How Producers Choose Their Distributors by pengxiang


									How producers
choose their
Financial stability, environmental compliance,
compatible product lines and strategic stocking
locations are cards vroducers want to see on the table
By John Conway / Senior Editor                                                     ducing the distributor base is never
                                                                                   easy, but that by concentrating on
                    In the past five     mental pressures as they do with          fewer distributors Texaco has be-
                    years, the chemi-    economics, geographic locations           come more efficient in its distribu-
                    cal distribution     and product lines. Distributors also      tor sales.
                    business has un-     say they are being more selective            Though not actively looking to
                    dergone some         about entering into agreements for        reduce its distributor base, Burdon
                    changes: Consoli-    the same reasons.                         of Dow Chemical says the company
                    dation, foreign         ”In general, we have fewer and         has discontinued working with
ownership of domestic firms and          more concentrated relationships,”         about seven distributors over the
U.S. distributors establishing them-     says J. Thomas King, vice president       past three to four years. “We have
selves in Europe are among the           and general manager, Industrial           a fairly active and organized survey
more significant developments.           Chemicals & Solvents Div., Ash-           program for distributors,” Burdon
   “I think we’ll see in the next five   land Chemical Co., Columbus,              says. He says the long-term goal of
to 10 years as dramatic a shift in       Ohio. King says Ashland’s objective       the survey program is to encourage
dynamics in the distribution busi-       as a distributor is to be viewed as       Dow distributors to assume a
ness as we’ve ever seen,” says Tim       an extension of a manufacturer by         greater product stewardship re-
Burdon, director of distributor          establishing close working relation-      sponsibility.
sales, Chemicals and Performance         ships, or partnerships, with them.           Douglas Clendaniel, director of
Products, The Dow Chemical Co.,             “Not to overuse the word, but          water chemicals group and for-
Midland, Mich. ”One thing is that        there is definitely an emphasis on        merly manager of distributor mar-
the industry is becoming more            partnerships,” says Thomas G.             keting, General Chemical Co., Par-
global. But what this and other          Fisher, distributor sales manager,        sippany, N.J., says the company
changes all mcan, I don’t know.”         Texaco Chemical Co., Houston,             used about 250 distributors in
   What manufacturers and dis-           Texas. “If you’re truly dealing with      1989-90; today that number is
tributors do know is that the rela-      partners, it is easier to have open       down to 160. ’/We took the posi-
tionship between the two has im-         communication and share informa-          tion that we had too many distribu-
proved over the past several years.      tion with a smaller number of dis-        tors out there,” he says.
“The relationship that exists today      tributors. It benefits both the dis-         ”We just didn’t feel all these dis-
is rapidly becoming seamless,” says      tributor and manufacturer.”               tributors could grow with us,”
James W. Bernard, resident and                                                     Clendaniel says. He says General
chief executive of icer, Univar
Corp., Seattle, Wash. “And the rela-
                                         Reducing the distributor base
                                           Fisher says Texaco Chemical has
                                                                                   Chemical recently added two dis-
                                                                                   tributors so, although the company
tionships are more strategic today       cut its distributors by about 30%         may be reducing its base, it also is
than they have been in the past.”        in the past 18 months. While com-         looking to add qualified distribu-
   Strategic in the sense that manu-     fortable with the current number          tors. He says when the company
facturers are working with fewer         of distributors, he says it is possible   reevaluated its distributor base in
distributors, and these decisions        that a few more distributors will be      1988-89, it did so by having dis-
have as much to do with environ-         released in the future. He says re-       tributors fill out a three-page ques-
24   CPI Purchasing/lune 1992
           Cutting the cost of shipping small packages
  T    o control the costs of trans-
       porting small packages, ship-
  pers may want to look at some
                                                                                                             services. They can repackage
                                                                                                             shipments, shrink wrap materi-
                                                                                                             als, pick and mix products to
  strategies that have existed for a                                                                         send to a single customer, and ar-
  long time but have not been                                                                                rang$ for the lowest-cost trans-
  widely used. These strategies in-                                                                          por ation services.
  clude dropshipping, pool distri-                                                                              ‘&e tie into the consolidated
  bution, public warehousing and                                                                             frbight program,’’ says one small-
  third-party logistics services.
  Supping strategies
     The terms dropshipping and
                                                                                                             P  ckage shipper in Oregon. “The
                                                                                                              esult is we share the price bene-
                                                                                                             fits of larger volume shipments.
                                                                                                             These discounts actually pay the
  pool distribution often are used                                                                           cost of our warehousing.’’
  interchangeably, but there are

