Letters to the Editor For February 2008

Disruption in the Channel

Re: "Strategies for Strategic Sourcing," Jan. 2008

Our recent research, a survey of North American industrial distributors indicates that, contrary to what was stated in this article, executives at distributors of industrial goods are planning on buying more from overseas sources, are enjoying an average 30% price reduction, and have no particular worries about quality and industry certifications. In fact, when asked, they specifically said that offshore manufacturers had adequate certifications, they had no issues with product liability insurance and, in many cases, quality was as good or better than domestic sources.

More importantly, they indicted domestic manufacturers for having a bloated value chain -- excess overhead, attempting to bundle marginally valuable services and activities with the products to mask high prices, and excessive executive compensation.

We conclude that manufacturers need to lean out the whole value chain. It is about more than acquisition cost of the products. We call it "disruption in the channel." Just as disruptors introduce acceptable products and new price points, channel disruptors need to lean out the channel, eliminate superfluous activities and stop cross-subsidizing low-margin OEM business with business that goes through distribution.

Stephen Griffith
president and principal consultant
Merrimont Group
Troy, Ohio

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