December 5, 2023
By Caroline Croft, Croft & Associates Supply Chain Consulting Inc.
In the intricate dance of supply chains within the electrical, utility and telecom sectors, the inherent clash between manufacturing and end-user cost structures poses a significant challenge. Let us explore the untapped potential of wholesale distribution as a transformative solution, provided certain barriers can be overcome.
In the manufacturing realm, labour costs are typically low compared to material costs. Pulling an example from my earlier career, the manufacturing of heavy-duty transport trucks has a material-to-labour cost ratio of a staggering 90% to 10% respectively. Here, the efficient use of materials become paramount, driving the adoption of the widely endorsed Just-In-Time (JIT) inventory model for profitability. However, the JIT model does not work with the divergent needs of end-users in our industry.
End-users, ranging from independent contractors to major utilities and telecom giants, operate within a high-labour, low-material cost structure. In this landscape, labour efficiency takes precedence, demanding more agile supply chains with quick access to buffer stocks. The tension arises between manufacturers seeking a stable operating environment with minimal inventories and end-users requiring nimble supply chains.
Compounding this challenge is the perpetual struggle manufacturers experience when trying to obtain accurate forecasts from end-users. While forecasts might be somewhat accurate at the sales dollar level, accuracy at the item level is terrible and given manufacturers build items, not dollars, these forecasts hold little value from a supply chain perspective. The often-futile attempts to reconcile these discrepancies in monthly sales and operations meetings underscore the magnitude of the issue.
Wholesale distribution holds the key to resolve the inherent clash in supply chain dynamics. Despite its potential to provide a seamless bridge between manufacturers and end-users, wholesale distribution remains under-valued and under-utilized. It is time for a paradigm shift across all three supply chain stakeholders – manufacturers, end-users, and the wholesale distributors themselves.
Overcoming the resistance from manufacturers and end-users protective of their direct relationship is a critical step. It is imperative to recognize introducing wholesale distribution does not compromise their technical or commercial relationships, instead, it addresses the fundamental supply chain misalignment. As such both parties should seek to fund distributors and then hold them accountable.
Wholesale distributors must evolve from transactional to strategic partners. Reimagining themselves as providers of an elevated Supply-Chain-as-a-Service (SCaaS) model requires a paradigm shift, and investments in professional development and digital evolution. This transformation holds the promise of not only improving supply chain performance but also enhancing profitability for distributors and the industry as a whole. In conclusion, we must call for a collective shift in mindset and practices across our industry, a collaborative effort between manufacturing, end-use, and distribution to harmonize the end-to-end supply chain and unlock untapped potential for growth and efficiency.