Building up a distributor network from scratch

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Koganei E building JapanWhen you think of distributor networks, what may come to mind is a network that has been in place for decades. But in the case of Koganei USA, their North American distributor partners are relatively new relationships. Koganei’s parent company has been around for more than 80 years, and had previously used a single domestic manufacturing partner as a master distributor in the states. Following the formation of the U.S. subsidiary in mid-2015, the company quickly gained several dozen distributors. I spoke with William Miller, the company’s sales manager, about where he sees distribution headed.

FPW: What are your expectations of a distributor?

WM: Number one, we do not have any non-compete clauses. We are committed to being the easiest supplier that any distributor globally works with, compared to any other manufacturer. We think that we achieve that by how our contracts are set up. With most manufacturers, they’ll require certain inventory investment. They’ll require certain minimum quantities on deliveries. They’ll require certain dollar amounts on purchase orders. With us, there are no minimums on orders. There are no dollar amount minimums on orders. The distributors have full access to all 512,000 products.

FPW: What happens when a potential distributor tells you they’re interested?

william miller koganeiWM: I ask them how many outside salespeople they have, and of those, how many are focused on pneumatic applications that would use pneumatic valves? Then I like to have a meeting with the sales reps who are focused on pneumatics, I look them in the eye and say, “Looking at what we manufacture out of Japan, and given that we 100% test every part prior to shipment, does that provide you enough opportunity or fill any gaps that you currently struggle with when you are working with OEM customers?” If it’s an overwhelming yes after I’ve talked to the sales team, we’ll start the relationship.

FPW: What do you see as the future for industrial distribution?

WM: I think that in the future, if you’re a distributor that’s focused on low cost, I do ultimately feel like you’re going to lose—only because your pricing is usually based on buying power. If you’re a smaller distributor, say less than $65 million a year in sales, and if everything on your line card is based on price, you will lose—you’re no longer competing with the distributor that’s six miles down the road in the same town that you live in, that you’ve known for 30 years. You’re competing with a company that’s a huge corporation with, say 70 locations across North America, or globally.

It has to be more than the cliché of selling value. For example, we have 14 distributors in North America, Canada, and Mexico, that have flown to our facilities in Japan. They spent seven days at our manufacturing plant in Komagane. They worked with our quality engineers, and they have been trained in our standard operating instructions for assemblies. They are now certified to build, assemble, and test an F-series manifold, and we ship them only the build material components.

A distributor doesn’t want to be buying the same manifold. They want to buy a manifold that’s a little bit different, one that gives them a competitive advantage. That could mean output, productivity, less power, etc.

What if a Koganei distributor could take your order, build, test, and ship a stainless steel cylinder—and do it the same day? It would be made that day as opposed to someone they compete with who may have a lot of buying power and there’s a lot of inventory … but that product’s been sitting on the shelf for three or four months because they have 400 sitting on the shelf waiting for an order. The stock cylinders aren’t like milk—they’re not going bad—but definitely, with seals and some of the different elastomers available, dust contamination is real and does it affect life? It absolutely could.

The future of distribution is really going to be won by companies that are investing in and partnering with their suppliers.

 

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