The wholesale distribution glossary

A distributor and a wholesaler both buy products in bulk and resell them to businesses rather than to consumers, and in everyday use the two words often mean the same thing. Many companies call themselves wholesale distributors.

When people do separate the two, “wholesaler” stresses the core trade of buying in bulk, storing and reselling, while “distributor” suggests closer ties to the manufacturers it represents and more services for customers, such as technical help, credit, local delivery and inventory programs. A company that sells only to other distributors is a master distributor, whichever word it uses for itself.

The label says less than the business model. To place a company called either one, look at who it buys from, who it sells to, and what it does besides reselling.

Markup is profit as a percentage of cost, and margin is profit as a percentage of the selling price. An item that costs $60 and sells for $80 makes $20 of profit: a 33% markup ($20 ÷ $60) and a 25% margin ($20 ÷ $80).

On the same sale, margin is always the smaller percentage, because it divides by the larger number. The costly mix-up is treating a margin target as a markup: adding 20% to an $80 cost gives $96, which is only a 16.7% margin. To price for a target margin, divide the cost by one minus the margin: $80 ÷ (1 − 0.20) = $100.

A SKU is the distributor’s own internal code for an item, a manufacturer part number (MPN) is the code the manufacturer gives the same product, and a UPC is the barcode number on the package that identifies the product everywhere it is sold. One product on a distributor’s shelf usually has all three, although many industrial and MRO items carry no UPC.

• SKU:set by the distributor and unique within its own catalog; used for stocking, pricing and ordering in the ERP. Some distributors build it from a supplier line code plus the MPN, so the two can look alike.
• Manufacturer part number:set by the manufacturer and printed in its catalogs. Customers often copy it onto their orders.
• UPC:a 12-digit barcode number issued through GS1, part of the GTIN family that also includes 13-digit EAN codes and 14-digit case codes. Different pack sizes get different numbers. Scanned at receiving and picking.

Distributors link all three in each item record, and keep customers’ own part numbers and competitors’ numbers in a cross-reference, so an order can arrive with any of them and still be matched to the right item.

Inside sales reps sell remotely, by phone, email and video, while outside sales reps sell in person at the customer’s location. In distribution the two often work as a team on the same accounts: the outside rep builds the relationship and finds opportunities on site, and the inside rep handles the quotes, orders, pricing questions and follow-up.

A customer service representative (CSR) is a third role, and the one most easily confused with inside sales. CSRs mainly respond to incoming requests, such as orders, stock checks, delivery problems and billing questions. Inside reps handle many of the same requests but are also expected to grow their accounts, for example by calling customers who have gone quiet, following up open quotes and suggesting related products. Small distributors may combine the two jobs; larger ones separate them, and the exact split varies from one company to the next.

An RFQ, a quote and a purchase order are three steps of the same purchase: the customer sends a request for quote (RFQ) asking for prices, the distributor answers with a quote offering specific prices and terms, and the customer orders by sending a purchase order (PO), which becomes binding once the distributor accepts it. The distributor then records the purchase as a sales order in its ERP.

Not every sale goes through all three steps. Repeat customers skip the RFQ and send a PO at their usual prices, and large customers may send POs through EDI or a punchout catalog. A request for proposal (RFP) is a different, larger document, used to choose a supplier for a long-term contract rather than to price a single order.

A backorder is quantity a distributor has agreed to supply but can’t ship yet, kept open until stock arrives; a special order is an order for an item the distributor doesn’t stock at all and buys from the supplier for one customer; a drop shipment is an order the supplier ships straight to the customer instead of through the distributor’s warehouse.

The three overlap. A special-order item may be drop shipped from the manufacturer, and a special order goes on backorder if the manufacturer is out of stock. All three mean a longer wait than a stock item, so the customer should hear the expected ship date when the order is placed. Special orders are also frequently non-returnable.

Vendor-managed inventory (VMI) decides whose job it is to refill the customer’s shelves, and consignment decides whose balance sheet the stock sits on until it is used. Under VMI the supplier counts the customer’s stock and restocks it to agreed levels; under consignment the supplier still owns the stock at the customer’s site and bills only for what is consumed.

The two can be combined or used separately. A distributor can manage bins of fasteners on a customer’s plant floor that the customer already owns (VMI without consignment), or own the stock in those bins and bill only for what is used (VMI with consignment). A customer can also hold consigned stock that it manages itself.

An ERP runs a distributor’s transactions (orders, purchasing, inventory, invoicing and accounting), a CRM tracks customer relationships and selling activity, and a PIM manages detailed product information such as attributes, descriptions, images and documents. All three hold some data about customers or products, but each is the system of record for a different part of the business.

• ERP:what was ordered, shipped, received and paid for, at what price and cost.
• CRM:who the contacts are, which calls and visits happened, which quotes and opportunities are open, and what needs follow-up.
• PIM:what each product is, described completely and consistently enough to sell online and in print.

In practice the three exchange data: the CRM reads customer and order history from the ERP, and the PIM sends finished product content to the website and back to the ERP’s item records.