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when they are managed through redistribution. And the wholesaler’s pricing practices relative to the
manufacturer’s price list must be clearly understood in order to develop an effective program.

Marketing Value:
Another consideration is the marketing value of having your products available through wholesalers. Most
manufacturers are initially attracted to redistribution as a means of reaching and servicing the small,
non-mainstream distributors who represent incremental new business. The value of suddenly selling
previously unreachable customers is very high, and Sales and Marketing people are instinctively prepared
to pay for this value.

The value of switching existing direct customers to redistribution is tougher to quantify. There is no
question that distributors value having a manufacturer’s product “within arm’s reach” and available on a
weekly basis with no minimums and short lead times. It is also likely that fill rates and service levels will be
higher through a good wholesaler than with direct service. As always, the challenge for the manufacturer
is converting “happier distributors” into “more business” in order to benefit from this marketing value.

Distributor Perspective

From a distributor’s perspective, redistribution provides an effective solution to several persistent problems.
Inventory turns are a major driver of distributor profitability, and redistribution offers the opportunity to
make a significant improvement in this area. Without redistribution, the order cycle for a small-volume
product line can easily be every 6-12 weeks; with redistribution, the distributor can receive product on a
weekly (or even more frequent) basis.

Service levels to end-users are another key measure of distributor performance. During the “downtime”
between orders, a distributor often runs out of one or more items from a manufacturer, but must wait
until he can put together a minimum order before receiving replenishment. This results in out-of-stock
cuts or substitutions, which raise problems for the manufacturer, distributor, and user alike. With frequent
deliveries and shorter order lead times, wholesalers provide the opportunity to significantly improve
outbound service levels.

When one considers that redistribution offers the potential to reduce cost, improve service, increase
inventory turns, and broaden the product offering without requiring additional space, it is easy to
understand why savvy distributors embrace it. All of these benefits contribute to improved profitability
via “fill rate economics,” or the cumulative effect of providing high service levels with fast turns and low
inventory costs.

Wholesaler Perspective

Wholesalers make money in two ways:
■ The margin on their selling price vs. their purchase cost
■ The redistribution allowances which are paid by their manufacturer suppliers

The wholesaler’s margin is driven by the base price he pays to the manufacturer and the prices he is able
to charge to his distributor customers. Some manufacturers employ a “Minimum Advertised Price” in an
effort to establish floor pricing in the marketplace and minimize price competition among wholesalers.
Others request that their wholesalers base their prices on the manufacturer’s published price list, using

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