With the global expansion of supply chains, the internet has popped up as an important part of procurement. It has made communication easier between the parties, allowing businesses across the world to source great quality products at extremely affordable prices.
However, there is still time before it completely replaces buying subcontractors.
When you want to source something from emerging markets, you are primarily left with two options, i.e., direct sourcing and distributor purchases.
Which route you opt for completely depends on the scope and scale of the particular project. In complex supply chains, it is crucial to streamline the delivery of products, especially when the order size is huge. With so many factors in play, deciding which procurement route to go can become overwhelming.
Here’s a basic comparison of what each side entails, which should allow you to make an informed decision before considering either.
Direct vs distributor procurement: how are they different?
As stated earlier, the better option out of buying directly from the manufacturer and sourcing from a distributor depends on the firm’s specific objectives. Here’s what it means.
1. Control over the product
For a particular product, the manufacturer is the expert and controls every part of the production cycle. When you need something custom-made to order, the manufacturer knows exactly what to adjust since they know every detail about it. You can also ask them for suggestions for modifications or upgrades and have your quality control subcontractors approve the changes.
This advantage, however, is rendered useless when you want to place bulk orders for items already designed by your in-house R&D team. In this scenario, distributors can source a product from multiple manufacturers, ensuring that the deliveries occur on time.
2. Storage and inventory
Purchasing directly from the manufacturer costs less. Since the manufacturer is not involved in storage or inventory, they don’t need to hire extra staff or space for the same, which reflects a lower bill for the product. If you do not need warehousing when sourcing, direct procurement is a great way to save money.
However, this scenario changes in complex supply chains, where there is a chance of delay at several points. Distributors specialise in service and ensure that the product reaches consumers in its best quality to ensure that the customer gets the best purchasing experience. Therefore, if your product needs warehousing and inventory management, a distributor will be of great service to you.
3. Exploring foreign markets
With several companies looking to explore foreign markets, both direct procurement and distributor sourcing make a lot of sense depending on their existing resources.
When you are venturing into overseas markets, you will run into several issues, including language and social barriers, relationship management, etc., to have the right supplies available on time. In addition, you will need to establish multiple contacts, figure out the local restrictions, solve logistics problems, etc., which takes time. Distributors streamline this process, ensuring proper communication between the parties, making the products available on time.
On the other hand, if you already have resources like quality control subcontractors available, you can leverage them to contact the suppliers directly and figure out the rest yourselves. You can work closely with the suppliers, asking your translators to pitch the exact requirements and ensuring that the deliveries are completed on time.
4. Minimum order
Unfortunately, dealing with manufacturers directly means you need to ensure that the spend level matches their minimum order quantity. Most of the time, manufacturers only sell direct supplies in large batches. Therefore, smaller stores will have a harder time qualifying as a customer.
Purchasing from a distributor is beneficial if the order quantity is smaller. Since they act as middlemen, they make bulk purchases on your behalf and sell you in smaller quantities from their inventory.
Still wondering where to source your product from?
From a pure business perspective, you should source from wherever you earn the highest gross margin return on interest.
For small independent stores, working with distributors and buying subcontractors allows them to purchase products in quantities compatible with their requirements. In addition, in complex supply chains, distributors can provide the workforce and technical support required to handle larger orders, reducing warehousing and operational expenses.
That said, not all distributors perform the same. Therefore, you will need to figure out a way to track distributor performance to ensure that you are working with one that provides a delectable choice of products at an affordable price making quick deliveries.
For firms working directly with manufacturers, you need to set up direct feedback channels from customers to address any issues with the product and handle service requests regarding the quality of the product.