Images Source: Distributor Wire & Cable Co.
Like many functions in the realm of distribution, the role of a master distributor has become increasingly complex as lines continue to blur and end-user expectations force channel partners to rethink traditional models. Wholesalers are uniquely positioned to grow if they can figure out “how to be more,” says Consultant Mike Marks.
For years, master distributors have positioned themselves in the value chain by selling distributors non-A items and reducing the cost-to-serve by stocking and drop-shipping product. That business model “worked well in the ’80s and ’90s,” but today, the lines are blurring, says Mike Marks, managing partner of Indian River Consulting Group. “There are traditional distributors providing master distributor services. Manufacturers are getting into the distributor business. Reps are shipping product. Given the continuing blurring of traditional roles, the smart players will recognize and exploit the opportunities to be something else when it solves a customer’s problem.”
Even with these changing dynamics — or perhaps because of them — industrial and safety supplies master distributor ORS Nasco and other pure wholesalers say they distinguish themselves in the marketplace by stressing their allegiance to their distributor customers, framing their relationship as partners who provide products and services that help distributors drive their business strategies.
“The term ‘master distributor’ can be confusing and interpreted in many ways,” says ORS Nasco COO Mark Prox. “‘Pure wholesale’ has been a mantra we have used for years to ensure our distributors know we are here to support — not compete. Our value in the market is driving efficiencies within the supply chain. We provide a low cost-to-serve platform for a manufacturer to reach thousands of customers through one transaction while reducing the cost of acquisition for distributors to purchase hundreds of brands through a single source.”
Underscoring Marks’ earlier point, Prox believes the greatest threat to a master distributor’s viability is an unwillingness to adapt and invest in innovation, particularly when proven disruptors and entrants are looking to experiment in new channels.
In January, for example, Home Depot opened its first flatbed distribution center in Dallas. The 800,000-square-foot facility is one of an expected 40, according to a company spokesperson who says the center will predominately distribute pallet-size quantities of building supplies — lumber, pavers, concrete blocks, etc. The intended target is commercial customers.
And then there is Amazon Business. Its proficiency in bundling breadth and depth in an easy-to-buy experience has challenged B2B models in multiple industries. Thanks to the Amazon effect, says Prox, much of what “we did yesterday is being commoditized, so we have to find other value points.”
How to Stay Relevant
Recognizing that their distributor customers are contending with the same change that is influencing how they go to market, ORS Nasco and other master distributors agree that there has been a shift in demand from the buy-stock-and-ship model. Now, it’s about speed of delivery, access to more brands and transparency, says Prox. Transparency as in more information about delivery times, inventory availability and pricing to help distributors effectively communicate with their customers.
“We also have to think about how we build out the tool set that helps our customers sell more to the end user,” says Prox, referencing the importance of putting content and marketing materials in the hands of distributors, as well as data and analytics to anticipate customers’ needs.
As the discussion moves more toward the emergence of artificial intelligence, more wholesalers are thinking about how to leverage the data they have and are investing in business intelligence tools such as dashboards, data warehouses, algorithms and ERPs. In addition to relying on data to pinpoint opportunities and relevance, ORS Nasco uses it to generate discussion points that aid outside sales and customer support in their roles as solution providers.
“We have a robust business intelligence data warehouse,” says Prox. “We use data to understand how our customers are buying from us, benchmarking them against similar distributors, whether they are in the same vertical, or if they are geographically the same, or within different buying groups. We understand the average share of wallet within those groupings, and then we benchmark that against each individual distributor to see where the opportunities are.”
Adding even more depth to its customer knowledge, ORS Nasco has an employee with a Ph.D. in economics who works with the data to understand how the macroeconomics align with its go-forward strategy. The goal, says Prox, is “how do we take what we already have and make it more distributor relevant so that we can be the conduit that provides them with the insights that they need?
“We also have aligned with multiple universities over the last four years to understand how our customers value us and where we need to continue to improve.”
ORS Nasco serves multiple markets, including industrial, welding, safety, electrical and HVACR, and offers access to more than 200,000 SKUs from more than 600 brands. Making sure it has the right product mix involves collaborating with suppliers to identify assortment opportunities within their brands, while working with distributors to understand their commercial strategies.
“We focus on three areas,” says Prox. “The first is ensuring we have the proper assortment of products to be relevant in our core channels. Second, we work to identify crossover product categories that are relevant to distributors. The most recent example is our expansion in the janitorial and breakroom product category. Lastly, we focus on expanding our product assortment to new channels that resonate with our value.”