                                                             There *sgrowing /
  two distinct processes involved.                                                                           Using third-party services
     In dropshipping, intermediate                                                                              Many small-package shippers
  deliveries are made from a full                               inte est in /                                also are seeking the help of firms
  truck or railcar moving between                            dropshi ing and                                 that specialize in third-party lo-
  two points. For example, a ship-                                                                           gistics, says Cutrona.
  per may have multiple small                                pool dist ibuti$n,                                These firms act as consultants
    ackage shipments to six cities                                                                           to the shipper to augment their
  E etween New York and Atlanta.
  Instead of aying for six less-
                                                                                                             transportation function, not re-
                                                                                                             place it, says Robert Lake, presi-
  than-truck oad shipments, the
  shipper reduces costs by paying
                                                                                                             dent of Roadway Logistics Sys-
                                                                                                             tems in Akron, Ohio. Roadway
  the truckload rate from New                                                                                works with each customer to de-
  York to Atlanta and drop-off                                                                         r     velop a data base which outlines
  char es for intermediate deliver-                                                                          the customer’s shipping patterns.
  ies ong the way.
     In pool distribution, several
                                                                                                                “Once we have the data base,
                                                                                                             we bring to bear a mix of services
  shi ments are collected into a                                                                             to meet the needs of the custom-
  fulf truckload, linehauled to a                                                                            ers and the businesses they are
  turned over to one or more re-
  gional carriers for local delivery.
  For example, a shipper or a group
                                                                                                       ‘.      The shipper receives savings in
                                                                                                             both transportation and operat-
                                                                                                             ing costs. In an extreme example,
  of shippers in New York could                                                                              Lake tells of one shipper who had
  linehaul several shipments to the                                                                          70,000 annual transportation
  immediate Atlanta area and then                                                                            transactions with a total of 300
  turn them over to local carriers                                       on schedule                         carriers. The company now uses
  to be delivered to their final des-                       96                                               26 carriers and receives one
  tination. Again the shipper saves                         94                                               weekly billing from Roadway.
  by paying the f h l truckload rate
  for most of the shippin distance                          92
  and the less-than-truck oad rate
  only for the local delivery.
                                     f                                                                       Diana G. Kessler is Managing
                                                                                                             Editor of CPl Purchasing. She
                                                                                                             holds a Bachelor of Science degree
    Joseph Cutrona, executive di-                                                                            in chemistry from Lowell
  rector of The National Small                                                                               Technological lnstitute and has
  Shipments Traffic Conference                                                                               done graduate work at the
  (NASSTRAC),says shippers of                                                                   ‘1992        University of Lowell. She has
  small packages also are showing                                                                            experience in the chemical
  more interest in the use of public

On-time shipment rate data come from a monthly survey of 500 purchasing profes-     lished here may be reproduced only with written permission from the editor of
sionals in the chemicallprocess industries conducted by CPI Purchasing. Data pub-   CPI Purchasing. QCPl Purchasing 1992.

                                                                                                                       CPI Purchasingllune 1992 23
pete. But we, as manufacturers,                                                 cal C i . , Kingsport, Tenn., says it
have to live with the same laws, so                                             is counterproductive to have dis-
we are in the boat together.” As an         Environmental                       tributors too close together in one
example of how environmental             soundness is a must.”                  geographic region. “We certainly
regulations have changed the game,                                              are careful not to overload one par-
Clendaniel says at one General                                                  ticular area,” says the spokesman.
Chemical lant the number of cer-                   Thomas G . Fisher               With 34 plants in North Amer-
tificates o analysis processed has
risen from an average of 25/day to
                                              distributor sales manager
                                                Texaco Chemical Co.
                                                                                ica, Clendaniel of General Chemi-
                                                                                cal says it is impossible for his com-
12O/day in two years.                                                           pany to cover all surrounding geo-
   ”Environmental soundness is a                                                graphic locations. “We can’t service
must,” says Texaco’s Fisher. ’/We                                               everyone, particularly on the LTL
are much more critical on routine        closer working relationships be-       (less-than-truckload) shipments,’’
visits than we used to be, and this      tween manufacturers and distribu-      he says. But he says that is where
is mainly due to environmental           tors. For example, it is more impor-   distributors specialize, and that
concerns generated by internal           tant than ever that manufacturers      since General Chemical has had
standards as well as by legislation.’’   know their materials are being used    long-standing relationships with its
He says Texaco Chemical tries to         correctly and that the proper infor-   distributors, the company feels it
                                                                                      CPl Purchasingllune 1992 25

