The vertical approach to lubricants distribution

The lubricants distribution business will sooner rather than later follow in the footsteps of the fast-moving consumer goods sector (FMCG), in the sense that the producers will be in control of the entire distribution chain so as to offer their products at the most competitive rate as well be in the position to respond to market signals.

The old distribution model, whereby the distributor is a wholesaler who is located at a given territory and attempts sales mainly based on a first come first served basis, ignoring market trends and statistics is fast approaching its expiration date. We can claim that such a distribution model belongs to the past or in under developed parts of the world.

By observing the current market, distributors- wholesalers are put under pressure by service providers hired by the producer, who are completely aligned with the latter’s policies and mode of operation. As a result, producers prefer those service providers than distributors- wholesalers who are not under their control and do not operate as their business partner.

What is the reason behind this situation?

In my opinion, the main reason is the unwillingness of the distributors- wholesalers to provide vital and accurate sales and market information as well as their customer base to the producer, in fear that the producer, having acquired all information, will take over their business.

Regardless of anyone’s opinion on the matter, the producers have already begun operating in such a fashion, not because of greed or a hidden agenda to dethrone the distributors- wholesalers, but rather because an organized market requires the streaming of information to be processed promptly so as to allow the precise planning and strategy formation of pricing and placement against the competition.

The bottom line is that the producer and the wholesaler must operate under a common policy, whereby their interests are aligned, and exchange of information and data will allow them to grow simultaneously. In a sense, the producer and the wholesaler are best served operating as they are the same company.

The reality, however, is far from this ideal situation. Distributors- wholesalers operate independently, based on their level of expertise which we can claim is rather limited when compared to that of a multinational producer. The results is slow reactions to market stimuli, inefficient processing of sales statistics and pricing policies which lead to downward spirals.

What does this mean for distributors- wholesalers?

In order to survive and thrive, a distributor-wholesaler must adapt and transform their business model to one of the following two proposed below:

  • First business model is that of third-party logistics (3PL). Allow me to comment at this juncture that logistics are perceived by most as transport companies, but that gives an extremely limited scope of their overall operation and importance. A logistics company plans together with the producer how merchandise is acquired, stored and transported, functions that are vital to the overall supply chain of the producer. If a wholesaler takes the plunge and converts to 3PL for (one or more) producers, they can jointly expand a distribution network in a profitable and predictable fashion.

  • The second proposed business model is retail sales. Retail sales is the holy grail as far as producers are concerned since it allows them access to the final consumer. A wholesaler that has access to retail will inevitably become indispensable to any producer. However, retail can develop successfully when production, packaging, logistics are already running in sync.

Finally, a word to the wise: invest in constantly developing your skills and those of your employees. That advise concerns technical knowledge, sales techniques, statistical analysis and targeted application of marketing resources.

Our experience as a management company has revealed that the majority of distributors- wholesalers lack structure and any kind of planning.

And let’s face it, like can cooperate with like. A chaotic, unstructured local company could never partner with a structured multinational corporation.

#activ #management #lubricants

96 views0 comments