Wolf

Independent Dealers and Supply Chain Efficiency

Tom Wolf published this article on December 12, 2011 in Build your Business. No comments. | Comment

At first blush, independent dealers might not appear to be the most likely foundation for a highly efficient supply chain.  They are often fragmented, dispersed and their scale is often small relative to some of the big box behemoths with whom they compete.  And yet it turns out that the independent dealer is the perfect base for an efficient supply chain.

This is so because independent dealers have a real competitive advantage: their operating cost structure.  First of all, they typically operate out of buildings with modest occupancy costs especially compared to the big boxes.  Second, since they have had a long experience with the substantial ups and downs of the building cycle, they have learned how to keep their selling and administrative costs at equally modest levels.  Finally, they have also generally done a good job of keeping their fixed-to-variable cost ratios low.  Independent dealers, therefore begin the search for supply chain efficiencies with an ideal cost structure.

To a certain extent, the size and fragmentation that provides such a cost advantage can be a problem when it comes to buying power.  In some cases, independent dealers are simply too small to be able to buy as well as the big boxes.  So they have made up for this problem by relying on large buying cooperatives.  This has allowed independents to centralize and scale up key purchasing decisions and assure themselves of competitive buying power without sacrificing their low cost approach to business.

The fragmentation of the independent dealer channel can also open the door to redundant activities in that channel’s supply chain.  For example, traditional two-step distributors can sometimes add redundancy to the independent building materials channel.  Such distributors are essential features of the independent channel because they can give those dealers access to broad product lines without the need to make heavy investments in slower moving inventory items.  At the same time, they can also add an extra layer between the manufacturer and the dealer that raises overall costs for dealers or reduces dealer net profit.  This is especially true if the distributor represents a manufacturer which also performs many of the same functions – sales representation, marketing, or logistics – as the distributor.

Smart independents have solved this problem by dealing with distributors adept at squeezing out – as opposed to piling on – supply chain redundancies.  Wolf works hard to be this kind of distributor.  First, it tries to work exclusively with manufacturers that do not duplicate the functions of a distributor.  Second, Wolf works diligently and continuously to squeeze costs and redundancies out of its own processes.  This is reflected in Wolf’s certification as an ISO company – the only one in the building products distribution industry – and the implementation of SAP as its technology platform.  Finally, Wolf has created its own streamlined supply chain in the form of high quality, low-cost, private label products ranging from kitchen cabinets to outdoor trim and decking products.

In effect, Wolf has used its own buying power, its understanding of the manufacturing process and its knowledge of the market to create a superbly efficient supply chain which is only available to the independent dealer channel.  This combination – Wolf plus the independent dealer – is simply unbeatable.  So yes, the independent dealer is the ideal foundation for a highly efficient supply chain.  Really!