Distributor blues and supply chain skews

Distributors are the gears that keep the facility management industry going. The matchmakers who connect the eager customer to the desired product. The cushion that absorbs the sudden stresses and strains of the market.

How have they fared in the tumult of the pandemic? How have they judiciously managed the interests of clients and vendors? How has the procurement process been altered by cautious budgeting? What choices have they made to keep their heads above water? As the world comes back to normal, how will they realign and reassert their position in the supply chain?

We bring you frank, unvarnished answers from distributors themselves.

Is demand up or down?

Each distributor is facing a different reality. For Dashrath Singh Rajpurohit, Proprietor, Shubham Industries: “Business has been good for us. In fact, since the hunger for housekeeping products grew because of the pandemic, business is better than before.”

Others struck a more equivocal note. Ritu Sindhwani, Proprietor, Ecologic Hygiene Solutions said: “Business has not stopped. It has been hampered, but has also been good in a way. During successive waves of the pandemic, demand rose and fell. We cannot say that it is back to 100% of pre-pandemic levels.”

And then there were those who have borne the brunt of lockdowns. Sunil Puri, Partner, Galileo Associates had this to say: “Business is down at the moment. Most of our customers – corporate offices, malls and theatres – are closed, running at lesser capacity or have not yet reopened since the beginning of the pandemic. The frequent imposition and relaxation of restrictions has affected business continuity.”

Supply chain slowdown

The complicated set of rules and restrictions imposed on people and vehicular movement – which often differed from state to state – impeded the operations of each link of the supply chain. The cleaning product manufacturing and distribution industry has roots nationwide; the first and last links off the supply chain may be thousands of kilometres away from each other.

What effect does this have on speedy delivery of products? Abhijit Bhalerao, Proprietor-CEO, Vana Sales explained: “Suppliers are not getting proper raw materials on time because they also have some issues with their vendors. And if they are not getting raw material, we are not getting the finished goods at the proper time.”

Although everyone wants to fulfill orders in the shortest possible time, this chain reaction is causing delays in delivery to the end-customer. However, as restrictions on vehicular movement have eased, this problem will soon disappear.

Using the ‘credit’ card

Will the problem really disappear? While material may be moved on time, payments for the same are no longer as prompt as they used to be.

According to Sindhwani, customers who paid in one month’s time are now taking 1.5-2 months to make payments. On the other hand, her vendors also want timely payment in cash. The balance of accounts between the three parties has become awry, and it is the distributor who is affected the most.

The fear of yet another slowdown has scared vendors away from the traditional system of credit-based supply. The same factor is causing customers to hold onto their cash reserves and delay payments for as long as possible.

Bhalerao explained: “Nobody is ready to give us material on credit terms. On the other hand, customers are demanding a very high line of credit. We have had no choice but to cut down on that kind of customer and focus only on those customers who are making payments at the proper time.”

This was not the case before the pandemic. Credit was freely extended based on mutual understanding and trust. And if one customer didn’t pay on time, three others did; there was always a steady stream of revenue. Now, when everyone is tardy at the same time, the stream suddenly dries up.

Survival of startups

If established distributors are in a credit soup, what about those who are just entering the field? With 25 years of experience in the industry, Mangesh Hendre is now the founder of Big Box Distributors, a chemicals distribution startup. For him, entering a field devoid of input credit is doubly challenging.

He said: “Small businesses do not get paid on time. The credit cycle is very long, as much as 4-5 months. If I have to transact business of `10 lakhs in a month, I will need to have `50 lakhs in my pocket; only then can I start my business.”

Market is up, stocks are down

The uncertainty of payment has dissuaded distributors from procuring stock above and beyond what is needed to fulfill existing orders. They would rather balance their books with more modest procurement than sit on excess stock that needs to be paid for immediately, but will be sold at an unknown point in the future.

In terms of numbers, Bhalerao explained: “If I purchased 500 units of wet mop refills before the pandemic, now I purchase only 100 units because of payment issues. This costs me more per unit, but I have no choice. I am not ready to invest in 500 units now.”

Customers are not stocking up either. Puri said: “Because of the instability in the market, nobody is buying in bulk, which they used to earlier. Purchases are made only as per immediate requirements. The demand is now to fulfill present needs rather than follow long term plans.”

Projecting no projections

While the present outlook worldwide is that the worst of the pandemic is over, the lack of surety about what lies ahead has made it impossible for distributors to forecast future demand.

Puri lamented: “It’s very difficult to ensure supply as we base it on certain projections for us to stock material. If I don’t have a projection, how do I ensure that the supply will be there?” This lingering uncertainty may continue for some time.

New world, old price

While the entire industry has gone through a sea change, customers – who are understandably cost-conscious – still want to pay at pre-pandemic rates. Meanwhile, the cost of raw material, diesel, transportation, storage and overall operations for distributors have all shot up. They need to account for all this when they decide product pricing – a non-negotiable fact that many customers fail to acknowledge.

According to Puri, overall input costs have risen by 10-15% across the board. If the product is imported, this jump is even more because of skyrocketing freight rates. Pre-pandemic, let us say a finished product bought for `10 was sold for `12. The same product is now available to distributors for `11.50. How can they still sell at `12?

If customers refuse to budge from the old price, the quality of the product they buy is bound to suffer. Since the customer will never accept such a product, a vicious cycle is set into play. Customers need to understand that the hike in prices is meant not to increase the distributor’s profit, but to ensure the distributor at least makes a profit in the present business environment.

Low volumes hike prices

Customers order fewer units from distributors. Distributors procure fewer units from vendors. Vendors are unwilling to offer the discounts they would have offered for large orders to distributors. But are customers willing to pay more for ordering less? No.

Said Rajpurohit: “Since we had long standing relationships with our customers, it was mandatory for us to continue our services to them. Thankfully, that difficult phase is over now.”

Banking on ‘good’ clients

When revenue takes too long to come in, a distributor must also choose the right kind of customer to survive and thrive. Instead of trying to cater to 100 customers with diverse backgrounds, it may be prudent to focus on 10 good customers and fulfill their requirements.

Hendre breaks this down: “There are customers with good budgets and topnotch specifications looking to buy top-quality products, but these are few. However, there are major clients looking for standard products in large quantities. That volume is big enough for me and I want to see what best price I can give this slab of clients. It is now a volume game for me.”

Sit tight or fly high?

Should a distributor ride the wave of hygiene consciousness and invest in expansion, or protect one’s liability and consolidate one’s business, is the question. Puri is cautious: “We hope to maintain what we were doing pre-pandemic and are not looking to expand. We were very happy then and hope to get back to that stage.”

Sindhwani concurred: “Things are semi-stable for us. We are maintaining levels. After conditions improve, we can go forward with expansion.”

Bhalerao shared: “We are always looking for new wings for expansion, but in the current scenario, we are not ready to invest in any new product. Instead, we are trying to re-establish our old relationships, because we already know each other and we know the product.”

Some distributors like Rajpurohit are also manufacturers, and more bullish about market demand. He revealed: “We have already expanded quite a lot during the pandemic; our production area has grown 10x. We have further plans for expansion, and investment in it is ongoing.”

What will make a distributor the preferred partner of potential customers? Knowledge, dedication and loyalty, said Hendre. He added: “If I delay deliveries, the quality and support I provide to customers will lose importance. Their business will suffer if I do not adhere to time schedules. It’s a risk for them, and I have to gradually earn their trust.”

The last word goes to Vijayant Jain, Managing Partner, Arihant Marketing & Consultants: “Clients are slowly reopening their facilities. We will diversify but we will not shut down.”