"So, who is your customer?" Joe asked.
"Mine or his?" Ron countered.
"I thought they would be the same," Joe answered. Ron and I exchanged knowing smiles. Joe had much to learn.
Joe ran a transportation logistics solutions firm, which from what I could tell helped people import and export goods. An overseas company had asked Joe to help them find a U.S. market for their millwork product. The company had access to a nice product at competitive pricing, but didn't know how to sell it over here. Joe contacted me and I brought in Ron, who managed a building materials distribution company.
"I'm a retailer," I told Joe. "I sell to the end user."
"The homeowner?" Joe asked.
"Or to builders."
"And where do you buy your product from?"
"From me," said Ron. " I distribute a number of millwork products to the retailer–"
"–or to builders," Ron finished.
"I thought you ..." Joe stared, pointing at me.
"I do," I said. "But not everything to everyone. Sometimes the builder buys direct from the distributor, which cuts me out."
Joe told us about similar trends in his industry, then we got back to explaining the building material supply chain.
"So the retailer buys from the distributor and sells to the builder ..." Joe said in review.
"Or the homeowner," I reminded him.
"... unless they buy from the distributor."
He turned to Ron. "So the manufacturer sells to you."
"Or the retailers," Ron corrected him.
"Or the builders," I added.
"But that ..." Joe started.
"Cuts me out," said Ron.
Joe then asked why some manufacturers sell only through distributors while others might sell to the retailer or direct to the builder. What was the determining factor? Was it the product? Or the market? Or the company itself?
We couldn't give him a simple answer. Some window companies sell to anyone who can buy a truckload. Others stay true to traditional supply chains. I could name as many cabinet companies that sell through distribution as I could that sell straight to the retailer–or even the homeowner.
Ron and I decided that the sales channel ultimately used was based on a combination of the capabilities of the manufacturing company, the strength of distribution in the marketplace, and the level of service required by the product itself.
All of which didn't help Joe, who just wanted to know who should sell his client's imported product. Of course, selling to a distributor would make sense, but if he could establish a network of retailers, he could keep more margin on the product.
We agreed that he understood that side of the equation. Then we questioned the service.
"What do you mean service?" he asked.
"You have to keep the retailer's price books current," Ron said. "And make sure they understand the product."
"And handle returns and defects," I added.
"And handle special orders," Ron said.
"Unless!" Joe snapped, seemingly finally finding his answer. "I sell to the builders."
"Which cuts us out," Ron and I said in unison.
We told Joe that selling to very large builders was no picnic either. We talked about the squeeze that the large builders would put on his margins, the delivery demands that would have to be met, the inventory he would have to carry, and the support the company would have to give the builders' marketing programs.
Watching Joe's excitement for the whole idea erode before our eyes made me realize something. It's not amazing that things are sold in a variety of ways through a variety of channels. It's amazing that anybody sells anything to anybody at all.
