Distribution Mechanics: Reservation Costs and Inventory Pre-Financing
For large purchase volumes, our vendors generally grant special prices, known as »project prices«. When we receive a project order from one of our resellers, we typically reserve the available stock until the agreed delivery date and order any missing goods from the vendor.
What »some« may not realise – and what »others« might consider commercially absurd – is this: we always purchase the goods from the vendor at the same price, namely the standard distribution purchase price. If, for example, our purchase price for a printer is €100 but the project price is only €50, we actually sell the product at €50 below our own purchase price.
Naturally, once the project has been delivered, the vendor reimburses us the €50 difference. So far, it’s fair.
However, if the delivery stretches over several months, we finance the full €100 value in the meantime. While the system integrator has sold 10,000 printers for €500,000, we are carrying inventory in our warehouse worth €1 million – because we have paid for it upfront.
That explains why distributors always push for projects to be delivered as planned and not postponed 20 times by the end customer – because that is very expensive. With the typically slim distribution margins (yes, here comes the usual complaining), financing costs can easily »eat up« the entire margin within just a few weeks.
With our resellers, this is rarely an issue: they generally only place orders with us once they have received a firm order from the end customer.
It becomes amusing – and particularly costly – when a vendor says: »This project is definitely coming the week after next. Unfortunately, the end of the quarter falls in between, and we need to place the goods into your warehouse tomorrow – so please hold them for now.«
In the best-case scenario, it works out. In the worst case, the reseller is not even aware of the project yet, and the end customer has not fully committed to the vendor. We have seen it all before. So at Jarltech, we have become somewhat more cautious in such situations. Of course, it is part of our job to anticipate deals from time to time – but buying »hot air« indefinitely is not a sound strategy either.
So please have understanding if our sales or purchasing teams occasionally ask a few more detailed questions about the actual status of a project. Because remember: pure »hope« can be expensive.
Why do we operate a 3,000 m² Event & Training Centre with a showroom in the middle of nowhere?
First of all: what are you thinking? Usingen is, of course, not in the middle of nowhere – it’s less than 30 minutes by car from Frankfurt Airport....
First of all: what are you thinking? Usingen is, of course, not in the middle of nowhere – it’s less than 30 minutes by car from Frankfurt Airport. And yes, the Usingen railway station is right next door. More importantly, our Event & Training Centre is located almost directly beside the Jarltech campus.
So why do we do it? We do it for you – our partners! Our two-story Showroom, the largest permanent exhibition in our industry, is constantly in use:
- by partners who present hardware and their own solutions to end customers
- by new employees of partners whom we train on the products
- by vendors who hold their sales meetings with us and like to have a look at – and even try out – competitors’ products
- by vendors who present their latest products
On top of that, we host numerous events in our Jarltech Event & Training Centre where partners invite their end customers… large presentations on the 25 m² video wall, dinners with up to 800 guests (standing) or 250 (seated) at round tables, buffets or relaxed gatherings in our beer garden, bar and lounge. For meetings, there are also eight meeting rooms available for breakout sessions.
And, to be honest, we shouldn’t forget that we also use it ourselves – for training sessions as well as for celebrations. From the Jarltech Summer Party to the Christmas Market, networking dinners or our after-work events. We’ve had just about everything in the hall already: from a go-kart track to tightrope walkers to whisky tastings. And one regular guest every year: me, as Father Christmas.
So, you see – yet another value add from Jarltech that helps drive your business forward. By the way, the Showroom is also available virtually on our website. See you soon in Usingen! And be sure to think about how your company can profit from our investment.
Distribution Mechanics: Reservation Costs and Inventory Pre-Financing
For large purchase volumes, our vendors generally grant special prices, known as »project prices«....
For large purchase volumes, our vendors generally grant special prices, known as »project prices«. When we receive a project order from one of our resellers, we typically reserve the available stock until the agreed delivery date and order any missing goods from the vendor.
What »some« may not realise – and what »others« might consider commercially absurd – is this: we always purchase the goods from the vendor at the same price, namely the standard distribution purchase price. If, for example, our purchase price for a printer is €100 but the project price is only €50, we actually sell the product at €50 below our own purchase price.
Naturally, once the project has been delivered, the vendor reimburses us the €50 difference. So far, it’s fair.
