Supply Chain Management: Defining Supply Chain Opportunities

EXECUTIVE INSIGHT

Companies that work together in supply chains conduct an ongoing discussion about the value perceived and paid for between supply chain partners. The balance of power in the supply chain is always being explored.

Walt Dethlefsen is the executive vice president of Network Services Company. Network Services is a distribution organization that handles a bundle of products that includes printing paper and paper products, food service disposables, and janitorial supplies. Network Services participates in the supply chains of customers such as Starbucks, Baskin-Robbins, 24 Hour Fitness Clubs, and Premier Health Care. The company distributes the products of manufacturers such as Georgia-Pacific, Kimberly Clark, Johnson Wax, 3M, and Rubbermaid.

One of Walt’s main activities is to manage the relationships that Network Services has with its suppliers. His work gives him a firsthand view on a weekly basis of what it means to work in evolving supply chains with demanding customers and manufacturers. “Big manufacturers used to have the most power but that is shifting towards the big customer. Big customers now go directly to the manufacturers whose products they want to negotiate prices on and then they go to the distributor and negotiate the cost for product delivery.

“The distributor often has the least power now. For years the distributorwas in the middle and could negotiate with both sides—the customer on one hand and the manufacturer on the other. There were distributors who did a very good job negotiating with one or the other and sometimes both parties.” Customers these days have many choices in what they buy and are very successful in driving down prices. Manufacturers are also able to use many different channels to market so they demand greater and greater performance from the distributors they work with.

“The only distributors who are able to defy the price squeeze andmaintain reasonable margins are the ones who are able to create abrand. Typically they recreate their whole company into a brand. The brand stands for all the products they sell plus everything else that they provide for the customer. When the customer buys from them they know that trucks will show up at the right time with the right stuff, that they will get quality products and top notch customer service, all at a fair acquisition cost.”

The power of the distributor in a supply chain depend very much on the type of manufacturers that they work with. “I would say we work with three kinds of manufacturers,” says Walt. The first kind is the brand name manufacturer who has a retail consumer side of their company as well as a business-to-business side. “What they mostly expect from the distributor is logistics and customer support in the field.”

The second kind of manufacturer focuses mainly on the business-to-business market and views the distributor as their customer. “They are generally selective and will only sell to distribution that gives them a lot of participation. They typically limit the number ofdistributors in a market if they are satisfied with the penetration they provide.”

In the third group of manufacturers are companies who are basicallyconverters or smaller manufacturers. Converters take a finished product from another manufacturer and further customize it. For instance, they may buy bulk rolls of towel and tissue grade paper and cut it to customer specifications. Also in this group are small specialty manufacturers of product lines that have little brand recognition. “These companies are the ones who are most dependent on the distributor to get their product to market. They have small sales forces and rely on distributors to develop the end use market for their products. They produce products with little known brand names and typically they lead with price.”

Lets Discuss:

How does Network Services Company gained the competitive advantage in their supply chain?Write your answer on the "comment" section.

About the Author:

Rebecca Mauhay Nunesca is a Professional Industrial Engineer and an ASEAN Engineer currently connected at Batangas State University as Faculty Staff in the IE Department. She is presently enrolled at Rizal Technological University taking MS Engineering Education major in Industrial Engineering. 

Reference:

Michal Hugos, Essentials of Supply Chain Management, 3rd Edition