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Chapter 6: Working Together

“A wholesaler can be a partner, or someone you just buy stuff from when you need it!”

Too often manufacturers, wholesalers and distributors exhibit a disjointed approach to serving the
marketplace. As a result, total costs are higher than they could be, and disagreements flare up
repeatedly over who is selling to whom.

By establishing and communicating a clear redistribution strategy, manufacturers can guide behaviors
that optimize the supply chain.

Managing the Wholesaler Customer Mix

Defining Which Distributors Should be Served via Wholesaler
A critical element of any wholesaler program is the identification of target customers, those existing
distributors which the manufacturer would like to steer toward wholesaler service. It is helpful to develop
a tentative list early in the process of developing a program, so that both wholesaler and manufacturer
can estimate the volume which may shift from direct to wholesaler service. Once a program has been
solidified, a final target customer list should be agreed upon, to ensure consistent communication from
the manufacturer and the wholesaler to the marketplace.

A common question is, “How should we decide which customers to steer toward wholesalers – by customer
size or order size?”

Distributors who struggle to meet minimum order weights, or who submit small and infrequent orders, are
obvious candidates for service through wholesaler. Those who buy in truckload quantities clearly are not.

Customer freight costs and order management costs are ultimately driven by order size, so those customers
whose small orders drive high costs should be your targets for conversion to wholesaler. To the extent that
your small-order customers are also your small-volume customers, selecting targets for wholesaler is easy.
If you rank your customer list by average order size, it is a simple matter to establish a cutoff point and
work to convert those below the cutoff to wholesaler service.

Potential for Redistribution

2K lb 5K lb 10K lb 20K lb 40K lb
Average Order Size

The picture gets cloudy, however, when large-volume customers are also small-order customers. For
manufacturers who do not enforce order minimums, bracket pricing, or a weekly shipping schedule, this
is a very real problem. If you are shipping these customers two or three times per week, you are incurring
unnecessarily high costs. The solution may not be to shift these customers to wholesaler, but to provide
incentives for them to build order size and therefore lower your costs.

As always, it comes down to discipline in establishing and enforcing your bracket pricing and ordering
policies. Bracket pricing policies and wholesaler programs are so tightly linked that poor practices in the
former almost always lead to problems with the latter. If you offer Truckload pricing to everyone, small-
order customers will have no incentive to switch to redistribution. If your wholesaler does not adhere
to reflecting your highest bracket prices, he may attract your large-order direct customers to switch to
wholesaler service. Conversely, sound practices will help to align customer size with order size, and help
you to steer customers toward the appropriate sourcing decision.

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