Understanding Jan-San Redistribution

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