B2B Distribution Channels for Customer Consolidation

The following video explains the benefits of customer consolidation through distribution sales channels. Most companies see distribution as a means of accessing another market they themselves can not access. Either that market is in a different country or industry. However, in our example, we have a company that has too many customers and needs to use a distribution channel in order to reduce their costs of sales. By consolidating the company's customer base, the company is able to reduce its cost of sales. Instead of servicing hundreds of customers with small volumes on each order, the company decides to use a single distributor in order to lower their service costs. For example, let's assume a company sells to 100 customers in a given market. Each of these customers purchases no more than two units per order. The costs of servicing these 100 customers is substantial. In this case, there are 100 shipments to manage, 100 invoices to generate and 100 receivables to collect on. These aforementioned costs are just the costs after the sale. Additional costs before the sale include the salesperson having to handle 100 incoming calls, 100 inquiries and 100 customers. In addition, there are also customer service costs and after-sales support costs that pertain to providing status updates on deliveries and or managing returned product. The company decides to use a single distributor who is then tasked with servicing these 100 customers. Therefore, the company makes one single shipment of 200 units to one location. They generate one invoice and collect on one receivable. They reduce their costs of sales and free up valuable sales and customer service resources. This approach is similar to vendor consolidation. In this case, a company reduces its vendor base and then lowers its costs by using its economies of scale to lower pricing among a select few vendors.

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