Distributors Face Off:
Edition: July 2002 - Vol 10 Number 07
Author: Lea Sharp
Who has the competitive edge in our market National Distributors or Regional/Local distributors? Respondents to Repertoire's Dail-E News recently offered their opinions on the greatest strengths and the challenges each side faces gaining market share in today's industry. Note that all respondents were asked to name the advantages and disadvantages facing not only their company types, but those of their competitors. Here's a sampling of what they had to say.
Regional/Local Distributor Advantages
Customer Service and Relationships Are King
Hands down, the readers of the Dail-E News most frequently cited customer service and the depth of the relationship with the manufacturer as the major advantages that Local/Regional Distributors have over their national counterparts. Local/Regional Distributors have a greater tendency to work with manufacturers on all levels, said the respondents. For example, according to one manufacturer, ''most [local/regional distributors] are eager to learn about new products and have better relations with the end-users. They also tend to relay more leads and are more open to pricing negotiations.''
One Manufacturer's Rep shared this story: ''A new, local distributor (which was started by a former distributor rep who had grown tired of corporate puppets serving their investor market vs. their buying clients) has been 'cleaning the clocks' of his national competition because of service.'' Another Manufacturer's Rep believes that the ''regional/local distributors have developed personal and long-standing relationships with customers, which can give them a solid lock on the business.''
A Regional/Local Distributor had this to say about the key benefits for a manufacturer using a Regional/Local Distributor instead of a National one: ''Regional distributors offer an alternative for the manufacturer when it can't get listed with the National distributor. Regional distributors have a larger commitment to the area they service, have more in-depth customer knowledge, and personnel turnover is far less than that of the National distributors. Regional distributors also offer both sales and distribution, and their operation cost is much less. The management staff of Regional distributors is easier to deal with and decisions are usually made much faster.''
Location, Location, Location
Another Manufacturer cited the aftermath of Sept. 11 as an example of the edge Regional/Local Distributors have over their National counterparts, noting that the smaller firms were immediately able to reach local warehouses and offer assistance. The respondent said that in addition to their ability to manage regional issues, Regional/Local Distributors enjoy a competitive edge with their ''relationships, specialty products and innate understanding of regional issues. They are best able to provide flexibility in providing alternate products and solutions.''
According to one National Distributor, ''Regional/Local distributors have advantages with local relationships and being part of the community. Being smaller, they can think on the run without running decisions up the chain of command.'' He further cited the Internet as a definite asset to the Regional/Local Distributors because ''they now have much more informational access and are able to conduct business to a larger population with less help.'' A Provider respondent echoed the National Distributor's thoughts, adding that the ''Regional/Local Distributor's ability to have greater flexibility and to provide specialized customer service'' is also a key advantage for using Regional/Local Distributors as opposed to their National counterpart.
National Distributors' Advantages
Buying Power, Deep Pockets and GPO Affiliation
Bigger is better when it comes to buying, according to Dail-E News readers. As one Manufacturer's Rep pointed out, ''Large buy-ins mean lower costs. These days that means a lot.'' What's more, ''volume buying improves margins.'' Another Manufacturer's Rep noted that the National's buying power leads to ''more product diversity and ability to offer more value-added services.'' According to one National Distributor, ''The primary edge is a combination of the economy of scale that can be achieved with the greater volume of a National Distributor.''
The deep pockets of most National Distributors area strong advantage, according to many readers. ''Typically, the strength [of the National Distributor] lies in that they have more financial resources available, which means more innovation and more value adds that drive systemic savings,'' states one National Distributor. Several Manufacturers agreed. ''Advertising, which costs money, leads to recognition, which leads to increased sales. Nationals have the money it takes and the name recognition to push it.'' Another continued, ''Advertising and marketing dollars and purchasing power that's the key.''
''National Distributors have deeper pockets for more resources to support the sales team,'' according to a Manufacturer, ''That's their advantage.'' A Local/Regional Distributor agreed, stating that the Nationals have ''deep pockets which lead to the undivided attention of the national manufacturers.'' Money talks and manufacturers listen.
''Having the financial resources to invest to better upgrade their services is the strength of National Distributors,'' according to a National Distributor reader. A Local/Regional Distributor continued along that path by stating that ''the primary competitive edge the national distributors have over the small, local distributor is their financial/administrative abilities to offer their customers interactive ordering and customer support for checking orders, inventory, report generating, etc.'' Another Local/Regional Distributor cited the National's deep pockets as their greatest strength. ''National Distributors are able to funnel finances into technology to help them do more things, i.e., on-line ordering, bar coding, [becoming] Internet savvy, etc.''
Many respondents commented that National Distributors' affiliations with GPOs were their greatest strength. Quite a number of them agreed that GPO affiliation eliminates a lot of competition. ''[National Distributors] have the edge in that they have the GPO agreements,'' said one Manufacturer's Rep. ''They are getting into private label products that compete with their long supportive manufacturers.''
