Efficient Distribution-ls lt Over or Just Beginning?

(Rcmarhs ot' Ham.,illon linott, I'rc.ridcnt ol Ilrc Lttrnbcr Merchants lssociotion, to tltc Notittnol Ruildirtq l[atcrial Distrihutors tlssociation mcctirt.q, Sc[,t. 12, 1957, itt So,t Francisco. )

The assignecl titlc for this <liscussion, "llfficicnt Distribrrtiorr -ls It ()ver or Just Jicginnirg," pr".uures that thc ltresent channels of distribution arc efficicnt. An<l I, for one, clo lrlievc that the prescnt line of distribrrtion frout n'r:u-ruf:rcturcr tti u,holesaler to retailcr, as rvc havc linowl-r then-r in thc past, is "eFficicnt" clistribution. In answ.cr to thc cluestion, "Is it ovcr or just beginning?" I rcgret to report tl.rat ntany <lealers feel that the prcsent channels of clistrillution :rrc rapi<lly cleteriorating. \Ian1. forces, sr-tch as changrs in s:rles policics of sorne m:rnufactttrers ancl of sorrc rvl-rolcsalcrs, har,e bcen n'roving rapidly in rccent vcars to brcak dou'n thc sr,stcnt of <listribution of building matcr:ials, lts u'c have lirr,rvn tl.ris systenr ir thc 1xrst.

As retailcrs rvc pcrforrn dcfinite functiorrs irr nr:tintaining ;r stoclt ancl iloing a selling job, ancl naturallr' fcel that our position is justificcl. It is a corrstant source of corrr--crn, therefort', u'hen u'c sec solnc in<lication of a brcal<cion,n irr thc rrsrral tlistribution pattcrn. In our tou'rr of Iirt'sno, roofing, flooring anrl insulation apltlicators irrc 1to\\- solcl :rs rlcalcls or ('vcll as <listributrlrs. Sornc plr'u'oorl horrscs scll to anlrorrt' u'hri cl:rirns hc l-ras a cabinet shop, regarcllcss of sizt' or :rctilitr'.

X'{anv of tl'rcsc cabinet shop custonl('l's irrr actrr;rl11' contractols {)r carl)cnters n'ho tlrlit'arlvant;rgr of tlt'is anglc to br-r1, plr.tr-oorl stttr-flooling or pl-yr,r.ootl roof-sht,aLlring, as n'ell as <loors anrl parreling, at tl-rc rvholcsalc lcvcl for thcir o\\'n constmction jobs.

A roollng crlstonter T onct'soltl sparinel_1,, rluc to his r-err. linrited crtrlit, non,buvs tlirectl,r, Irorrr sornel)otl-r'in jolr lots a-\ :r <listrilrutor. Althorrgh ht sells no r)n(', hc rlrit,s rrsc r;uitc:r" volurlc of nratcri;rl, lrut u'orlis:rt a 1l'icc th:rt lrrirrgs hint littlc or no prolit.

,,\s t'rclLr trs I can cleter-rtrinc. hc still htrs rtothing ltut trvo shing-le h:Ltchets, and owes me for one of them. \-E1'llIS llL-\'IN(; I'O\\-l,llt

IS St,l'lrlilOIi 1'O \IlNI,..

Irr liresrro, as in rrost cornrrrrrniiit's oI its sizr., tlrt'krcal lrrnrber- tlealcr h;rs lc-,ng- lrcrn lccognizcrl as the nornr;rl orrtlet for shingles, oali flooring, antl insulatiorr. \\'r lrought llrcrrr in c:rrloa<l lots anrl soltl thcru irr rlrrantitit s vrrr-r'irrg fronr lr saclt or br,rr-rtllt to lr c:rrloa<1, ils uul'cLtstonrt.rs rt'tluirt'rl, anrl rrrost of ns <licl :r satisfactorilv creativc job oi sclling.

Nou'r'nan1'of rrs <1o no1 t'r,en stoclt anv of lhcsc itenrs. \\'t' have ltlst al1 of this lnrsiness to 1l1c;slr1rliclri,,r-s n'ho arc rrolv solrl <lircctl,r' bt' the nranufacturt'r. Sincc nrost of oru- local applicators arc in thc habit of ch:rrging fol tl'reir lalror, btrt tossing in thc rnaterials at cost,'it actrr:rllr, puts e\.clr orlr consrlnrrr c1lstomers in the positirtr.r of bu,t'ing,- at thc s:tr.ne atlvantagt.u'e clo.

We look hopefully for some sign of ahalt in this march to break down our present channels of distribution, but it appears to me that it will get much worse unless there is a "change of heart" among some manufacturers and rvholesalers. fn the near future I fear that ali gypsum products may go completely around us. Even plywood might some day disappear from our stocks. Nails in quantity, wire products and metal roofing are already rapidly fading from our market.

