Opinion: Can one supplier per category unlock marginal gains for distributors?

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Akcela’s James Adams recommends dealers review their annual spend to gauge if it’s worth switching to one supplier in each equipment category.

Founder and director of Norwich-based Akcela management consultants, James Adams, takes a differing view on the well-walked path to catering equipment supply, posing that the cost and simplification benefits of a single supplier per category can outweigh the multi-brand approach:

Efficiency, how many times have you heard that word already this week? Whether a manufacturer, distributor or end user, every business in this eco-system of ours is looking to achieve more on similar, if not less resource. Especially when that means profit dropping to the bottom line.

Catering equipment distributors have for years built businesses by supplying fit for application catering equipment. Creating value customers are willing to pay for, through product knowledge and supply route.

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In every category there are multiple manufacturers, each vying for mind share in a crowded tiering system. Commonly, a distributor could have two to three suppliers per category. Sound familiar?

For any distributor business, this could mean learning three different ranges, model numbers, product nuances and then figuring out how to align them to a customer’s needs in a specific situation. For each and every category. Which do you choose? If you cut every manufacturer on your books into a percentage of your mindshare, how much can you give each one?

By simplifying the business model to one supplier per category we can dedicate to selling that single product line with expert subject knowledge, passion and alignment to application. If this is the value add, what price does mastery of such value command?

Beyond customer facing knowledge, there are process improvements to be gained too. Each interaction with an additional supplier per category creates an ‘opportunity cost’, the value of what that time could have been used to achieve. This opportunity cost exists across all touch points within the business. Accounts payable, multiple rep meetings, customer sales pitches where we prep two solutions.

Of course, some business models cannot support such a strategy, certain manufacturer brands have a ‘pull’ factor that the balance sheet can’t ignore. However, unless we are entering the realms of offering all manufacturers in an online store, we want to capture most of the market, we don’t have to capture it all.

Without wanting to move too much onto a brand discussion, think about where you position your business to your customer. Does every tier of manufacturer represent your business’ brand position?

The best thing about this time of year is you probably have the numbers on your desk right now to review if this is viable. Of a single category, how much spend is with one main supplier and could you move the other spend to them?

This isn’t just theory, you can really test the results. Sit down with your main supplier and a periphery supplier in any given category. Outline the potential spend increase. Set out what accounting terms you would need to be afforded to deliver it, perhaps 60 day terms on increased spend for example, and leverage the commercials.

Where there may be a range issue with the main supplier, compromises on any agreement can be put in place. It isn’t hard to justify; this process should be about business improvement, not forgoing opportunities.

Take time to talk to your teams, see how much work is currently being invested in maintaining multiple relationships, compare this to the current value delivered by each manufacturer. Beyond the commercials, what is that time saving worth?

In a competitive market where we are searching for that 1-2% marginal gain, could moving to a single supplier unlock an advantage for your business?

Tags : akcelamanagement consultantopinionvoice of the industry
Clare Nicholls

The author Clare Nicholls

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