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Distribution mechanics: why doesn’t Jarltech sell directly to end users?
In my previous article, I explained why vendors work with distributors instead of supplying thousands of resellers themselves....
In my previous article, I explained why vendors work with distributors instead of supplying thousands of resellers themselves. The obvious follow-up question comes almost immediately – one step further down the chain:
»Fair enough, the vendor sells to you. But why don’t you simply sell directly to the end customer? Surely you could cut out the reseller in the middle.«
It follows the same logic, and the same misunderstanding, just one level further down. And the answer is equally straightforward: because we deliberately choose not to. We are never in competition with our customers.
Let us start with the most important reason, without any romanticism: the reseller is our customer. If we were to sell directly to their end users, we would be attacking the very people who entrust us with their business. That is called channel conflict, and it is the quickest way to destroy a distribution business. A reseller who fears that their supplier might poach their customer tomorrow will simply stop buying from that supplier today.
In this industry, trust is not a feel-good buzzword – it is real working capital.
Yes, there are still so-called hybrid distributors who also sell directly to end users, either themselves or through subsidiaries. Anyone buying from them is effectively buying from a competitor. The fact that some vendors continue to tolerate this is much like their acceptance of non-stocking distributors: it reflects a reluctance to make difficult channel decisions for fear of losing the occasional customer somewhere along the line.
Then there is the question of value creation. We sell hardware – a scanner, a printer, a POS system. What the end customer actually needs, however, is a working solution: configured, integrated into their business systems, installed on site, supported by trained staff, and restored quickly when something goes wrong.
That is exactly what the reseller or systems integrator does – and they do it better, closer, and faster than we ever could from our offices in Usingen. They know their local bakery chain, their pharmacy group, their logistics provider. That final and crucial mile between »product in a box« and »solution up and running« is not our area of expertise. It is theirs.
And quite simply, we are not designed for end users. Our entire organisation – logistics, credit management, payment terms, support structures, contracts – is built around B2B business and professional resellers. End users bring an entirely different set of requirements: consumer protection legislation, retail customer support, Saturday evening phone calls asking how to switch a device on, individual shipments to private addresses, and returns without any project context.
That is a different business model with a completely different cost structure – and it is not ours. Companies that try to run both simultaneously usually end up doing both badly.
As you can see, it is exactly the same mechanism as one level above. Just as the vendor excels at designing products and we excel at distributing them thousands of times over with added value, the reseller excels at turning those products into functioning solutions for the end customer.
Three levels. Three disciplines. Each carrying its share of the burden.
If we were to skip a level, we would not be creating efficiency. We would simply be taking on responsibilities that others perform better while alienating the very partners on whom our business depends.
That is why Jarltech does not issue a single invoice to an end consumer. Not because we are unable to – but because doing so would undermine the very model that sustains all three parties.
And remember: »If you overtake your own customers, you do not arrive any faster – you simply arrive alone.«
Distribution mechanics: why do vendors work with distributors?
A question I am asked surprisingly often – sometimes by a reseller, sometimes by a new employee, and occasionally even by vendors: »Why don’t vendors simply sell...
A question I am asked surprisingly often – sometimes by a reseller, sometimes by a new employee, and occasionally even by vendors: »Why don’t vendors simply sell directly? That way everyone saves the distributor’s margin.«
At first glance, it sounds perfectly logical. In reality, it is not. And the reasons are very tangible – in fact, they have surprisingly little to do with the margin itself.
Let us imagine a vendor wants to serve the European market directly. Instead of dealing with a handful of distributors, it suddenly has to manage several thousand small- and medium-sized resellers. Every one of them requires a credit assessment, payment terms, invoices in local currency, a contact person who speaks their language, the occasional payment reminder – and every now and then one of them defaults altogether.
Vendors have done the math. Managing all of this can cost up to 14% in margin, whereas efficient distributors typically provide the same service for less than half of that. At this point, it is no longer a product business – it is a banking business. We absorb precisely that risk and administrative burden on behalf of the vendor. Instead of dealing with a thousand potentially unreliable debtors, the vendor has just one customer that pays on time: us.
Then there is the logistics aspect. The vendor prefers shipping full pallets to a single destination. A reseller, however, may only need three printers and a handheld of devices – and they need them tomorrow. Breaking down large shipments into individual units and dispatching them daily to hundreds of recipients is the so-called »last mile« of distribution. Vendors generally have little interest in doing this themselves. We do.
The distributor also plays a critical role in large projects. Shipping 10,000 terminals may sound straightforward enough, but by the end of the project the customer often wants twenty separate deliveries of ten cables each to different locations. Someone has to manage that complexity.
And the list goes on: local sales teams in every market, technical support, RMA processing, configuration services, bundled solutions, reseller training and enablement. A vendor’s field sales team can economically focus on major end users and large-scale projects, but it cannot afford to spend significant time supporting a reseller who purchases €8,000 worth of products per year. The numbers simply do not add up. We provide the reach needed to access the vast majority of resellers.
Another way of looking at it is this: vendors are experts at designing and building products. We are experts at bringing those products to market thousands of times over, in small quantities, on credit, across 22 countries. These are two entirely different disciplines, each demanding full attention. A vendor attempting to do both will usually struggle with one of them – often with the very thing it does best: developing products.
And of course, there is the balance sheet – arguably the most important point of all. By working through distribution, vendors remove receivables and inventory from their own balance sheets and transfer that burden to the distributor.
The distribution margin, therefore, is not a fee. It is the price paid for having someone else provide the capital, absorb the risk, manage the logistics, and execute the market coverage that the vendor would otherwise have to handle itself – only at greater cost and with less efficiency.
Anyone who asks the question about direct sales usually does so only once.
Because one simple truth remains:
»You can eliminate the middleman – but you cannot eliminate the work.«
Compromise is the enemy of excellence
There is a word that, in many companies, is seen as a sign of maturity: compromise. You meet in the middle, everyone gives a little, everyone gets a little....
There is a word that, in many companies, is seen as a sign of maturity: compromise. You meet in the middle, everyone gives a little, everyone gets a little. Sounds fair. But it isn’t. Because a compromise is usually nothing more than the organised defeat of the best idea.
Compromises rarely arise because two options are equally good. They arise because no one wants to endure the conflict. Because the clock is ticking. Because the courage is lacking to clearly say: this solution is better than that one. The result: mediocrity prevails. A compromise feels safe. It isn’t.
Excellence sometimes means making uncomfortable decisions. Clearly stating what you believe is right. Not hiding behind »we’ve reached an agreement«.
At Jarltech, we strive to ensure that the best solution always wins. Not the most convenient one. Not the loudest one. The best one.
And if that means we occasionally ruffle some feathers – we’re perfectly fine with that.