Project Experience

Manufacturing…Value-added Services Are Often Essential To Distribution

Client Situation
In an effort to cut costs, manufacturing companies have turned to outsourcing. Make versus buy issues, addressed carefully, can save millions of dollars in overhead and direct labor. However, outsourcing of services tied to distribution may not always make sense for a manufacturer. Electronic distributors, struggling to differentiate themselves from one another, have included value-added services as a part of the package to their suppliers. Distributors not only inventory and ship product, but also provide technical expertise, kitting, assembly and other revenue-generating services. In one instance, we were asked to investigate the rumor that a European distributor, selling in the U.S. through a network of regional distributors, was in the process of taking its business direct in order to undercut our client on price.

Fuld Approach
After interviewing several competitor sources and developing an understanding of this firm's pricing structure, we discovered that the competitor had no intention of engaging in this strategy. The relationship between company and distributor was very strong, as was the relationship of distributor to end customer.

Benefits and Implications
As a result, such a strategy would be difficult to implement, and would undermine customer confidence and eventually damage sales stability in North America. Our information not only dispelled the rumor, but also gave our client insights into the likely failure of this possible strategic move. For more information on research into the area of channel strategies and distribution in the manufacturing industry, contactnbulger@fuld.com.