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Distribution: distributors for distributors.

We are past the mid-point of the first decade of the 21st Century. As exciting as that sounds, we still don't have the flying cars we were promised, and the only Esperanto making its way into the lexicon is "Roe-Haass." Not lacking in the new millennium are daily challenges that our industry must meet to survive; as we keep in mind the old, 20th Century refrain, "cautious optimism."

It has been proven time and again that distributors are endowed with long memories and are well served when paying attention to history's lessons. History teaches us to plan carefully for the current resurgence, learning from past experience and taking advantage of all tools available to increase performance and improve return on investment. We believe that Master Distribution provides valuable options and viable alternatives for distributors and their customers who would prefer to avoid some of the pitfalls encountered on the brave new path of "cautious optimism."

"The Distributor's Distributor"

In the electronics industry, the term Master Distribution has come to define an organization that is a distributor whose activities are in support of distributors, rather than OEMs or end users; they are the exclusive domain of the served distributors. In other industries, this type of operation is known as a Master Wholesaler or the term we prefer, the "distributor's distributor"--literally a distributor that serves only distributors.

When distribution ramps up to serve an increase in demand, the two-edged sword is again revealed. Inventories depleted during the preceding troubled years need to be replenished without repeating the creation of excess and obsolete inventory; we have learned the hard way that this must be avoided at all costs. Without the benefit of long-term forecast or reliable usage data (remembering all too well the dark years of the last century), this is a dangerous proposition that becomes hazardous due to long inventory lead times and rising supplier minimums. Also, the return of the High Class Problem; as relationships are repaired and strengthened with re-energized customers, their need for slower moving products--and products a distributor may not be directly authorized for--will also tend to grow.

Bridging the gap between customer demand and responsive product availability, this is how the distributor's distributor adds value in the customer supply chain:

* Availability of off-the-shelf inventory

* Access to a broad line card

* Great service

* Reasonable prices

Benefits to Distributors

A master distributor's customer base is comprised exclusively of distributors to enhance their ability to serve their customer--OEMs and end users. Our commitment to this process limits our customer base to distributors only, thereby eliminating any threat of competing with our exclusive customer. Serving distributors by offering a premier line card comprised of great brands and with a commitment to stock not only A movers, but also the B's, C's and D's.

The distributor's distributor offers low minimums, both quantity and order value. This relieves the distributor from the need to overbuy to their customer demand while meeting a suppliers minimum (thereby creating the real potential for excess and obsolete inventory) and helps the distributor balance inventory on authorized lines by providing off-the-shelf products at lower-than-factory minimums on A's as well as B's through D's.

The distributor's distributor emulates the policies of suppliers such as return and rotation privileges and co-op advertising support. A flexible drop ship policy, responsive customer service, relief from high minimums and long lead times, competitive pricing, easily navigated Web presence and available promotional materials further differentiate the distributor's distributor.

A true distributor's distributor is a supplier-authorized source for products but requires no contractual obligation from a distributor; P.O.S is neither requested nor required; and distributors will never encounter a true distributor's distributor in the lobby of their largest customer, or for that matter any of their customers.

Benefits to a Distributor's Customer

The most important service is provided to the OEMs and end users who use distributors for their supply needs. Your preferred distributor can satisfy your requirements for brand name products by obtaining them from an authorized distributor's distributor. Relationships and alliances are strengthened; your preferred distributor can continue to be a one-stop provider for all your needs through the access to premier brands from the distributor's distributor; without the penalty of high minimums or resulting excess inventory. The best part is that all suppliers' warranties flow through to the end customer when a distributor obtains products from an authorized master distributor. The result is franchise service without the franchise minimums or limitations.

The Prescription for an Industry Epidemic

When our industry has momentum, it's not hard to envision the example of supplier minimums outstripping demand and resulting in the buildup of excess inventory, which then diminishes the distributor's ability to invest in the correct mix of a supplier's inventory. It also creates a liability for the supplier and conflicts with the time and place and utility of the supplier's authorized distribution network.

The true distributor's distributor provides an authorized source for products and a significantly lower-than-factory minimum, thereby enhancing the distributor's ability to satisfy its customer's demand for a product without setting off the chain reaction of excess inventory build.

For more information, contact Waldom Electronics, 1801 Morgan St., Rockford, IL 61102-2690; (815) 968-9661;;
             Distributor  Distributor  Distributor  Distributor
             A            B            C            D            Total

Distributor  1000         2500         3000         1500           8000
Supplier     5000         5000         5000         5000         20,000
Excess       4000         2500         2000         3500         12,000

This chart depicts the potential excess inventory build when supplier
minimums and customer demand collide.
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Title Annotation:INDUSTRY FOCUS
Publication:ECN-Electronic Component News
Date:Nov 15, 2006
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