The rise of integration, outsourcing and other distribution ideas that seek to reduce costs by reducing the number of suppliers, brings up a fundamental paradox in the concept of sole-source distribution.

Electrical distributors have been seeking exclusive distribution partnerships with vendors in an effort to reduce their costs and improve their competitive positions. At the same time, they're trying to offer customers one-stop shopping for all their MRO needs. If a customer wants a brand of product that his sole-source distributor doesn't already carry, that distributor has to change the customer's mind or choose among three options: stocking that product in addition to his current line, switching his "loyalty" to that customer's preferred line, or purchasing it at an additional mark-up from a competitor that has the franchise in his market, if possible.

"It completely undercuts exclusive distribution," said one manufacturer who asked not to be named. "People are not going to allow them to cherry-pick their lines."

Distributors with lots of sole-sourcing agreements live with that double bind every day.

"It's a double-edged sword," says James Warren, president of Cameron & Barkley, Inc., Charleston, S.C. "Part of your obligation is to help the customer reduce costs and find the best product to give him the most cycle time, and sometimes that's not the product you may be franchised to handle. If that's the case, then your obligation is to help the customer. If we don't solve the problems of the customers and help them attain their end goals, they're not going to partner with us."

The manufacturer questioned whether there was enough margin in maintenance, repair and operations (MRO) distribution to allow single-source distributors to buy products from their franchised competitors with markups at each stop along the way. Customers that pursue sole-sourcing agreements are looking for maximum total cost savings.

That price addition must be passed along, but it's not easy to do so, Warren says. "The biggest opportunity for savings in the relationship is in the way you do business. It's not the price of the product," Warren says. "You're saving substantial dollars in the administrative and operating costs because of the way the system works, and that would offset some of the addition you might pay in the non-franchised purchases."

But distributors can't count on that as a saving grace, cautions Warren. "The customer of today, he's not interested in paying more for anything. Once he gets the cost savings in the relationship out of the systems that are set up, then he drives for lower prices, and that's a squeeze."

One source of some relief is that customers are becoming less inclined to specify a brand name unless there's a clear-cut advantage for them to do so, says Warren. "The quality has to be there, but he's not as tied to a brand name today as he used to be." This gives distributors more freedom to promote their manufacturers' lines.

Related Articles » In today's age of electronic communications and overnight delivery, » The industry's adoption of new technologies lags far behind its rhetoric. » The entire electrical industry needs to focus on this job. » Electrical Distributors should beware the perils of serving two masters » Penetrating MRO » Integrated Electrical Supply » The Computers of Commerce » Electrical distributors have two general CD-ROM catalog products from which to choose. » Electronic Commerce » Budget Cutbacks Threaten Critical Safety Function