Tuesday, July 16, 2013

Is Your Distribution Company in Trouble? How to Add Value as a Distributor

If your business survives on the basis of being a distributor for one key supplier (i.e. selling another company’s product/service), it may be time to rethink your business model or, at the very least, rethink the way you view your business. 
When was the last time you used a travel agent, went to a CD store or rented a movie from the local blockbuster? Travel agencies have yielded to the rise of online travel booking companies. CD stores have succumbed to online music services such as iTunes. DVD rental stores have surrendered to the convenience of on-demand movie rentals. 
These businesses have fallen victim to the curse of the middleman.  When all you do is distribute another company’s product, the only value you have is your location.  In a world where content can be streamed and containers can be shipped overnight, being the local distributor is becoming irrelevant.  Even if you have a protected geographic territory, pricing information available to your customers through the easy access to information we have today, will eventually grind down your margins.
Distributorship can drag down your value
Not only do you risk losing sales and margin to online competitors, relying on being a middleman can drag down the value of your company. 
The Sellability Score Questionnaire is a tool that evaluates your business along eight dimensions that drive the value of your business.  One factor is called The Switzerland Structure, which measures your reliance on any one customer, employee or supplier.
If you are dependant on a single supplier to provide the goods you resell, you could be in trouble.  Having a single supplier means you could be at risk of an industry change (like the one that hit CD stores) or at risk of your supplier choosing to build its own sales force and start competing directly with you.
A valuable middleman - Henry Schein
If you are a distributor, you should rethink your value proposition.  Instead of relying on your location, think of yourself as a curator of great products/services for your customers.  You are no longer the local distributor.  Instead, you are the company that sifts through all the noise, tests and evaluates what is available, and supplies the very best for customers who value, and are willing to pay for, your services as a curator.
Henry Schein, Inc. is a FORTUNE 500 company and the world's largest provider of health care products and services to medical, dental, and veterinary office-based practitioners.  As a distributor, Henry Schein Inc. was one of Fortune Magazine's "World’s Most Admired Companies" in 2012.
Henry Schein’s role is to sift through all of the suppliers who want to provide products to dentists, doctors and vets and select only the very best to recommend to its clients.  They are the gatekeepers for their customers.
Dentists value the role Henry Schein plays in helping them minimize the number of sales people they need to see.  The loyalty to Henry Schein means that if a supplier wants to sell to dentists, they need to go through Henry Schein.  The balance of power has shifted because customers would prefer to buy from Henry Schein rather than directly from the original supplier.  That is the acid test for the value of any middleman: given the choice, would your customers rather buy from you or go direct?
If you’re curious to see how your business currently ranks on The Switzerland Structure as well as the other seven drivers of sellability, take The Sellability Score here: http://sellabilityscore.com/vsp/jason-kwiatkowski.

1 comment:

  1. Interesting article. Another example of disintermediation is Tesla Motor Co. featuring company stores as opposed to the traditional dealer model.