Catch up by reading Part 1 here!

In the first part of this article, we explored some of the options available and the impact to the overall channel when distributors/dealers essentially manufacture private label goods for the marketplace. Today, we look at the three other and similar models, and explore the implications of Manusaling, Distservfee, and Communiprint.

2. Manusaling: Reporting about Graph Expo last year, THE EAGLE noted that many of the industry’s top manufacturers were showing significant numbers of products that they didn’t manufacture themselves. In some cases, companies like KPG were selling digital electronics manufactured by Dainippon Screen, and/or ECRM, but in cases, goods were being manufactured by others to their own design and sold as if the manufacture was in their own factory. Manufacturers are beginning to understand that they no longer need to own the fixed assets of plant, property and capital equipment to make a fair return. A more important concept is that these products don’t even have to be in the manufacturers mainstream.

By wholesaling products that are sourced and then bundled with similar products to extend their reach, manufacturers are developing more breadth for themselves without the need for as much investment before profitability. Before running to the bank with these newfound profits, THE EAGLE must note that there are two major pitfalls. The first has to do with whether too much reliance on others to develop core products should ever occur. Loss of a key line could be fateful to the manufacturer. The second relates to a proper understanding of costs. With manufacturing, it is quite straightforward to look at break-even volumes and set pricing to make a profit. With outsourcing, a whole raft of other issues equated to understanding the impact of activity costs, not just the cost of purchase, must be included in the break-even calculations.

There is much opportunity to win, but taking on products that can be manufactured more cheaply by others and providing lowered distribution costs to their sales, has the possibility of bringing deflation to the marketplace as a whole, not just improving the bottom line of the first to try it.

In a version of this process, the manufacturer buys a distribution company because too much cost is associated with selling only a single brand. By delivering its products to the wholly owned distributor, it is possible to spread sales costs over many more products, manufactured by others, and to profitably grow the business faster than possible on the manufacturers own.

The best example of this in the graphic arts marketplace is with Fuji Photo Film buying its national distribution channel, now named Enovation Graphic Systems. Another version of this activity has the manufacturer selling products manufactured by others, as well as taking the bulk of its business, that with its largest “customers,” direct. KPG’s behavior in the marketplace is a good example of this phenomenon. It achieves much of the savings that Enovation is supposed to bring (broader product line and streamlined distribution costs) without the need to buy the distribution channel – but at the expense of the channel itself.