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I recently wrote an update to MDM's 2005 Special Report on Integrated Supply, found in the MDM Archives.
MDM has covered the evolution and competitive landscape of integrated supply for more than 20 years. The article I wrote as part of the 2010 Distribution Landscape Report – The Refinement of Integrated Supply - looks at how integrated supply fits into the landscape in 2010 and how distributors have continued to refine the model in a changing environment. The landscape has definitely shifted over the past decade.
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We know that many distributors entered into some form of integrated supply agreement early on as a way to lower transaction costs for customers and better manage their inventory for indirect materials. But we also know that many were forced to exit the model when they weren't able to make money doing it. This has pared down the number of players in the market; distributors who have made integrated supply a key element of how they go to market say they now see the same players "time and time again" in the bidding process. That didn't used to be the case.
In my discussions with distributors, other providers and industry experts, they told me one of the key factors in making these agreements work is having the right mindset going in. Mike Marks of Indian River Consulting Group says: "You have to let go of this gross margin transaction perspective. Integrated supply is a service. Products flow through that. You make your money providing the service – not the products. You can either be good at customer intimacy or good at handling a bunch of transactions efficiently. When you try to do both you hurt yourself."