The RDC programme of is.group has been at the centre of a heated debate for several months, but now for the first time glimpses of sunlight are beginning to break through the storm clouds.
Last month, OPI featured a New Jersey-based dealer that had been embroiled in the legal fallout of claims and counter-claims surrounding the scheme.
This month, we focus on the dealers that have embraced the change and are now reaping the rewards.
Since is.group rolled out the RDC programme two years ago, more than 200 dealers have walked from the group. The loss accounted for more than 11 percent of the group’s direct buy and triggered a great deal of speculation surrounding the advantages of a regional distribution centre programme.
Designed by is.group and its board to offer dealers a more efficient way to buy direct, the RDC programme allows the independent dealer to purchase from multiple manufacturers in a mixed pallet. Through the scheme, which operates through three warehouses, dealers can buy from 30 manufacturers and over 3,200 SKUs in one order, rather than having to raise 23 different purchase orders and pay a pre-paid minimum that sucks up their cash.
For some, the model is a beneficial and efficient addition to their businesses and has triggered growth and unexpected advantages.
And many say the introduction of the RDC programme has helped them compete more effectively with their big box rivals.
Justin Miller of Yuletide Office Plus, based in Memphis, Tennessee, told OPI: "From a salesperson’s point of view, the RDC helps enormously when you go up against the big boxes and their pricing edge in attracting the mid-market customer.
"We can pull those things at smaller quantities and tag them on to our minimum orders – you can bid as if you were bidding off from direct cost.
"The advantage is that we can gain the leverage of the big boxes and maintain our scale, it’s not just that we can bring them in by the case. There are a lot of break-case items that are in those RDCs which we don’t have to order by the case.
"We have been part of the programme for two years now and it has increased our profit margins by between a point and a half and two points, but it’s vitally important that it is used correctly."
Slim down stock
When asked what he would describe as the key to successfully integrating the RDC into a profitable sales function, Miller explains: "I know some dealers that went into this model and kept ordering. They didn’t really look to slim down the stock in their own warehouses.
"Companies like ourselves slimmed down their stock. This allowed us to invest even more in the margin-rich product range through the RDC, the items that previously the wholesalers were making more money with than we were from our customers.
"The tables have been turned and the margins are coming to us now, whereas before they were going to someone else."
Miller says that the situation is a win-win solution for all involved. "As our business increases, so does everyone else’s. The value of orders to our wholesaler has increased by 20 percent year on year; so the wholesaler gains from this programme as well as us," he says.
"Our online customer base has increased from 30 to 34 percent and we’re noticing a lot of our new customers are going straight online to order.
"The RDC programme has been perfect for our needs. Obviously, the beginning was not easy; it was very difficult and I would be the first to admit that.
"But like anything of this mass and size it will take time to work the kinks out and I think it’s now there. We just have to keep tying up the loose ends and it will be a constantly evolving process.
"As an industry we have to keep being pro-active and changing, otherwise we will be left behind. The RDC has allowed us to really focus on the margin-rich items and not be so worried about stocking up on as many of the low-end products.
"In my opinion I think the future looks good. When you look at the dealers that left is.group, that was a big hit but I keep thinking to myself that there are more than 300 members still here, and we are now gaining more members than we are losing – and that’s for a good reason. I’m excited for our prospects in the future."
Steve Gordon of Cleveland-based Independence Business Supply told OPI: "I joined is.group in April of this year after I asked to trial the RDC programme for a few months in the company.
"It is a great concept as it allows us to increase our SKUs while at the same time decreasing our inventory value amount – essentially I will save dollars and yet expand at the same time.
"A few years ago I started asking around to see if we could get together and develop a hub-and-spoke system that is similar to the power channel. At the same time the RDCs came into existence and I could instantly see the benefit.
"I was smart enough to know that with anything that’s new, it’s important to let the initial kinks get ironed out. I went through the process of reviewing the programme and watched what was happening. It was clear that some errors were made, but they are fixed now."
Gordon adds: "We finally elected to join is.group in April after doing a test drive – we haven’t looked back since.
