system, expect very little value.

For the opening poster, if you want someone to help you sell, consider manufacturer reps (e.g., List of Security Manufacturer Representatives and Security Manufacturer Representatives Survey Results).

"For the opening poster, if you want someone to help you sell, consider manufacturer reps"

Not all Manufacturer Rep Firms are the same. You have to research them and pick what type of Rep Firm you want. They all have advantages

  • Some firms build business through Distribution and a set of go-to-integrators. (Schmoozing & Boozing and usually a few are very good at)(Majority of Rep Firms )
  • Others build business through Integrators.
  • Some build business through End Users (Backwards through the Channel). (Rare)
  • Some use a mix of all the above

I do agree with you, John, on Rep Firms. They are the way to go instead of relying on Distribution sales. Just pick the right Rep Firm. There are a lot of bad Rep Firms out there. In fact, some states/territories are missing good firms.

I agree with that.

What makes the rep game tougher (for both sides) is that the good reps are typically taken.

It's like finding a spouse in a town of 100 people where 97 of them are already married...

Odds are against you getting lucky so it takes some time, patience and persuasion to get a better firm.

First of all, great discussion topic.

One of the benefits that is mentioned but rarely investigated and proven is the hidden costs saved by purchasing through one shop. I communicate with dozens of integrators every week, and many of them prefer to buy from their distribution partners. They perceive the costs they save internally as more valuable than the few points they save buying directly from the manufacturer.

Unfortunately, this benefit isn't as transparent as it might have been years ago when a reseller can click a button online - not a lot of obvious paper pushing there. The distributors' sales strategies need to be based more on assessment of their customers' buying patterns and associated costs, and education of the value of the distributor. They don't need to convince their customers how "my company is better than the other distributor"... distribution sales professionals need to win over their clients to continue to buy through distribution with investigation and education; and win them over to buy from them with service and responsiveness.

It's worth noting that my opinion is from the perspective of the integrator, not the distributor.

Not all distributors work the same. This is what differentiates traditional distributors from VAD (Value-added Distributors) who act more than just stock keepers. A famous Belgian Distributor operating in the MEA region for example, acts as a preacher to the products he is carrying and offers a physical local support and pre-sales assistance (site survey, technical consultancy on design, gurus for the carried solutions, etc.).

Given that some security solutions like IP CCTV have more complex requirements compared to traditional systems, this requires accountability of the total best-of-breed offered solution and therefore the need of a specialized and focused distributor is a MUST.