Distributor's Role? Value For Manufacturers?

(may be a silly question, but I'm new to this ..)

Can you please explain me distributor's role?

If you are an integrator, why it makes sense to buy form distributor rather than manufacture?

If you are manufacture, you'd support integrator, wouldn't you?

Thank you!


The most succinct answer to 'why distributors' is that they act as a bank and a warehouse for manufacturers. Most manufacturers don't want to handle dealing with credit and payments from end users nor do they want to be responsible for shipping out packages to numerous dealers. That's what distributors do.

Of course, distributors argue that not only do they do the two above but they provide education, training, support, etc. Some do, most do not do much.

Related: Best & Worst Places to Buy Surveillance, Distributors: What is their Value?, Manufacturers Sound Off On Distributors

Btw, there's also the distributors with local branches (like ADI and Tri-Ed) who specialize in the low end market for the dealer who simply will buy / install whatever is low cost and in stock.

Thank you very much for the links.

I see that in the article Distributors: What is their Value? which is written in 2012 distributors have more positive/essential role rather than in other 2 articles which are written later...

Do you think there is a shift with time?

Distributors are marketing departments with a warehouse.

The base level setup is that the distributor functions as a bank or credit facility for the manufacturer, and also serves as inventory storage and shipping.

The first half of the above statement is particularly valuable for smaller manufacturers because the reality is that most integrators are slow to pay, and many of the smaller ones can be a credit risk. If I sell a product through a distributor, even in a drop-ship situation, the distributor is going to pay ME in 30 days, even if the integrator who bought that product ultimately goes under before paying his invoice from the distributor. This is an extreme case and rare, but it illustrates the point. I can sell product to credit-risky integrators without absorbing any of that risk. What I lose is roughly 5-10 points, because the distributor has to make HIS money, so I tell to him for less than I'd sell to you.

Most distributors also have multiple locations and large warehouses, so I can store my inventory with them for "free" (again, free is relative because I'm losing margin selling through distribution), and that saves me on having to rent my own office or warehouse space. It also reduces the number of people I need on my staff because I don't have to have people that "Pick pack and ship" boxes. I'll probably also see a net cost-savings on shipping, which I can pocket to make up for that 5-10 point spread, or pass on to you.

This lets me focus on building and selling my product, without having to worry about some of the less-fun parts of business. I won't need as many accounts receivable or collections people, I won't need as many inside sales/order takers, I won't need as many warehouse people. I can typically cut 4-10 staff, depending on the overall size of my operation, by using a distributor, plus I'll get paid for orders quicker and with less hassle.

If we just stop there you can see some benefits. I still have to "sell" my product, if I'm not doing my own sales and marketing orders aren't going to magically pop-up out of the blue, distributor or not (though the distributor will often try to convince you they "create" demand). The distributor is also making fairly slim margins here.

This is why I say they are a marketing department with a warehouse. What the distributor is really going to want me to do is "sponsor" a lunch-n-learn, or a webinar, or a counter-day, or a page in their catalog, or all of the above. They will also offer me the option to buy or rent a spot in their trade-show booth at ISC West/ASIS/etc. Basically the distributor will hold and ship my inventory and collect payments for the 5-10% discount, but they would prefer I work with them to "create demand" by spending money on marketing programs and tradeshows. This will tend be about $10,000/year on the low-end (to get anything worthwhile) to upwards of $50,000 on multiple programs, a lunch-n-learn roadshow at several locations and so forth. This is (IMO) where they make more of their money. Get the manufacturer to drum up demand THROUGH the distributor, and then also make money on the core part of their business shipping the product and collecting money.

Integrators like to buy from distributors for various reasons, though in my experience they technically prefer to buy direct from the manufacturer if possible and practical. If you're a newer outfit, or have shaky credit you might find the distributor more willing to work with you than the manufacturer. For products that are stocked at local warehouses there can be benefit in the ability to walk-in and pick something up vs. waiting for a shipment (especially for warranty work). Because most jobs end up incorporating multiple things (cameras, cable, mounts, etc.) it can be handy to place a single PO with the disti and pick everything up together. It's also nice for job-tracking to be able to assign Job #'s to POs and then a 1-page total for the job at the end to know exactly what you bought for that job.

Some manufacturers sell ONLY direct to integrators, some sell ONLY through distributors and some sell through both channels. There are pros and cons to all scenarios and I think it depends on how you want to position your product, who your target market is, and what parts of a company you do or don't want to build.

The reason that ADI exists is fundenentally the same reason that Safeway Supermarkets do.

Because it's cheaper for Safeway, as a seperate legal entity handle the relationship than the food manufacturers seperately.

Technically, the distributor manages the many-to-many relationship between customers and manufacturers. To the degree that a group of manufacturers share the same group of customers the efficiencies can be enormous. If there is no overlap between these groups, there is nothing gained by distribution.

Imagine buying Ketchup from the Heinz store, Cheerios from Quaker Oats, and chicken from the Perdue factory! Why don't we?

The distributor co-locates the merchandise AND the payment, the financial and the logistical, and by doing so is able to transform the unwieldy many-to-many relationship into two seperate one-to-many relationships with the distributor at the center.

The reason manufacturers don't 'want' to do it is that they want to make their product the cheapest they can. But, since they have no desire to open warehouses and stores with their competitors to co-locate inventory AND billing, the oppurtunity is open for a seperate legal entity to fufill.

Thank to everybody a lot!

There is also (although that was touched upon) the PRICE/QUALITY/SUPPORT idea. You will rarely get all three in one place.

We can all get most of the same equipment thru the Web cheaper, but what do we do when we have a bad piece of equipment or we really needed something different. Now we have to pay to return it and wait 10+ days to get it back or worry about and/or track the refund. That may make it worth while to go to the distributor. NOTE: To keep my relationship good I rarely return anything with out a good reason.

As far as quality, I'm often asked to to something for a customer that I rarely do. When I go to my distributor, after doing some homework, I will start asking questions about how much of this item do they sell and what is the failure/return rate. Of course, IPVM has helped with this quite a bit!

Albeit tech support is not the best with distribution but often they have some expertise or experience in making different things work together. I have had the need to call and tell them that I have pieces from 3 or 4 different mfgs. and they have been able to help me sort out the problem because they have the experience of this being done by a hundred of "me" around the country and have seen the problem before.

I see the role that they play and am happy to pay the additional money and save the time from ordering from 5 different places. Additionally, having developed a relationship with the counter guys and managers I'm able to get some additional "consideration".