Tt is trrre tl-rat:L great part oi the responsiltilitv ior this trcnd falls rriton the shoulclers oi the retailer himself. \\ e I'rave lost a lot of business siurplv bccause u'c havc failed to clo a satisfactory selling job antl ,,trr: srr1,1,liels lost confirlencc in ns. Sonre n'holt'salers ancl jobbe rs have contributerl greatlv b1' grabbing dcsircable salcs prescr.rtccl to them regarclless of thcir sourcc. In their eagerness to gct urore business, they hiLvc stretchecl thcir imaginations as to u'hat may bt' callecl a dealer or an "indrrstrial" accorrnt, antl in sr)nre cascs have furtir.elv or openly gone after consumer business.

Sorlc manufacturers, on th,, lreels of hugc plant cxp:insions irnrl const'cluerrt grcat increasrs in ltrrtrlnction, lravc t'xertctl consi<lcrabk prcssLlre on their riu'n sales force ancl on their jobbers to sell r-norc and more and ntore. (lt't ntorc sales-:rncl let thc chips fall r,v'hcrc they mav, h;Ls becn a too frerlnent littitucle.

Sonte econon.rists n'ray contenrl th;rt this, after all, is a gootl trtncl. 'fhc'1' say that there ilre too ntany nriclcllerlen in orrr present systenr of rlistribution, ancl that the prcsent lincs shoultl be shorteneil :urcl strcanrlint.tl. J|1' this t-liniin;rtion, thcy argut n'rerch:Lnclise calt reach the consunter lrt a lcsser cost of distribution. 'l-hc unit of sale shoul<l lrc tlre <lctennining factor, thcv tcll rrs. Ilut sttrrlv lvc, il'ho are :Lctn;Lllt, involvctl, cannot bt'lit'rt' tlris 1,, l,t. rrt.t'es.:rrill' rrut..

'\s att examlllc, lct us :issrlnr(,, for thc rnomrnt, that all gypsttnr n.lrnnfactrrrcrs shoLrl<l clrcirlt. Lo scll tlirectly to anyonc u'ho cun btl' :r frrll c:rrloarl, or rr,en a pool car. In rny ow'n srnall ltrtsinrss I have :rt least tt'n crrston.rt'rs I carr call n'rv orvn rvho :rre pott'ntial br"r1'ers of lrlasterlurzLrrl in this rluaniit-r'. tr[;rrrrothcr lrrurlrcr rlealcrs h:rve nrore.

So. if our ctlstontcrs bu1' <lircctlr, frour the manufacturer, lct us :tnalyzt the nr:rnufacttlrcr's n('\\' costs to r'lcterntine u'hat aift'ct it lvill hzrve on the hn:rl cost to thc crrstomcr.

Instead of, let's say, a dozen customers in our area he now calls upon, the manufacturer must then theoretically contact regularly at least ten times that rnany potential customers, and presumably would have to increase his sales personnel about ten fold to make the necessary contacts.

Crcrlit antl collection costs rvorrlrl :rurounI to ntor-c thatr a ten-folrl increase bccaust' tlre iLvcragc crcrlit rislt n'onl<l bc rluclr gr('iIt('r. All this a<lrlitirrnal (,xl)ensr: n,,ulrl lrc rt'qrrircrl to scll the s:rme voltrrne oi n-rerchirn<lise.

In contrast to this, uncler thl I)r('sc1tt svstent, rlistribution costs for br-ril<ling rn;Lte li:r1s art' less lrrcrrrrs,.' lurnber <lc;rlcrs arc in dailt, cont:rct r,r'ith thcsr custoni('rs. 'l'hus. u't' scll thcnr morc t'flrcit'itl-v bec:rttse u'e lirton' u-l.ra1 tht'1, zLrc rloirrg anrl u,lrat thcir nt'erls art going to be. \\'r catr u':rtch tlrcil cre<lit closcr lrccausc \\'c :rr(' in nrore irrtimatc contact u-ith tht'ir orolrlcr-r'rs.

I tlrirrli it is rluite obvious in this h,,'pothetical cirsr.tlr;rt s()callcd "<lircct srrlt's" n'oulcl resrr'lt in lr rrrore costlr. sr-stcni of rlistribrrtion, an<1, of coursc, a lrigher cost to thc consrrrnt'r. (ircater costs \\'ou1(1 bc iner.italrle un<1t'r this t'xamolt: bec:rusc of a S-reat loss of clficicncr'<luc to costly ancl ric'...llrss rlrrlrlication of scrvicc an<l cffort. I,-ach of us, rctailer, u,holes:rlt'r :rncl nurnufactttrer, h:rs cert;rin costs in proportion to the scrvice pcrformcd in thc linc of rlistlibrrtion.

As soon as one segment tal<es ovcr tl're scrvice of auothcr, it also assumcs the cost of this scrvice. Such costs irr nrost casts u.ill be grcater simplv becausc thc-r' cannot be hanillerl as eflicicntlv as in thl Dresent s)'stent.