Distributor or direct: how a component maker decides which accounts to serve itself

Serve an account yourself when it buys a part approved to your drawing, on a schedule, with documents for every lot. The value must pay for looking after it. Leave it to your distributor when it buys many small lines at short notice, on credit, from a plant near the distributor's godown. A component maker with both kinds of buyer will run both routes. That holds only when the list of direct accounts is written down and the distributor has seen it before anyone quotes.

Decide per account, not per channel

The same bearing leaves your factory two ways. A tractor plant's assembly line takes it on a schedule, against a drawing its quality team approved. The same plant's maintenance stores buys it in tens when a conveyor fails, on one bill with belts and seals from twenty other makers.

The first is an OEM account. The second is maintenance buying, which is the distributor's trade. Ask "distributor or direct?" about the whole plant and you will get one of the two wrong.

If you need the difference between a distributor, a dealer and a stockist first, it is set out in our note on the four channel roles. This post is about sorting your own list.

Four tests for serving an account yourself

Take each account that bought from you in the last year and ask four questions.

1. Approval. Was the part approved by the buyer's quality team against your drawing or sample? Then every deviation, change and complaint has to come to you. A distributor cannot answer a deviation request.
2. Schedule. Does the account send delivery schedules or call-offs? Then the planning happens between your planner and theirs, and a middleman only slows it.
3. Documents per lot. Does each lot need an inspection report, a material certificate or traceability marks that only your plant can produce?
4. Value against cost to serve. Add up a year of visits, paperwork, packing to their specification and the credit days they take. Does the margin on their orders cover that at least twice over?

Three or four yeses: serve it direct. Two: split it, with production parts direct and maintenance buying through the distributor. One or none: it is the distributor's account, however well known the name.

What a distributor does better than you

A good distributor holds your range alongside forty other lines the maintenance buyer needs on the same bill. It gives credit to small units you would not risk. Its van reaches the industrial area the same afternoon. Its staff know which fitter at which flour mill decides what gets bought.

You could do some of that. Doing all of it for small accounts costs more than the distributor's margin, and that is the honest case for keeping one. Dealer and distributor programmes cover how to set that relationship up.

The account list: what to write and who sees it

Write the list on one page and give the distributor a copy:

• Named direct accounts, by company and by plant, with the parts covered. A direct account at one plant does not make the group's other plants yours.
• Maintenance buying at a direct account's plant stays with the distributor, at the distributor's price. If the stores clerk rings you, pass the call on.
• Small buyers who contact you in the distributor's territory go to the distributor, with their name and need, on the same day.
• Moving an account in to direct needs three passed tests, written notice, and a handover fee for a stated period if the distributor developed it.
• Moving one back: an account that drops below two tests returns to the distributor.
• Online enquiries from buyers in the distributor's territory go across and are recorded on the list. Selling the same item online below the distributor's price to its own customers undoes the rest of the list.
• Your direct rate is never quoted to anyone not on the list, and never set below the price the distributor pays you for the same part without telling the distributor first.

Handover fees, territory terms and rate rules are commercial and legal commitments, so agree them in a written agreement checked by your own adviser. The wider set of channel documents, from territory rules to price tiers, is in our note on preventing channel conflict. Keeping both sides to the list once it exists is channel governance work.

Imagine a taper roller bearing maker in Jaipur

Imagine, as an invented example, a Jaipur maker of taper roller bearings, selling through one distributor across Rajasthan and Gujarat, and directly to two tractor assembly plants. A third tractor maker, which the distributor had found and supplied for years, offered the maker a direct rate contract. The owner accepted at a rate below the distributor's own buying price, and told the distributor after the first dispatch.

The distributor did not argue, but put a rival brand in front of the flour mills, ginning units and stone crushers it served. Over the following seasons the maker's maintenance sales in both states thinned out, by about ₹18 lakh a year in this example. One account had been won, and the channel for hundreds of small ones had been weakened.

The owner went back with a draft account list. Three tractor plants were named, for production parts only, and maintenance buying at all three stayed with the distributor. For the plant the distributor had developed, a handover fee on direct orders ran for a stated period. Small enquiries from the territory would be passed across by name. The distributor started pushing the range again once the list was signed, though not at the old volume in the first season.

When to stay with one route

Stay with distributors alone if you have nobody to send inspection reports, follow schedules and chase payments. A direct account you cannot serve goes back to the distributor angry, and the distributor remembers who sent it.

Go direct alone only if every buyer is an OEM taking parts to your drawing and there is no maintenance trade in your range. That fits some special-parts makers, but check your own enquiries before assuming it. Our industrial components page shows who buys on each side.

Sort your account list before the next distributor meeting

List every account that bought from you in the last year, mark the four tests against each, and draft the one-page list. Take it to the distributor as a draft, not a decision, because the distributor will know accounts you have misjudged. If you want help with the tests, the list or the conversation, or with choosing routes across a whole range through route-to-market strategy, tell us what you need.