Distributors Play a Critical Role in the Supply Chain

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Distributors Play a Critical Role in the Supply Chain
In the ever-changing coatings industry, distributors play an important role in the supply chain. From just-in-time procurement strategies to risk management, distributors can bring real value to customers. In today’s economic environment, distributors are being relied on heavily as our customers are more likely to order smaller volumes of products on a more frequent basis. Established partnerships with distributors provide for continuity and trust of supply. The following discussion highlights some of the challenges that distributors face, as well as benefits that they can offer to both customers and suppliers.

Challenges
Chemical distributors are facing a wide variety of challenges. First and foremost, similar to most of our customers and manufacturing partners, we are experiencing unprecedented price increases for materials, energy and transportation. Unfortunately we have little control over our number-one cost, which is raw materials. This is driven by our suppliers and their exposure to global market factors, including the price of oil at ~ $120/barrel. We can certainly pull selling and administrative costs out of the system and implement some controls on freight expenses by establishing strong relationships with local carriers, innovative consolidation and the utilization of third-party logistics providers; but we need to get savvier in finding new ways to bring real value to the customer base. Manufacturers are driving increases through and customers are pushing back. As this happens, distributors are faced with reduced profitability or walking away from business.

Fortunately for our sake, most distributors do not have the cost structures that most manufacturers have. This is largely a result of the size and scope of our operations. We are quick to act and more willing to take entrepreneurial risks that manufacturers cannot.

Industry consolidation on both the customer and supplier side greatly affects the long-term viability of distribution companies. As the North American coatings industry has consolidated over the past decade, there are far fewer coatings manufacturers for distributors to supply. From a distributor’s perspective, this problem is compounded by the fact that the top tier coatings companies are often times handled as “house” accounts for our manufacturers. This consolidation is expected to continue, as small and mid-size coatings manufacturers need to realize economies of scale to compete.

Some of the smaller coating manufacturers with a retail presence are beginning to displace their own products by selling well-recognized national brands at their owned and operated stores. The increasing operations, human resource and marketing costs prohibit these customers from making small batches of paint, when they can simply order cases to stock the shelves. If this trend continues, distributors will be faced with a further cannibalization of our sales.

Nearly every distributor in every industry touts its ability to offer outstanding customer service and promotes its fantastic sales relationships. If everyone offers this, then it cannot be a competitive advantage. Distributors need to strive to offer a complementary range of products that meet the needs of their customers at the right price, with the right quality, in the right package, at a lead-time acceptable to their clients. The ability of a distributor to differentiate is value driven. What can a supplier do to increase the value that can be offered to a customer? It’s critical to understand a customer’s process, product mix, cost structures and competitive landscape before you can offer solutions. Developing a consultative sales force that sells multiple layers in an organization allows you to identify value and provide tailored solutions.

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