Our readers were able to shed some light on the vulnerabilities of each side as well. It comes as no surprise that the weakness of one Distributor is the strength of the other.
Vulnerabilities of Local/Regional Distributors
The ''M'' Word
Money or, more precisely, a lack of it is the most commonly perceived vulnerability for Local/Regional Distributors. As a GPO reader explained,'' [The Local/Regional Distributor's] greatest vulnerability is financial challenges to stay in business. [It's] harder to be competitive due to regional/local costs of upkeep.'' A Local/Regional Distributor commented that the ''real weak spot is cash flow. Selling to customers on credit is a real weak spot.'' Another Local/Regional Distributor expanded on the idea by stating that his companies' primary weakness was ''our limited financial resources that would allow us to grow our sales force, keep more inventory on hand, participate in more sales training (seminars, materials, etc.) and get equal support from manufacturer reps.'' A Manufacturer's Rep cited the ''lack of resources to compete in the value added service offerings beyond pushing the box'' as an area of vulnerability for the Local/Regional Distributor.
Two Manufacturers reflected on the ''lack of financial resources to invest in growth-driven programs (marketing, advertising, etc.)'' and that ''newer or smaller companies may not have the financial leverage to compete on a national level. They may have a superior product but due to 'contracts' or other barriers to market entry due to a lack of finances, they are unable to offer their technology.''
''A lack of funds for advertising is a problem [for Local/Regional Distributors]. If they can't advertise, then they generally can't offer a consistent identity that gives the perception of stability,'' according to another Manufacturer.
Those Pesky GPOs
''Being locked out of GPO contracts,'' ''the lack of GPO contracts,'' being unable to participate in national GPO contracts,'' and ''not having a relationship with the large GPO's'' - no matter how you slice it, their generally non-existent relationship with GPOs is a perceived weakness of Local/Regional Distributors.
Vulnerabilities of National Distributors
Lack of Service with a Smile
Being bigger isn't always better in every arena. Readers across the board overwhelmingly cited inadequate customer service as the biggest perceived weakness of the National Distributors. A Local/Regional Distributor described his National counterparts as being ''out of touch with reality. If you're not an 'A' customer, you'll get lost in the shuffle (or in the consolidations).'' A Manufac-turer vented his frustration by saying, ''Their vulnerability is their customer service. Try to call in and see how many times you are transferred or put into voice mail or put on hold!''
Another Manufacturer shared his thoughts that National Distributors tend to 'grow impersonal in the way they deal with their suppliers. Their greatest vulnerability is their lack of customer service and a general lack of flexibility and a slow decision-making process. They get too big and de-focused and at times they miss the little things that go along with good customer service.''
One GPO reader believed that the National Distributors were ''too big to care about their customers. They don't always service the alternate care markets adequately. They are very slow to react and too bureaucratic.''
Several Manufacturers perceive the reps of National Distributors to be ''order takers'' rather than salespeople. One Manufacturer explained that ''
the reps are more often ''order takers'' and don't really sell products. And they are difficult to train because it is difficult/expensive to get them all together and to get training time in front of them.'' Another Manufacturer warned that ''not all [National] distributor sales reps are alike, and some are not successful selling your products.'' Another reiterated, ''[National Distributors] typically have regions where they are not strong. If you sign up a national dealer, you get their best performers and their worst. You take a chance.''
Manufacturer's Reps voiced their concerns of National Distributor sales reps as well: ''[With] so many products to sell, they have poor knowledge of them beyond the bare basics; therefore, they cannot adequately support the customers.'' Another said that the Nationals' vulnerability is 'their lack of qualified sales force personnel who do not detail products anymore.''
One Provider concluded by saying that National Distributors are ''vulnerable in the people they employ. You are only as good as your people. The best systems can be undermined by poor people. Likewise poor systems will undermine good people.''
Six of One, Half a Dozen of the Other
So, which organization is the best bet? The responses from two National Distributors nicely sum up the age old debate:
''Being with a national distributor now, but having been recently with a manufacturer, I've worked with both (National and Local/Regional Distributors). Both have their advantages. The local usually will have strong relations with the customers (tenured rep) and usually a local distribution center. They are more flexible and able to adapt to changing customer needs quicker than a larger national distributor.
On the other hand, the national will have better technology and the better pricing. In the state where I work, the government is again cutting the reimbursement to facilities. This has lead customers to focus closer on the cost of products. They are looking for ways to become more efficient when placing orders. The national distributors have the advantages at this stage, until the locals again find a 'niche' to fill.
Having been a Regional Distributor for over 20 years and now working for a National Distributor, your survey got my brains kicking into gear. As a Regional, I felt we had by far the tightest contacts with the local customers. This was a big selling point when going after lines. The problem was we were at the mercy of many of our suppliers, who would cut us off or sell out with very little notice. In many cases, they would either not be able to get a GPO contract, or when they did, they cut our commissions to compensate for it. If the Regional was honest, paid his bills on time and lived up to mutually agreed-on quotas, from a manufacturer standpoint, they would be more desired. On the other hand, it is very expensive to manage many distributors and as a manufacturer, you are constantly vying for attention.
