Since is.group rolled out its regional distribution centre (RDC) programme 18 months ago, 182 dealers have walked from the group. The loss accounted for 11.4 per cent of the group’s direct buy and sparked a great deal of speculation surrounding the benefits of the 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 is.group’s programme, which operates through three warehouses, dealers can buy from 23 manufacturers and 2,300 SKUs in one order, rather than having to raise 23 different purchase orders and pay a pre-paid minimum that sucks up their cash.
Although many of the dealers that left is.group were stockless and were not prepared to pay for a programme that didn’t work for their business model, president/CEO of is.group Mike Gentile told OPI that it "hurt him in his heart" when others left, because he said he "knew they would have a better future with the RDC programme".
"There has been a lot of talk in the industry about RDCs not helping dealers," he adds. "But this talk tends to be from dealers that either don’t use the programme or dealers that are not with is.group."
is.group has sent five people out into the field to visit 250 dealers that have adopted the RDC programme to measure the visible benefits, as part of its Data Volume Increase (DVI) initiative. The initiative set dealer members RDC purchase goals and total direct buy goals, and then tracked the sales changes over time.
Gentile claims he is "very pleased" with the findings. To offer some examples of the results, Garrigan’s Office Plus saw an 8 per cent direct buy increase and a 2 per cent RDC increase; Yuletide Office Plus marked a 9 per cent direct buy increase and a 16 per cent RDC increase; and JR Freeman Office Products registered a 19 per cent direct buy increase and a 20 per cent RDC increase.
"Dealers reported a clear increase in gross margins, a decrease in inventory levels, faster access to products and a larger amount of working cash freed up for the business as a result," says Gentile. "Like anything else in life, you get out what you put in – dealers need to take time to analyse what they are buying."
Gentile believes any negativity towards the programme has come about as a result of traditional dealers needing time to change their operational model and purchasing practices, and also because of some dealers’ lack of resources. This lack of participation fuelled concerns that the model was not sustainable over time.
Many of the dealers OPI spoke to were behind the programme, although some were also reticent. Dave Sanner of Sanner Office Supplies is one who claims that the RDC has massively helped his company’s purchasing and warehouse functions. "Our stock levels have decreased because of the quick replenishment from the RDC, thereby increasing our turns," he says.
"In addition, the lower stock levels have allowed us to use the cash that was freed up for other initiatives. We are purchasing from multiple vendors everyday from the RDC whereas before we would wait to meet minimums for direct shipments from our vendors."
Tim Derryberry of Freeman Office Products has also been able to increase inventory turns by purchasing at smaller quantities and more often. "Our cash flow has never been better," he told OPI. "We don’t have to purchase slow moving stock that may not turn as quickly because of needing to reach vendor minimum as in the old model."
But Dave Guernsey of Guernsey Office Products, which left is.group in December 2004, has tried and tested the programme and claims it is less suitable to large dealers such as itself. "I do believe the concept has merit for most small and medium-sized dealers in terms of reduced turnaround time and freeing up capital and helping them deal with minimum order-sized requirements of the manufacturer," he says.
"[But when we ran] a few orders through the RDC last year, we found the turnaround to be slower on average than what we experienced in the Washington DC area. Furthermore, we found the requirement to run all items for all manufacturers though the RDCs – whether the RDC stocked the item or not – to be very cumbersome. This further contributed to a slower receipt of product."
In response to this comment, Gentile claims that the programme in this way has now changed. "Currently, if a dealer meets the manufacturer’s pre-pay minimum on an order of non-stock RDC SKUs, that order bypasses the RDC and ships directly to the dealers," he says.
Ed Walper of Impact Office Products, which is not an is.group member, is a harsher critic of the programme. "I do not think the RDCs have had the desired effect on the industry," he told OPI. "If a programme cannot grow because of the financial anchor it is dragging behind it, how can it expect to positively impact the industry-
Walper also believes that another negative impact of the RDC programme is that it has eaten into the wholesalers’ "carton source" type activity – a view echoed by many of the programme’s critics. Indeed, some of the wholesalers were unsupportive of the programme at the outset because they saw it as a threat.
Although United Stationers and SP Richards declined to offer comment on the subject, Gentile claims that as time goes on, the wholesalers are starting to understand that the dealer direct buy is helping them, too. There will always be a place for the wholesaler to provide dealers with next-day product needs and as dealers continue to grow their businesses, this will not fail to translate into more wholesale purchases.
In fact, some dealers that OPI spoke to explained that they saw the wholesaler as an integral part of the RDC programme. "We are continuing to find items that we have elected to move from our inventory to the wholesalers for better cost efficiencies," says Sanner.
"They provide a valuable source for fulfillment, marketing and support of all of the items beyond our inventory. Going forward, I would expect this relationship to develop further as we streamline our inventory and look to them for support on those items." Freeman’s Derryberry adds: "The impact to the wholesaler is increased business opportunities. As our business grows, natural business flows to the wholesaler."
Justin Miller of Yuletide Office Products claims that, through the wholesaler, the positive influence of the RDC programme is even expanding to other stockless dealers on the sidelines. This, he says, is because the RDC programme has forced dealers to put out better carton programmes with quicker delivery times.
Some dealers even suggested that wholesalers would do well to further expand the range and current flexibility of the current carton programmes to help dealers that do not have access to the RDC programme.
Meanwhile, Gentile says he plans to open up the programme to other dealers outside is.group and in a year’s time, expects to see 450-500 dealers using it, regardless of their buying group. TriMega has declined to comment on the topic.
Bob Chilton of is.group member The Phillips Group said he expects the impact of the programme to increase from January 2006, when the RDC started coordinating its stocking items to tie into its marketing catalogues, and dealers will be able to match stocking products closely to the RDC stocking selection.
"This puts us in an even stronger position to market is.group catalogues to our customers knowing that we can now truly promote a stocking catalogue and will be able to secure our catalogue products quickly at direct costs from the RDC," he says.
Yuletide’s Miller says that from his experience of the RDC programme to date, he sees it as somewhat of a turning point for the independent dealer community. "There are some that would like to see this programme fail, but rest assured that, as long as our group shares the common vision as we do today, we will succeed. Bottom line is: if you’re a short-term thinker in this industry then this programme is not for you.
"I have talked to many dealers that are having record-breaking months," he adds. "I believe 2006 is the year of the independent, as we begin to take back market share with our RDC programme. The big boxes have always called us cockroaches because we never go away. Well, I don’t mind being called a cockroach…"