    is well represented.                     Other checks include whether or       Within Responsible Care there is a
       “Product lines are still important,   not the coinpany owns or leases its   Distribution Code that addresses
    though,” he says. “Take soda ash.        equipment and making sure the dis-    the safe transportation and storage
    There are six producers, and if a        tributor is properly insured.         of chemicals as well as provisions
    distributor is buying from four of                                             for sharing information with out-
    those producers, my odds of him          Protecting the buyer                  side distributors.
.   selling my product have been re-            In addition to these steps, Clen-    Ashland Chemical has a unique
    duced right off the bat.” He says        daniel says it is a good sign for the perspective on Responsible Care
    most distributors today are multi-       distribution industry that members and its Distribution Code since the
    source, but it is important to know      of the National Association of company is both a producer and a
    how many suppliers they are deal-        Chemical Distributors (NACD) distributor. James Duquin, vice
    ing with on specific products.           have adopted the Responsible Dis-      resident of distribution services
      Manufacturers also want to en-         tribution Process as a condition of for Ashland, says these efforts en-
    sure that distributors have a high       membership. The Responsible Dis- courage companies to be pro-active
    level of technical competence. East-     tribution Process is based on the rather than reactive. “We work
    man Chemical runs technical semi-        principle of the Responsible Care with suppliers to satisfy their objec-
    nars and training sessions for its       Initiative of the Chemical Manu- tives,” he says. King,’Ashland’s vice
    distributors, as do other producers.     facturers Association (CMA),but it president, sits on the CMA’s distri-
      Though not a concern for the           is designed for distributors.         bution council and says a new self-
    larger, national distributors, Clen-        CMA members, including Gen- assessment protocol will be added
    daniel says it is important when         eral Chemical, DOW,Eastman and to the Distribution Code.
    dealing with smaller, independent        Texaco, account for more than 90%       Currently, many manufacturers
    distributors to learn of a succession    of the industry’s basic chemical audit their distributors, and one of
     lan in the event that the owner/        production capacity, and support the intents of this protocol is to fur-
    founder leaves the company or dies.      the Responsible Care Initiative. ther protect the ultimate buyer.

    26   CPI Purchasingllune 1992
Texaco Chemical evaluates itself          mation systems,” he says. “Talking   likely to occur, and business is al-
against the Distribution Code and         and working electronically is an-    ready being conducted on a global
distributor performance will even-        other way to be more effective.”     basis. Says General Chemical’s
tually be evaluated also. “We have          While the distribution business    Clendaniel, ,‘AS the industry be-
  ut on product handling seminars         continues to work hard to become     comes more quality orientated, the
Por the distributor and check to
make sure they are handling
                                          more effective, the general makeup
                                          of the, industry continues to
                                                                               distributors will become more se-
                                                                               lective. The quality companies will
                                          change. More consolidation is        gravitate toward each other.”     0
MSDSs material safety data sheets)
correct y,” says Fisher. “All of
these things are done to protect the
ultimate buyer. ’ I
   Fisher says Texaco Inc., the par-
ent company of Texaco Chemical,
is developing product stewardship
guidelines. The two areas where
Texaco is beginning the program is
in employee awareness and with its
chemical distributors. “This is
partly because of CMA’s highly
publicized attention to this area,
and partly because of the distribu-
tors’ importance to us,” he says.
A look to the future
   Over the past several years dis-
tributors have tried hard to gain
greater recognition within the
chemical industry, and, by most ac-
counts, they have succeeded. And
there is little doubt that environ-
mental pressures and uality pro-
grams will continue to oster closer
working relationships between
manufacturers and distributors.
   “I think there needs to be more
open communication between us,”
says Fisher. “The distributors need
to go after the business that we can-
not reach. And we need to use their
sales force as a true extension of
our own.” He says manufacturers
need more feedback on how the
  roducts are selling, and what the
&qers in the field are telling the
distributors. Fisher feels that dis-
tributors are becoming more selec-
tive with the suppliers they take on,
and that this can only improve busi-
ness relationships.
   Dow Chemical’s Burdon says the
trend in business is to do more
business with fewer eople, and
that this will only bene it the distri-
bution business as well. “We’ve
never been of a mind to do business
with everybody,” he says. “We re-
alized a long time a o that we can’t
be all thin s to a1 people, and I
think distri utors are realizing that
they can be more effective with
fewer suppliers.”
   He says distributors may act on
this trend more rapidly than some
manufacturers are prepared for,
particularly as everyone in business
strives to become more productive.
“Another area where I expect to see
some change is in the use of infor-
                                                                                     CPI Purchasingllune 1992 27

To top