With a National, the manufacturer has a much better chance of getting paid and getting the sales he desires, as the distributor has much more at stake once a line has been established. The distributor, in turn, has a better chance of retaining a line, as he probably represents a major percentage of the manufacturer's sales.
Most importantly, either Nationally or Regionally, it really depends on the reputation that has been established. There are good guys and bad guys in both arenas. Promises without results are of no value.
Thumbs-Up for Regional/Local Distributors
The local distributors typically have the lowest ''cost-plus'' and are viewed as being the most cost competitive.
Their ability to match product and services to the nuances of the local market. Culture, conditions, etc
Local distributors are able to respond more quickly and can be more flexible.
The greatest edge is their personal/try harder service.
Local distributors have good control and can usually work their way around contracts.
Much better at servicing the alternate care markets. Much better at responding to requests and needs of facilities. And much faster at price-loading of contracts.
The local distributors' advantage would be the long-term relationships that they have established. It may also be that they are local and can deliver goods the same day or next.
The greatest edge is probably that they can appear more accessible at higher levels of the organization because they are local which is akin to the likelihood that a National's strongest area is the region around a corporate home office.
Thumbs-Up for National Distributors
The competitive edge is their systems and the inventory flexibility they can bring.
Many ''feet on the street'' = good coverage of accounts.
Ability to market to multi-regional customers.
Depth and breadth of product offering (i.e., full service, single source suppliers of hospital supplies).
Their competitive edge is their national buying power and number of reps.
Better buying power!
Easy access to national GPO contract and members is one large advantage.
Responsiveness is the primary competitive edge of National distributors due to their geographic spread. Their ability to improve both logistics and inventory management has defined their role in the market and supported cost reduction goals within hospitals.
''One stop shop.''
Their primary competitive edge is their ability to cover the entire country, making the entire manufacturer and distributor relationship more streamlined and seamless. This includes sales training, billing and more. They typically will have contracts with the major groups and know who the key influencers are in the marketplace. They also have centralized billing and customer service departments as well as regional distribution centers to provide enhanced levels of service. Most significant advantage is the sheer number of ''feet on the street'' covering all markets.
The Vulnerabilities of Local/Regional Distributors
Local/Regional's vulnerability lies in that major brand name manufacturers usually prefer to deal with Nationals one listing point, national coverage, GPO alignment, logistical systems tend to be more sophisticated, consistent e-business operations, etc.
Their greatest point of vulnerability is getting access to the greatest prices, be it GPO pricing or any other low prices being extended to them.
My vulnerability is the lack of buying power and revenue to add on reps.
Fewer sales dollars usually mean higher prices/margins; but this is usually made up with excellent service.
A weakness would be that [Local/Regional Distributors] don't have access to distribute certain products that the larger distributors can get.
It's hard to compete financially with Nationals, who buy in such large quantity that they get the best prices.
The Local Distributor is vulnerable when a chain grows beyond its service area.
As their customers integrate into networks or consortiums, they may lose market share to larger distributors.
Being Bought Out.
The [Local/Regional Distributors'] lack of scope if the health system reaches far and wide.
Many hospitals are looking for a 'one stop shop' service and may choose a national distributor.
Their vulnerability may be that they cannot offer the goods a large company could, or offer the pricing that a larger group could.
The greatest point of vulnerability would be not having enough representation.
The vulnerability is that they do not always have the ability to support large groups and that they may not be able to leverage volume purchasing to the same extent as a national; therefore, [the Local/Regional Distributor] may have higher costs and prices.
More Thoughts on the Vulnerabilities of National Distributors
Super regional distribution centers may hurt sales since customers were used to receiving quicker service.
[Their] vulnerability would be not being an authorized distributor of a national contract. Also, lack of personal relationships with customers is vulnerability, since they are so large.
Nationals' weak point is management and turnover of personnel, resulting often in picking errors and lack of product/customer first hand knowledge.
Reps are too busy doing administrative work to sell.
The greatest disadvantage of a national distributor is the inability to be creative and flexible when that need arises. Because everything is usually structured, it limits what they can do 'out of the box' for customers.
Their vulnerability is that they have most of their eggs in one basket.
They can offer their customers ''vendor consolidation.'' However, the charges for this consolidation do not always outweigh the fees that are charged to achieve it.
The biggest vulnerability is the fees they charge their customers in order to do business with them.
They want large margins.
They miss the nuances of the market. They take too long to change and react to market conditions.
The vulnerability is the potential disconnect from the customer and their daily needs. This however, does not have to be the case based upon diligence at the local management level.
Seemingly too big less personal attention.
The greatest vulnerability is probably the national focus of distribution that may exclude distributing local/regional manufacturers in demand by local customers, giving the impression of the distributor being ''generic'' or hostile to small business.
It takes forever for them to get answers.
Greatest vulnerability is the wide service variances by region.