"Today, I’m delighted to be part of the programme; a programme I could see would make commercial sense more than six years ago. The RDCs stock 3,233 items today and that covers 50 manufacturers. 35 of these are OP vendors, while the other 15 are manufacturers of IT or technology products.
"It fits in with our business model. We’re involved in school business and one of the hardships of doing school distributions is that we always have to have product availability based on direct pricing.
"So when you’ve got to supply that oddball marker, the brown ink type, you have to go and buy direct from the manufacturer and order anywhere between 77 and 432 to obtain a full carton. That was a large purchase for a very minor sale.
"But the RDC has made 900 of the 3,233 SKUs available from a broken carton, so now we only have to buy a dozen or so of those one-off products.
"The RDCs don’t want to become SP Richards or United Stationers, that’s not their goal, but as a dealer I can go out and buy an item such as that brown marker and know I’m not going to have dozens of them left sitting on the shelf. It frees up dollars and cash is no longer being tied up.
"The big box mentality has been brought to the independent dealer channel and that has to be a good thing as it helps us run our businesses more efficiently. There is always room for improvement, but we can only grow bigger and better together.
"The people at is.group are bringing the efficiencies on offer from the manufacturers right down to the dealer level."
Fellow dealer Joe Garrigan of Garrigan’s Office Plus in Springfield, Ohio, is equally pleased. He told OPI: "We’ve been involved with the programme since the start and when we look back at the prior way of doing business, we’re really pleased with how things have developed.
"Previously, we could buy direct from the manufacturers but we had these minimum order values to reach, whether it be $750 or $1,500 and the lead times were between one and two weeks out.
"Historically, we’ve been buying direct for many many years and I’ve always found myself under the old school way of doing things category – over-buying of one thing and under-buying of another just to achieve the minimum. What the RDC programme has allowed me to do is reduce my risk by buying one carton and that is a big advantage because it helps us get the buy side right and we can order products two or three days out.
"Before, I had to tell my customers that if they wanted to get a good price they had to wait two weeks – that wasn’t providing a good service. Now with the RDC programme I’m able to cut my lead times to just two or three days and that’s much more powerful for my customers.
"I cannot begin to describe how important it is for me to reduce my lead time. We use the RDC every other day so it’s almost like wholesale buying.
"When I look at how much we’ve developed with the RDC, I would never want to go back to the old way. Just from the efficiency advantages, I have picked up an extra point on my margin and I didn’t have to raise my prices to achieve it.
"With the ability to get the products quickly I can take a little bit more of an adventure. Instead of just focusing on the A items, we can bring in some B and C categories where the margins are clearly much bigger.
"The RDC allows us to really look at the opportunities within our customer base as well as being able to focus on gaining the business of the larger customer, so that we can become competitive in that arena. Previously, we could never compete because we couldn’t achieve the trade-off between lead times and effective margins.
"The IT sector has taken a big part of our overall business and accounts for between 40 and 50 percent of our volume. That is a lot of margin dollars, but they are not as profitable as your basic office supplies, so we had to have a really close look at our customers and ensure we offered the proper mix to maximise the potential of all the opportunities in areas like jan/san. The RDC stocks all those kind of products which makes my life easier.
"The RDC has helped me on staffing as well, because we now have to wait for one truck, which always comes in at noon. In the past, I had to keep the warehouse staffed for eight hours because we never knew when the trucks would be arriving.
"I can now move work crews around to process orders and do the picking without waiting around for trucks to turn up. Those personnel savings are going straight onto the bottom line."
Garrigan also praised the back-office systems that help him and other dealers compete more effectively.
He says: "is.group’s eCommerce solution, D-Force, has made it easy for us to direct our customers’ purchasing choices to the preferred brands which are stocked in the RDC. The search engine has all the parametrics to move the is.group/BPGI products to the top of the list. We can custom-build favourites lists for each customer, so that they don’t have to spend all day flipping through catalogues.
"Technology is driving the market. D-Force presents our ‘Best Value’ statement to customers 24/7. The RDC provides us with a better way to buy direct so we can efficiently execute our business model."