Distributors are usually appointed by the manufacturer, so it is not necessarily your choice who you work with. If you are offered a distributorship you want to know you will be supported.
You are looking for a manufacturer who will help you grow your business, and retailers who will participate in marketing. You want supply chain partners, both manufacturer and retailer, to work together to grow everyone’s business.
Manufacturers can contribute by providing resources such as display material, or media advertising to support the product.
You are looking for products which sell easily and profitably rather than ones which are hard to sell and provide small profit margins. Distributors want customers who ask for a product by name and this demands strong branding. If you can command a strong margin too, this is a winning combination.
The ideal environment for a distributor is often a fragmented market – lots of small, difficult -to -reach customers who need a high level of sales service. You want to win business on sales, with your stock of products enabling customers to have instant delivery.
Define your strategy
Communication is vital in a distribution channel. You will have a high degree of autonomy, so it is important strategies are properly aligned and focused. Honest, ongoing communication between the parties is the key to reducing conflict and improving sales and marketing effectiveness.
Business is fiercely competitive and opportunities for growth are highly prized, so minor issues that are not addressed can quickly escalate into destructive and bitter conflict.
It is important to have a clear understanding of both parties’ expectations at the outset to avoid misunderstandings later. Strategy should be clearly defined, as should the role each party must play. It is also important to understand the culture, values and systems of each organisation.
You should identify exactly how the two parties will work together, who will contribute what. Regular review and assessment are useful for both parties, as is joint collaboration of a development plan for the product and market.
Regular communication and assessment of the plan should deliver better customer service and satisfaction and improve sales.
How should you run your business?
This very much depends on the type of business, sector, product, location and the usual business considerations. Some key factors to consider are;-
Size and cost of stock required, and how quickly you can replenish stocks. Obviously the shorter the lead time, the lower the stockholding you need. Perhaps you can hold raw materials or partially manufactured components to allow you to shorten the lead time without extending the risk. For example if you buying printed T shirts, can you have the manufacturer hold completed T shirts across the size range that just need to be printed using prepared papers in various prints. This means you need to get the total number of T shirts, in the correct size ratio right, but can print them according to demand. The most you risk if you estimate the sales ratio of the prints is the cost of the printer paper, not the finished stock.
Understand the market
Understand the market and customers before you make any purchases. Inventory that can’t be sold at a profit is the quickest way to damage your business. You need to devise a strategy that makes your operation efficient and turn stock around as quickly as possible. To estimate correctly you need to know your market.
Control your overheads
Keep costs as tight as you can at the outset, and always. This is part of running an efficient operation. Any savings you make can avoid you running into cash flow problems, and if the business takes off will increase your profits
Be wary of fads
Buying deeply into a fad or fashion product that will stop selling suddenly is a dangerous game. Don’t invest in high levels of stock if the demand may suddenly drop off.
Negotiate terms carefully
Try to negotiate terms that will allow you to sell the stock on before you have to pay for it. If you have 90 days to pay your supplier, and your customers pay cash on delivery perhaps you can clear the stock before you pay for it?