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Chapter 2: How Does Wholesaler Redistribution Work?

                 At  first  glance,  the  presence  of  a  wholesaler  in  the  middle  of  the  Jan-San  supply  chain  appears
                 to be redundant. It is easy to dismiss redistribution as an “incremental cost” or an “unnecessary
                 middleman.” As we shall see, however, a proper redistribution program makes good economic sense
                 for the manufacturer, the distributor, and of course the wholesaler. Each perspective is explored below;
                 we’ll get into the numbers for manufacturers and distributors in the coming chapters.

                 Manufacturer Perspective

                 Before developing a redistribution program, a manufacturer should gain a solid understanding of how
                 redistribution will impact the P&L.  There are three major areas to consider:
                        ■ Cost Avoidance

                        ■ Revenue Impact
                        ■ Marketing Value

                 Let’s look at each factor in detail.

                 Cost Avoidance:
                 When existing business is switched from direct to wholesaler service, a manufacturer has the potential to
                 reduce both hard logistics costs, and softer order management costs. The challenge for manufacturers
                 is to quantify these costs for the specific set of customers who are redistribution candidates. Looking at
                 averages or company “rules of thumb” is inadequate, because small-order customers drive higher costs
                 throughout the supply chain.

                 The Order Management cost offsets are more difficult to quantify, but doing the work is often an eye-
                 opening experience. Order Management costs include all of the activity from receiving and entering orders
                 through booking loads to extending credit, billing, and collecting. When the “percent of orders” is compared
                 to the “percent of volume,” manufacturers begin to see that they are often “laboring like an elephant to
                 give birth to a mouse!”

                 Revenue Impact:
                 The second  consideration  for  manufacturers is understanding  the  revenue  impact  of  moving  volume
                 through wholesalers.

                 On the positive side, redistribution offers the potential for increased sales volume on several fronts. The
                 ability to reach hundreds of previously unknown distributors, jobbers, cash & carries, etc. is an obvious
                 opportunity. But even existing direct customers who switch to redistribution may be sources of new volume,
                 as a result of:
                        ■ Faster recovery from out-of-stocks
                        ■ “No minimum per SKU” policies which improve sampling response and minimize new item risk
                        ■ Ability to offer the manufacturer’s entire product line, without keeping it all in stock

                 But there may also be some important negative revenue impacts to consider.

                 Manufacturers who enforce strict  bracket pricing  will  need  to account  for  revenue  slippage  when a
                 wholesaler buys at free-on-board (FOB) plant prices to serve existing business that was billed at the highest
                 delivered price bracket. Special prices, bids, and trade deals all take on an added level of complexity

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