Andy Rainforth asks: Is the time right for manufacturers to bypass distribution and establish trading relationships directly with the installers of their products?
In Britain, the bacon sandwich’s status is legendary. It is so engrained in UK culture that bacon butties were voted the thing most loved about Britain [admittedly by that mild-mannered bastion of truth, The Daily Mail]. But are the days of security installers enjoying a cheeky bacon roll at a distributor’s trade counter, courtesy of a manufacturer’s ‘open-day’, numbered?
I recently read an article available here about what economists, (always fond of complicated terms) refer to as ‘disintermediation’.
While it is true that the complete supply chain for ‘goods’ (and often services) in B2B environments also includes an end user in the following path; Manufacturer > Distributor > Installer > End User; in many industries, it’s the ‘fitter’ of the products who makes the purchasing decision. Where these circumstances exist, there is an argument that the time may now be right for manufacturers to establish direct trading relationships with installers.
Advocates of disintermediation claim that establishing a direct relationship could help to build loyalty, increase margins and inform product development. In the early 2000s, some sectors saw manufacturers move away from traditional distribution channels and sell direct, only to return to a distribution model once they realised the additional costs associated with delivering the value-add services, (normally the domain of the distributor) outweighed the margin gain.
In the last 15 years though, we’ve seen enormous, paradigm shifting, technology advancements. These leaps, particularly in terms of digital communications and mobile technology, has made it far easier and cheaper for manufacturers to build relationships directly with installers. Add to this customer familiarity with websites and willingness to participate in e-commerce and this relationship can easily evolve into an efficient, direct trading one. This has led to a return to the trend, in some sectors, for removing distribution from the supply chain once again.
The counter argument that would be presented by distributors is that they add value in terms of stock-holding and perhaps national availability, speed of delivery, credit facilities, training, expertise, impartial advice, technical support and a host of other ‘value-add’ facilities.
In many ways however, the technology advances that have benefited manufacturers, have been detrimental to distributors. Traditional brick and mortar distributors have come under pressure not just from manufacturers looking to disintermediate, but also from a new generation of distributors adopting less costly web-based models where products are distributed from a central warehouse, rather than dispersed geographic locations. Think Amazon in a B2B world. Less relevant are bacon-buttie mornings, this new breed would claim, when installers would rather be customer-facing than standing at a trade counter, preferring to order products from their smart devices, not restricted by traditional opening hours.
Of course, some traditional ‘bricks’ based distributors have evolved to ‘bricks and clicks’ and would argue their e-commerce solutions bridge this gap. At the same time others (or perhaps the same ones), to reduce costs, have been forced to pare back or withdraw some of the value-add services previously mentioned at the very time when this has become the new battleground.
From a security industry perspective, I was interested to hear the views of the people this actually effects – installers who currently buy through distribution. I would be keen to hear whether you believe distribution adds value to your supply chain or whether you feel that avoiding distributors’ mark-up and trading directly with manufacturers would be a preferable option.
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