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Why Forward Thinking Manufacturers Are Cutting Out The Middle Man

Wholesale Distributors need to sort out their technology and processes or risk losing customers forever


Is the traditional model of selling goods via wholesale distribution, under pressure?  After reading a recent article discussing the potential for manufacturers cutting out the middleman it got us thinking.

Manufacturers cutting the need for wholesaler distributors and opting to go direct to consumers, is said to be one of the biggest shake-ups the industry has seen in generations.  But while the industry toys with the idea of direct consumer selling, it’s time for distributors to get to grips with the potential loss of customers.  With the risk of customers imminent, it’s time to shape up and discover how a revamp in process technology could save their business/industry.


Current Process – Manufacturers –> Wholesale/Distribution –> Retailers – Consumers


The Middlemen

For years, manufacturers, wholesalers/distributors and retailers have worked together as allies in the supply chain. Working upon a pyramid style distribution system, where; Manufacturers sell their products to distributors – who then sell on to multiple dealers – who sell on again to an even larger number of end users.

In this system manufacturers relied heavily on the wholesale distributors to distribute their goods and ultimately get their merchandise in front of customers.  But In recent times, a growth in digital transformation and shift in consumer behaviour has placed the middleman system under threat.

With a rise in e-commerce, low-priced imports and consumers demand for more, manufacturers are now left questioning how they can compete?  With a rising demand for faster delivery and more customised products manufacturers must assess the efficiency of their supply chain.


Future Outlook

Direct selling is set to be a powerful distribution channel.  With the evolution of digital technologies, and in particular the boom of e-commerce, manufactures have been able to regain the power over their supply chain.  Digital transformation has made the setting up of an online store and the opportunity to work with delivery patterns much more accessible.  By skipping the step of wholesale distribution, ownership over the buying process revolts back to the manufacturers, whilst saving money that was once spent on the middleman stages.  With the added benefit of full control over the supply chain, and full control of the brand experience.  As manufacturers become more comfortable with direct selling, the service wholesale distribution becomes increasingly under threat.  Those who were once allies are now becoming competitors.


Going Direct

The key benefit of going direct is that manufactures can ultimately sell their products at a lower cost and finally be able to compete with the big retail brands.  Whilst maintaining end-to-end control over manufacturing, sales and marketing, and distribution.  Working without any intermediaries can result in greater control over the brand, price and customer data.


Example of going direct – are a true success story for the D2C (direct to consumer) method and an example as to why many manufacturers are beginning to question the middleman.  Their key mantra is to cut the cost of designer furniture, making this type of product far more accessible to the wider market pool.  And they have done just that by saying goodbye to the middleman.  Directed at a pool of tech savvy, e-commerce base consumers, focussed towards returning the power to the consumer. have also adapted their systems to embrace new technologies such as IoT systems, allowing for a more streamlined process between design and manufacture.  This streamlining allows products to go from design to sale in less than half the time of its competitors.  Responding perfectly, towards the ‘demand now’ consumer behaviour, whilst minimising overheads.


 What are the next steps for Distributors?

For wholesale distributors who want to avoid the chopping block they need not run from the digital transformation, yet instead embrace it.  By embracing the latest digital software’s, distributors could provide a more efficient and streamlined service to their clients and revoke manufacturers need for going alone.  By cutting wasted time, this in turn lowers costs and ultimately re-builds their trust in your partnership.  Efficiency through technology.


How to prevent the chopping block through updated technology

This surge of curiosity from manufacturers can’t be halted overnight, but manufacturers have relied on distributors for all these years for a reason.  So, you have to ask;

  • Could your manufacturing partner survive without the support of your distribution service?
  • And if so why?


The place to start is by making some tactical and effective improvements to your distribution process.  To lower the risk of losing customers business forever, it’s imperative to update technology and improve efficiency of their business processes.


Here’s our two steps to staying on the right side of business.


An effective CRM system


  • Own the customer.  The most important thing distributors can do is to ensure the customer wants to buy from them, not the manufacturer.  Therefore, the distributor needs to add a comprehensive pre- and post-sale service experience and invest in customer relationship management (CRM) software to keep track of buyers’ information.  Your customer is then loyal to you, not to the manufacturer.
  • Become Switzerland.  Once you truly own the customer, you need to start selling other products.  If you sell one product line, most acquirers will be turned off, realising that you can be put out of business overnight if your supplier decides to hire its own sales force, go direct or sign other distributors.   By diversifying your product offerings, you start to become the “go to” person for your customers in a certain product category, and your suppliers will have to start competing for your attention.  Your customers’ loyalty is the leverage you need to drive better terms—including a non-exclusive relationship—with your suppliers.


A Robust ERP System


For distributors to maintain their partnership with manufacturers, they must be able to meet the fast-changing customer requirements.  Whilst monitoring and managing the cost margins in the face of reduced selling prices. With a robust ERP system in place distributors are able to grasp a complete sense of visibility across a wider scope of their business, making them more equipped to face the challenge of D2C.


An ERP system can provide an immense business improvement by integrating all business process into one system. An integrated distribution management system provides increased visibility and control over the supply chain process.  Including areas of, warehouse management, CRM, online sales & packing and shipping.  This eliminates the need for re-entering data and reduces the possible risk of errors.


If you found this article interesting and have any questions surrounding anything we’ve talked about, please get in touch.  Or if you are a distributor seeking advice on how you can keep yourself out the firing line?  Contact us today and our team of experts can work alongside your business to help improve the running and efficiency of your distribution service.