He also encourages dealers to think outside the yard and either welcome or demand the kind of strategic planning with a two-stepper that he and other experts advocate. “Lowering costs and driving income and value requires a joint planning process,” Beveridge says, including in-depth research of market opportunities, understanding the current and prospective customer base, and defining respective responsibilities for sales, support, and training.
Dealers also can serve themselves by following the lead of manufacturers and consolidate distributors. “Concentrating purchase volume so that 80 percent of a dealer’s product comes from one or two two-steppers gives that dealer an economy of scale that results in an inventory that is predictable, reliable, and replenished,” says Marks. “If you have five distributors, you’re in trouble.”
Doing so, says Vrabely, is another way to drive transactional costs out of the channel; he estimates that dealers spend up to a combined $100 processing each purchase order and invoice, an expense that goes down exponentially when dealers focus their purchasing among broad-based two-steppers instead of multiple vendors.
Cullotta also sees, and encourages, a polarization of roles and responsibilities between dealers and distributors that helps both of them refine and focus on their core competencies. “Ten years ago, a higher percentage of distributors offered a mix of one- and two-step operations,” he says, a state that fostered dealer dabbling into reloads and other two-step ventures on a small scale to hedge pro sales lost to distributors. “Today, most [distributors] have picked their model,” after witnessing their onestep customers bypassing them to deal direct, and have returned to a more traditional, two-step-only role, thus allowing dealers to do the same on the one-step rung.
All of which seems to settle the industry back into a comfortable place, where each link in the chain enjoys a defined and secure role, right? Wrong. “You can’t look at this as a supply chain anymore,” says Beveridge. “It’s a value chain, an income chain, and the day that large-volume builders come to the conclusion that the dealer-distributor levels can’t produce or deliver income, they’ll go direct.” —Rich Binsacca is a contributing editor for PROSALES.
Signs of the Times As the housing market tightens under rising interest rates and less price appreciation, dealers might notice—or perhaps demand—changes in their distribution partners, including the following:
