Distributor, manufacturer or both?
06 April 2016
Recent developments in the fastener industry have seen a number of distributors, who have previously been resolute in their independent position in the supply chain, moving by acquisition into manufacturing.
Can the two roles sit side by side? Forward Industrial’s Martin Cleaver says yes – and no. Here he explains why mere acquisition of a manufacturing capability doesn’t necessarily deliver the benefits to the customer that a fully integrated approach offers.
There are some sectors where clear demarcation between provider and distributor are not only advisable, but necessary. The most glaringly obvious is in the financial services sector where it has long been recognised that ties with the product provider can compromise the ability of the supplier, or broker, to offer independent advice.
Things work differently in the manufacturing sector where relationships between distributors and manufacturers have to be completely transparent. While some stockist competitors have traditionally enjoyed business from large global OEMs while making it quite clear that they had no involvement in the manufacture, Forward Industrial has long believed that a manufacturing capability puts the company in a better position as a supplier without compromising its objectivity. On the contrary, its investment in its manufacturing capability has added value to the service delivered.
How? Firstly, it increases the options to have its own manufacturing unit that sits as part of a network of global manufacturing partnerships. With a good manufacturing facility, it is possible to set the benchmark for that network and make informed decisions about design and manufacturing capabilities, quality management systems, production timescales and pricing. A stockist needs to evaluate all of these things and audit suppliers on an ongoing basis. A stockist with its own manufacturing capability should be able to do all of this from a position of greater knowledge and experience.
As a distributor with one of the few remaining UK-based manufacturing facilities, Forward Industrial has the added advantage of providing in-built insurance against the possibility of delays or loss of shipments from overseas. With tightly controlled production schedules, a key part of the supply relationship is the ability to deliver products to OEMs when, where and how they want them.
Its manufacturing facility gives the company an option to replicate its overseas supply chain so if deliveries are delayed, damaged – or if the ship goes down – it can step in with a manufacturing capability that keeps the supply line going.
It goes without saying that Forward Industrial advocates the benefits of partnering with a stockist that combines a manufacturing capability, particularly at a time when weaknesses have been developing in the supply chain which have seen a number of fastener manufacturers closing. Martin Cleaver would argue, however, that acquisition of a manufacturing facility, particularly a recent one, does not always bring the same level of benefits.
OEMs are well versed in the art of putting their suppliers under the microscope and this is an area that does bear close examination. The key question is where each of the component parts of the supply business sits in relationship to each other.
It is one thing to acquire a capability because of certain synergies – if a fastener stockist is looking to expand, it makes sense that acquisitions are made within the business sector that they know. However, is the purpose of that acquisition focused solely on the contribution that it makes to the bottom line, or is it designed to add real value to the partnership with customers?
To bring real value to supply-chain relationships, the manufacturing and distribution capabilities need to be fully integrated in order to benefit the customer. For any components supplier, particularly in industries like automotive and aerospace, the ideal relationship starts from the ground up, with the supplier having the technical expertise and experience to contribute to the design process. Only this way can cost-effective solutions be reached.
Suppliers coming in late at the design stage will often find themselves faced with a situation where the only viable solution is, by force, over-engineered, or where the desired solution is too complex for a manufacturer to achieve. A supplier that has a manufacturing approach embedded into its culture has the capability to be an integral part of the design team. Commercially, a manufacturing background also offers advantages in assessing pricing and ensures that the supplier has the knowledge base to get the best deal for the customer.
There is now a trend towards ‘manufacturing distributors’ as more distribution businesses recognise the importance to OEM customers of supply chain security and look to gain a competitive edge, but buying expertise doesn’t always make you an expert. Customers need to dig deeper when exploring what their supply chain partners have to offer to ensure that the full benefits of a manufacturing capability are fully understood and not simply used as window dressing.
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