Partnering With A Buying Group
Owners, general managers and inventory managers of AV companies routinely need to consider the pros and cons of buying products either from the manufacturer or a distributor. In addition to those options, there are also buying groups: an organizing of dealers who negotiate terms with their suppliers collectively.
The primary rationale for buying groups is to allow a large number of smaller dealers to collectively seek the kind of pricing and terms that would be unavailable to them individually. And who can argue with that? AV dealers who don’t find their revenue and margins being squeezed are few and far between. Anything that has the potential to eke out better margins on your hardware is always worth examining.
In addition, there are other benefits that accrue from being part of a larger buying group.
It’s not universal, by which I mean not all buying groups do this, but many maintain warehousing, and act much the same as a distributor for their dealer partners. The advantage here is that it allows their dealer partners to hold less on-hand inventory and operate on-demand, pulling inventory as they need it.
That allows retailers to improve their inventory position, what I like to call, “One to show, one to go,” and it allows install companies to maintain a basic assortment of install necessities and order their AV hardware to follow the timelines of their project schedule.
Inventory, as we all know, is a necessary evil. Having it on hand ties up both money and space. That’s why ordering it as you need it is attractive.
That’s not to say that “just in time” inventory doesn’t carry risks. Forecasting demand isn’t easy, a large order from a client can drop on you out of the blue and back-order situations do happen.
One of my largest dealers is a major commercial industrial install company, who is also the central buying hub of a network of allied dealers. Their enormous weekly orders comprise not just their own inventory requirements, but those of their partners.
I bring this up because with fleet installs of in-vehicle cellphone signal boosters, there’s a consistent weekly baseline of demand from industrial end-user clients, yet a surprise PO for an additional 100 units can literally pop up anytime, and often does. Between the inventory they stock as a buying group and the inventory we, their distributor, keep on hand, they’re able to fulfill both their forecasted demands, as well as large, pleasant surprise orders.
As part of interviewing a buying group talk with the about their stock forecasting, and about how they handle order allocation. Ask for references from some of their partner dealers and ask them similar questions. It’s always been my experience that experienced dealers are never shy about sharing their opinions about whom they’ve done business with, for better or for worse.
Another way in which several of the buying groups with which I’m familiar make life easier for their partners is maintaining in-house service and support, not just for warranty claims, but also for product knowledge training and tech support.
More than a few dealers I know rate the level of support that they can expect from their buying group to be as important as their pricing. When as a dealer you take pains to extend white-glove service to your clients, knowing that you’ll receive the same from your upstream partner is a relief. Better than receiving “special treatment” is when the standard for service is high enough to look like special treatment.
There’s seldom any one right answer for every business. Whether your buy manufacturer direct, from distribution, from a buying group or from some combination is something that has to be considered by weighing all the options.