Increasing Industrial Distribution Profitability by Segmenting Customers, Suppliers and Products-Part 5 Suppliers:

Suppliers: The bell curve for suppliers is significantly different. There are frequently fewer choices for some products and even a nominally poor supplier is better than none at all. “Great suppliers” are at the top and are real partners. “Adequate suppliers” are those that will help out but are not willing to go the extra mile. “Bottom suppliers” should be replaced, if possible. As noted, this may not be possible, and the company will have to work hard to maintain margins and customers under less than ideal circumstances.

Each supplier needs to be rated on a number of factors. Usually included are on-time deliveries, quality of product (lack of customer complaints or freight claims), accuracy of billing, added value such as training, participation in distributor events, value of co-op dollars, and so on.  Additional metrics should include lead generation, integration of application systems, and support for “ship and debit” programs. The bottom line is that a distributor needs to get the right quantity of the right product delivered at the right time, one that is packaged properly, fairly priced, and does not need inspecting upon receipt.

Real partners make it easy to do business with them. They help to maintain optimal inventory levels, they provide pricing assistance for special bids for large orders, and they are available to assist with client issues that may arise. This top group may provide special services such as vendor managed inventory (VMI), collaborative forecasting, and transparency into their production so that inventory availability can be projected and accurately planned for specific customer needs.

At the other extreme are suppliers who are always late, cannot seem to get their billing correct, and are always having to fix problems. In cases such as these, it may actually be better to not offer a product rather than manage the problems that are associated with a less than desirable supplier. It is also possible to purchase certain products from jobbers or other middlemen, who take the burden of dealing with less than desirable suppliers.

Commodities are a special situation. Where there are many suppliers available, the industrial distributor is in charge and can demand specific service levels.

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