Manage consolidation in the distribution channel

In almost every business-to-business industry, companies face increasingly powerful intermediaries in their distribution channels. As this handful of national, professionally managed distributors prunes its supply base, manuf acturers no longer have guaranteed market access. In this article, Fein and Jab discuss the strategic implications for manufacturers of the fragmentat ion-to-consolidation transition in the distribution channel, the dynamics o f consolidation, and the indicators that signal impending consolidation. Consolidators in wholesale distribution follow a standard strategy. They bu ild a national network, leverage buying power with manufacturers, and reinv est profits to meet the emerging requirements of larger customers and manuf acturers. In fact, consolidation among downstream customers often triggers distribution consolidators to:embark on growth-by-acquisition strategies to react quickly to changes in customer purchasing patterns. They try to mini mize their purchasing costs by reducing the supplier base, - shrinking inte rnal purchasing staffs, and applying supply-chain management-technologies, such as EDI, to reduce inventory. The efficiency with which a product moves through the channel has become as valuables the features and benefits of t he product itself. :- A manufacturer facing a potentially consolidated channel has four basic str ategic options: 1. Partner with the winners and motivate distributor investments in support of the firm's products. 2. Invest in fragmentation by designing a channel that meets the challenges of consolidation and integrated supply, and develop relationships with hor izontal alliances of smaller independents that can bid for national or mult iregional contracts. 3. Build an alternative route to market by bringing the the functions of an independent distributor in-house or by using the Internet as an alternate channel. 4. Create new channel equity to ensure that products are more attractive to the channel. The authors-look at postconsolidation conditions -; in particular, vendor c onsolidation and increased service requirements, wh ich present particular challenges to manufacturers. Fein and Jap conclude by posing a,few,strategi c questions for manufacturers and illustrate how companies use the strategi c options they outline.