Sanitary Supply Wholesaling Association
This guide is written for Jan-San (Sanitary
Supply) manufacturers who are exploring the opportunity to go to market via
wholesalers, as well as those who have a long history of working with
wholesalers. It is also a resource for Jan-San distributors who are considering
using wholesalers as a source for certain lines, particular product types, or
at various times throughout the year. In
all cases, our intent is to help Jan-San manufacturers, wholesalers, and
distributors create programs which will foster long-term success for all
parties.
This manual pinpoints real economic and
supply chain efficiencies. Understanding Jan-San Redistribution is a quantitative educational tool for
Distributors and Manufacturers alike to make fair, balanced, and informed business
decisions about buying/selling through wholesalers. Wholesaling is an
efficiency option (with definable and measurable benefits) for distributors to
procure, and manufacturers to make product available, and is truly a growing
force in today’s Jan-San environment which should be better understood by all.
Key issues addressed in the manual are:
Manufacturer revenues and costs
compared for Direct vs. Wholesaler sales
Distributor costs compared for Direct
vs. Wholesaler purchases
Structuring of Manufacturer/Wholesaler
programs to reflect and maximize value of Re-D
Appropriate growth expectations/trends
for Manufacturers entering Re-D program
Impact on Manufacturer/Distributor
relationships
Appropriate expectations outlined
regarding lines within a Wholesaler
“Dollars and cents” analysis from
detailed case studies within and outside of SSWA
Math Tools and Cost-to-Serve
Comparisons provided for comprehensive evaluation
Use this Guidebook as an essential component
in your company’s training program to understand the impact of Redistribution
on Sales, Finance, Logistics, Marketing, Customer Service, and Supply Chain
relationships.
Sponsored by the Sanitary Supply Wholesaling Association (SSWA). SSWA has been a leading professional association for wholesalers and manufacturers of cleaning and maintenance products since 1980.
Our author, Dave DeWalt is President of Franklin Consultants, a firm that serves manufacturer clients on a variety of strategic, marketing and distribution-related projects.
Dave is widely recognized as an expert on the subject of redistribution. He has been published in Food Logistics magazine, and has conducted redistribution workshops for the Foodservice Sales and Marketing Association and the Chain Purchasing Conference. Dave also publishes the monthly “Foodservice Marketing Insights” newsletter; subscriptions are available from the “Free Resources” page of his website, www.franklin-foodservice.com.
Prior to launching Franklin Consultants, Mr. DeWalt was an Associate with A.T. Kearney. Industry experience includes fifteen years in Marketing, Sales, and Executive positions with Sara Lee Bakery, Vlasic Foods, and Awrey Bakeries.
Dave has a Bachelor’s Degree in Hospitality Business from Michigan State University, and a Master’s Degree in Marketing and Finance from the Kellogg School of Management, Northwestern University.
Redistribution of Sanitary Maintenance Supply products has evolved to the point that most channel manufacturers and distributors recognize its value. Many Jan-San distributors, both large and small, purchase from wholesalers; and many manufacturers are taking advantage of the benefits offered by wholesalers.
To the Sanitary Supply manufacturer, a sound redistribution strategy will yield:
-outsourced management of small, high-cost-to-serve customer orders
- access to new customers who are otherwise difficult to reach and serve
- reduced credit risk
- simplified logistics
Jan-San distributors who source products from wholesalers benefit from:
- faster inventory turns
- shorter lead times
- more frequent deliveries
- no minimums per manufacturer
- enhanced service levels
- improved fill-rate economics
- the efficiency of one order, one delivery, and one invoice for multiple manufacturers
How Does Wholesaling Work?
To the uninitiated, redistribution via a wholesaler would appear to be an unnecessary “extra step” in the Jan-San supply chain, shoehorned between manufacturers and their distributor customers. Other manufacturers have a hard time differentiating redistribution from their forward warehousing or distribution center network.
Perhaps it is easiest to grasp the role and value of redistribution by comparing it to Sanitary Supply distribution itself:
If you think through the supply chain, there are good reasons why manufacturers don’t have direct selling and shipping relationships with every customer who uses their products. To do so would require a colossal increase in the scope of all of their operations. Imagine receiving, shipping, billing, and collecting on several orders per week from tens of thousands of end-users – there is not a Sanitary Supply manufacturer who could handle it. What’s more, there is not a Sanitary Supply end-user who would welcome this arrangement with every manufacturer who supplies him. The Sanitary Supply distributor provides a clear value to both the manufacturer and the end-user by consolidating a lot of small orders into a few large shipments; wholesalers provide the same value, but one step back in the supply chain. Unlike a Sanitary Supply distributor, however, wholesalers strictly avoid selling to end-users, as this would be akin to competing with their customers.
The most sophisticated wholesalers complete the cycle by reporting, in detail, their sales data back to the manufacturer. This step allows manufacturers to incorporate sales data into their internal systems, allowing seamless sales reporting, program management, and commission payments to sales rep agencies.
In return for these services, manufacturers generally pay an allowance to their wholesalers, which reflects the manufacturer’s cost avoidance and other factors which will be discussed in great detail in the coming chapters.
Manufacturer Perspective
Before developing a redistribution program, a manufacturer should gain a solid understanding of how redistribution will impact the P&L. There are three major areas to consider:
- Cost Avoidance
- Revenue Impact
- Marketing Value
Cost Avoidance:
When existing business is switched from direct to wholesaler service, a manufacturer has the potential to reduce both hard logistics costs, and softer order management costs. The challenge for manufacturers is to quantify these costs for the specific set of customers who are redistribution candidates. Looking at averages or company “rules of thumb” is inadequate, because small-order customers drive higher costs throughout the supply chain.
The Order Management cost offsets are more difficult to quantify, but doing the work is often an eye-opening experience. Order Management costs include all of the activity from receiving and entering orders through booking loads to extending credit, billing, and collecting. When the “percent of orders” is compared to the “percent of volume,” manufacturers begin to see that they are often “laboring like an elephant to give birth to a mouse!”
Revenue Impact:
The second consideration for manufacturers is understanding the revenue impact of moving volume through wholesalers.
Redistribution offers the potential for increased sales volume on several fronts. The ability to reach hundreds of previously unknown distributors, jobbers, cash & carries, etc. is an obvious opportunity. But even existing direct customers who switch to redistribution may be sources of new volume, as a result of:
- Faster recovery from out-of-stocks
- “No minimum per SKU” policies which improve sampling response and minimize new item risk
- Ability to offer the manufacturer’s entire product line, without keeping it all in stock
Marketing Value:
Another consideration is the marketing value of having your products available through wholesalers. Most manufacturers are initially attracted to redistribution as a means of reaching and servicing the small, non-mainstream distributors who represent incremental new business. The value of suddenly selling previously unreachable customers is very high, and Sales and Marketing people are instinctively prepared to pay for this value.
The value of switching existing direct customers to redistribution is tougher to quantify. There is no question that distributors value having a manufacturer’s product “within arm’s reach” and available on a weekly basis with no minimums and short lead times. It is also likely that fill rates and service levels will be higher through a good wholesaler than with direct service. As always, the challenge for the manufacturer is converting “happier distributors” into “more business” in order to benefit from this marketing value.
Distributor Perspective
From a distributor’s perspective, redistribution provides
