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Distribution mechanics: why do vendors work with distributors?
A question I am asked surprisingly often – sometimes by a reseller, sometimes by a new employee, and occasionally even by vendors: »Why don’t vendors simply sell...
A question I am asked surprisingly often – sometimes by a reseller, sometimes by a new employee, and occasionally even by vendors: »Why don’t vendors simply sell directly? That way everyone saves the distributor’s margin.«
At first glance, it sounds perfectly logical. In reality, it is not. And the reasons are very tangible – in fact, they have surprisingly little to do with the margin itself.
Let us imagine a vendor wants to serve the European market directly. Instead of dealing with a handful of distributors, it suddenly has to manage several thousand small- and medium-sized resellers. Every one of them requires a credit assessment, payment terms, invoices in local currency, a contact person who speaks their language, the occasional payment reminder – and every now and then one of them defaults altogether.
Vendors have done the math. Managing all of this can cost up to 14% in margin, whereas efficient distributors typically provide the same service for less than half of that. At this point, it is no longer a product business – it is a banking business. We absorb precisely that risk and administrative burden on behalf of the vendor. Instead of dealing with a thousand potentially unreliable debtors, the vendor has just one customer that pays on time: us.
Then there is the logistics aspect. The vendor prefers shipping full pallets to a single destination. A reseller, however, may only need three printers and a handheld of devices – and they need them tomorrow. Breaking down large shipments into individual units and dispatching them daily to hundreds of recipients is the so-called »last mile« of distribution. Vendors generally have little interest in doing this themselves. We do.
The distributor also plays a critical role in large projects. Shipping 10,000 terminals may sound straightforward enough, but by the end of the project the customer often wants twenty separate deliveries of ten cables each to different locations. Someone has to manage that complexity.
And the list goes on: local sales teams in every market, technical support, RMA processing, configuration services, bundled solutions, reseller training and enablement. A vendor’s field sales team can economically focus on major end users and large-scale projects, but it cannot afford to spend significant time supporting a reseller who purchases €8,000 worth of products per year. The numbers simply do not add up. We provide the reach needed to access the vast majority of resellers.
Another way of looking at it is this: vendors are experts at designing and building products. We are experts at bringing those products to market thousands of times over, in small quantities, on credit, across 22 countries. These are two entirely different disciplines, each demanding full attention. A vendor attempting to do both will usually struggle with one of them – often with the very thing it does best: developing products.
And of course, there is the balance sheet – arguably the most important point of all. By working through distribution, vendors remove receivables and inventory from their own balance sheets and transfer that burden to the distributor.
The distribution margin, therefore, is not a fee. It is the price paid for having someone else provide the capital, absorb the risk, manage the logistics, and execute the market coverage that the vendor would otherwise have to handle itself – only at greater cost and with less efficiency.
Anyone who asks the question about direct sales usually does so only once.
Because one simple truth remains:
»You can eliminate the middleman – but you cannot eliminate the work.«
Compromise is the enemy of excellence
There is a word that, in many companies, is seen as a sign of maturity: compromise. You meet in the middle, everyone gives a little, everyone gets a little....
There is a word that, in many companies, is seen as a sign of maturity: compromise. You meet in the middle, everyone gives a little, everyone gets a little. Sounds fair. But it isn’t. Because a compromise is usually nothing more than the organised defeat of the best idea.
Compromises rarely arise because two options are equally good. They arise because no one wants to endure the conflict. Because the clock is ticking. Because the courage is lacking to clearly say: this solution is better than that one. The result: mediocrity prevails. A compromise feels safe. It isn’t.
Excellence sometimes means making uncomfortable decisions. Clearly stating what you believe is right. Not hiding behind »we’ve reached an agreement«.
At Jarltech, we strive to ensure that the best solution always wins. Not the most convenient one. Not the loudest one. The best one.
And if that means we occasionally ruffle some feathers – we’re perfectly fine with that.
Why do we operate a 3,000 m² Event & Training Centre with a showroom in the middle of nowhere?
First of all: what are you thinking? Usingen is, of course, not in the middle of nowhere – it’s less than 30 minutes by car from Frankfurt Airport....
First of all: what are you thinking? Usingen is, of course, not in the middle of nowhere – it’s less than 30 minutes by car from Frankfurt Airport. And yes, the Usingen railway station is right next door. More importantly, our Event & Training Centre is located almost directly beside the Jarltech campus.
So why do we do it? We do it for you – our partners! Our two-story Showroom, the largest permanent exhibition in our industry, is constantly in use:
- by partners who present hardware and their own solutions to end customers
- by new employees of partners whom we train on the products
- by vendors who hold their sales meetings with us and like to have a look at – and even try out – competitors’ products
- by vendors who present their latest products
On top of that, we host numerous events in our Jarltech Event & Training Centre where partners invite their end customers… large presentations on the 25 m² video wall, dinners with up to 800 guests (standing) or 250 (seated) at round tables, buffets or relaxed gatherings in our beer garden, bar and lounge. For meetings, there are also eight meeting rooms available for breakout sessions.
And, to be honest, we shouldn’t forget that we also use it ourselves – for training sessions as well as for celebrations. From the Jarltech Summer Party to the Christmas Market, networking dinners or our after-work events. We’ve had just about everything in the hall already: from a go-kart track to tightrope walkers to whisky tastings. And one regular guest every year: me, as Father Christmas.
So, you see – yet another value add from Jarltech that helps drive your business forward. By the way, the Showroom is also available virtually on our website. See you soon in Usingen! And be sure to think about how your company can profit from our investment.