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Must add value19th of September 2012
ECJ editor Michelle Marshall speaks to Keith Baker, director of European services at industry trade association ISSA, about the changing role of the distributor in today’s marketplace and opportunities for the future.
Keith Baker has spent virtually his entire career in the cleaning and hygiene industry. He worked for a major chemicals manufacturer before running his own products distribution business. He then served as chairman of the Cleaning and Hygiene Suppliers Association (CHSA) in the UK and trade association ISSA Europe. Since 2008 he has been director of Europe, Middle East and Africa services for the US based ISSA organisation.
He is well qualified then, to share his views about distribution businesses in the professional cleaning industry - how they have had to adapt to so much change and where their future success may lie. In the past 10 years alone Baker says he has seen enormous shifts in the sector.
“Within 10 years we’ve had the prosperous times, when distributors were enjoying very good margins, then we’ve been faced with the commercial reality of more difficult economic conditions. This has led to a real need for businesses to be more commercially savvy,” he explains.
There are a number of reasons why this is so crucial. "Distributors are encouraged by manufacturers to buy container-loads of product, for example. They may offer significant discounts as an incentive. So the distributor will buy a container full of product, then break that bulk down many, many times – sometimes hundreds of times. The distributor’s risk is then spread around many customers and he must handle invoicing and collecting payment.
"Meanwhile the manufacturer is issuing a single invoice and expects payment to be made within a determined period of time. If distributors do not manage that whole process well – credit control, cashflow etc – it becomes a real problem. And manufacturers do not always understand the significant financial risks distributors must take.”
One of the other key challenges distributors have faced in recent years is erosion of margins, which has led to much price cutting in the industry. "Those that don’t compromise on price have to justify that by providing real value to the customer," Baker believes.
Add to this the fact those customers can now choose to buy their cleaning supplies from numerous general websites - office supplies for example - at much lower prices, and the value proposition becomes an even greater focus.
It’s this added value that Baker sees as being critical to all successful distributors in today’s marketplace. “A distributor that truly understands cleaning processes and has deep knowledge of the products involved will bring real benefits for everyone – the end user, the distributor and the manufacturer.
“In some cases that aspect has been lost to a certain extent as prices have been squeezed so hard. However it’s so important because end users don’t always fully understand the applications for different products and what those products are doing for their business. They rely on the knowledge of the distributor. That’s where the interface between manufacturer, distributor and cleaning contractor can be so valuable.”
Baker explains the vast majority of end users are now supplied by distributors. “Contractors can deal directly with the manufacturer in terms of their relationship, with a logistics agreement in place for delivery, etc at an agreed margin for the distributor. But invoicing the client is often done by the distributor, which brings yet another risk.”
Successful distributors are beginning to specialise in certain sectors - HORECA for example - whereby they sell a range of products covering all the needs of those businesses, alongside cleaning solutions. Office supplies companies are increasingly selling cleaning products, for example. “I believe specialisation is the key to success and survival. You must focus on what you want to achieve and understand your market.”
Another issue distributors must face when handling products from foreign manufacturers is the regulation surrounding imports. “They must also contend with the fact that most overseas manufacturers want to fill a container with product in order to make it more economical to send, but for the distributor that may just be too much for his business. So the manufacturer wants to move huge volumes of product while the distributor wants small consignments. It's easy to see why the relationship can be an uncomfortable one.”
To Baker this demonstrates the very real need for greater understanding between manufacturers and distributors about each other’s businesses and particular challenges. "They could do much more to communicate," he says. "For example many manufacturers have the perception that distributors make a large amount of money – that’s simply not the case. It is often the distributor that loses out on margin.
“When relationships work well they can be very successful but when they don’t it can be very costly for the distributor involved.”
In Baker's opinion the distributor is at the very heart of the relationship between manufacturer and the end user. "Most manufacturers are simply not geared up to deliver to small customers anymore so the role of the distributor is pivotal. The distributor is often responsible for advising end users in product choice, and can be the eyes and ears of manufacturers and contractors when it comes to gathering information and communicating trends for example.
“There is so much that’s good about the relationship between all three when it works to its full potential.”
The more knowledge the distributor has about products and cleaning processes, the better says Baker, and he believes manufacturers have a key role to play in achieving that. “Manufacturers should have a strong enough relationship with their distributors that they train new staff: they should be driving distributors to become better qualified and better equipped. In turn the distributor can then pass on better advice and knowledge to end users about methods and products.”
Communicating innovation into the market on a practical level is a significant challenge for distributors, Baker adds, and they are speaking to customers on a local level in a way manufacturers simply cannot do. “That’s what makes the role of the manufacturer so important – in training distributors’ staff rather than simply introducing new products to them. Sales training is also a key skill that requires improvement."
In Baker’s opinion the relationship between manufacturer and distributor must grow closer. “They must work together better and build a greater understanding and appreciation of each other’s businesses. They may appear to be strange bedfellows but they really do need each other.
“In turn, distributors must work smarter. There has certainly been some contraction in the market but new opportunities are always arising and good distributor businesses will not be under threat. Margins are under pressure but those that compete purely on price will not have a future. What it comes down to is providing value and knowledge to the end user.”