Differentiation Through Product Breadth
For HVACR solutions provider Packard Inc., differentiating its value in a mature market is about continuously updating its lines to keep pace with the latest product innovations and changing regulations, such as the phasing out of HCFC refrigerants. Packard, an employee-owned company, specializes in selling electrical components, motors and other parts to OEMs and distributors. It’s all about continuing to add product that is relevant to the market, says Senior Vice President of Business Development Jim Mosman, noting that Packard is one of the few master distributors in its sector that carries multiple compressor lines.
“Some of the products we have today are going to go away because of regulatory issues, so foresight is extremely important,” he says.
Two years ago, when Packard posted record sales, it was that same forward thinking that led to the launch of its private-label line of EC motors, which it now sells along with the more than 40 brands it represents. “We’re a master distributor but we also consider ourselves a supplier,” says Mosman, adding that other master distributors in the sector also have their own brands. “We are seeing a lot of our customers doing it as well. Grainger has been doing it for years but even some of the regional types are creating their own brand.”
Has the blurring of the lines been an issue? “When the guys who are supplying your brand are going direct and you’re also selling their brand, it can get a little convoluted but everybody understands where they fit and where we fit,” he says.
Making Speed a Service
Prior to joining Distributor Wire & Cable Co. (DWC), new CEO Travis Williams worked for a manufacturer, a master distributor and one of DWC’s current electrical distributor customers, so he knows firsthand the pressure his customers are under to service their end customers. “The health of our business is tied to the way we handle disruption,” says Williams. “Labor markets are extremely tight, which means that electrical contractors are looking to leverage their relationships with electrical distributors. There is a push for them to be highly efficient and highly service oriented.”
That means there’s also a push for DWC to be efficient in its processes and service offerings so it can pass along gains to the customer. “We utilize Lean 5S methodologies [ sort, set in order, shine, standardize, sustain] to maximize efficiencies, accuracy and asset utilization in everything we do,” says Strategic Marketing Manager Ted Jolly. “We have a strategic focus to constantly look for ways to be more efficient and effective for our customers.”
Two of the master distributor’s core values, “Speed” and “Build 2 Rebuild,” are reflective of the mandate. The latter refers to a companywide goal “to make wire and cable easier for customers, deconstructing and reconstructing the way we do things, like the recent revamp of our digital platform,” says Jolly. “In the mid-2000s, DWC was one of the first wire distributors to have a digital platform where companies could order and manage their wire and cable and get instantaneous pricing. Although it was still well regarded, last year we scratched that system to make improvements.”
Speed is self-explanatory. For DWC, fast, responsive service has become a competitive advantage and is publicized as a value-add. Six minutes or less, says Williams, “our service promise to all customers is to get quotes out in six minutes. We could be a small part of a multibillion-dollar proposal, and every figure that holds it up is putting the distributor at risk of losing that job. It has to be accurate and it has to be fast. The liabilities are huge.”
The Quest to Be Nimble
The challenge for master distributors, says Williams, is continuing to provide the level of service that their distributor customers have come to expect. “As companies exponentially grow in size through consolidation,” he says, “they become less nimble and attentive to the needs of customers.”
Each of the three distributors, DWC, Packard and ORS Nasco, say the ability to move quickly, respond and adapt — or as consultant Marks calls it, to “be something else” — are all crucial in their efforts to elevate their value propositions.
DWC points to its six-minute response time in fulfilling requests for quotes, and its 24/7 emergency service to help customers and end-users keep projects on schedule. To save customers time, it also offers custom wire and cable dyeing, twisting, bundling and stripping.
Packard’s three distribution centers are strategically located in Indianapolis, Phoenix and Kennesaw, Georgia.
“We are probably two days away from any one customer,” says Mosman, referring to their positioning as one of the keys to its nimbleness — in addition to its investments in EDI, and online ordering and account management capabilities.
Referencing ORS Nasco’s sell to One Equity Partners, Prox says that going from a publicly traded business to private equity has empowered the master distributor to be “more nimble” in investment decisions and business strategies. “Without the constant pressure on working capital and earnings,” he says, “we will have the flexibility to make the right investments into the business to drive our ability to serve distributors better. We have started to push more products into our local markets while making investments in upgrading our technology platforms.”
Upgrades include investments in EDI, inventory management, business analytics and equipping its website with more functionality. All are steps in the right direction in countering change, what Marks believes is the greatest threat to master distributors continued growth.
“There is a lot of change taking place right now,” says Marks. “Master distributors that are content with doing the same things better … some of those guys are going to end up not doing so well. But the ones that figure out how they can add value to various people in the value chain are going to do very well.”
One example: Master distributors that are turning into third-party logistics providers. “Nike and other companies are placing all of their product in 3PL warehouses,” says Marks. “Master distributors are positioned well to do the fulfillment part of this, particularly in the industrial space. The smart ones are going to do really well in the next 10 years.”