However, if the delivery stretches over several months, we finance the full €100 value in the meantime. While the system integrator has sold 10,000 printers for €500,000, we are carrying inventory in our warehouse worth €1 million – because we have paid for it upfront.
That explains why distributors always push for projects to be delivered as planned and not postponed 20 times by the end customer – because that is very expensive. With the typically slim distribution margins (yes, here comes the usual complaining), financing costs can easily »eat up« the entire margin within just a few weeks.
With our resellers, this is rarely an issue: they generally only place orders with us once they have received a firm order from the end customer.
It becomes amusing – and particularly costly – when a vendor says: »This project is definitely coming the week after next. Unfortunately, the end of the quarter falls in between, and we need to place the goods into your warehouse tomorrow – so please hold them for now.«
In the best-case scenario, it works out. In the worst case, the reseller is not even aware of the project yet, and the end customer has not fully committed to the vendor. We have seen it all before. So at Jarltech, we have become somewhat more cautious in such situations. Of course, it is part of our job to anticipate deals from time to time – but buying »hot air« indefinitely is not a sound strategy either.
So please have understanding if our sales or purchasing teams occasionally ask a few more detailed questions about the actual status of a project. Because remember: pure »hope« can be expensive.
Safety gone mad: Health & safety thinks we’re all half-wits!
…or at least incapable of surviving on our own....
…or at least incapable of surviving on our own. Health and safety is important, no question. Safety comes first. But there is such a thing as taking it too far.
Here’s the showstopper right at the beginning:
Our colleagues in the purchasing department are now required to wear safety goggles (eye protection) when leaving their desks. Reason: There are plants in the department with sharp-edged leaves. (Pause.) Seriously?! Yes, seriously. That’s pure slapstick.
Another good one: Our facilities team has just cleared snow. But careful! Cones must be placed around the area where the shovelling is taking place. Someone might otherwise walk into the moving shovel. Quite honestly, anyone not looking where they’re going could just as easily trip over a cone.
And in the kitchen, washing-up liquid has to be locked away. Dishwasher tablets? May only be used by people who have received proper instruction. So yes, that means training for dishwasher tablets.
Desks tend to have corners. Highly dangerous! Therefore, every corner must be fitted with rubber protectors.
Are we in nursery school?
Is it even worth getting worked up about it anymore?
At least that was all within the company. In our private lives, on a construction site, work was immediately halted. Reason: Outside temperature below five degrees Celsius, and the portable toilet wasn’t heated … In a comfort-obsessed country I can almost understand that. I hadn’t even thought about it because I didn’t know heated ones existed. I had it replaced. But do you really have to stop construction over something like that?
I fear the health and safety brigade will soon be paying a visit to our restaurant as well. Without chainmail gloves, handling knives will probably be banned. For guests too, since steak knives are clearly instruments of the devil.
Enough on that subject. I’m going home now, hoping I don’t trip over the dog. He’s stubbornly refusing to wear a high-visibility safety vest.
(Not satire.)
Distribution Mechanism: Price Protection
We are currently in a phase where manufacturers are significantly increasing their prices....
We are currently in a phase where manufacturers are significantly increasing their prices. And not just once – we expect prices to rise several more times this year. They may then fall.
It has reached the point where some manufacturers only calculate once an order has been placed and then state the price at which they will accept it – the price is then valid for one day. This is somewhat reminiscent of the coronavirus period. However, there is no alternative – we must persevere. The change is clearly most significant for relevant end customers who plan rollouts of thousands of devices over months and want planning security. That is no longer possible – ordering and accepting delivery is the only solution for price security.
Of course, this often leads to the question: »You still have devices in stock that you bought at the old price. We want to get them at a discount too.« – and that is a false conclusion.
In distribution, there is a mechanism called »Price Protection«. This is supposed to protect us from price reductions: If a manufacturer lowers the price, we receive a refund for any items already in stock. »Unfortunately«, it also works the other way around: If a manufacturer increases its prices, we must pay the manufacturer extra for goods in stock. This could result in a bill amounting to several million. So, as you see, we don't have any »cheap, old goods«. Due to frequent price changes, it is also possible for a particular device in our inventory to be repriced several times. While this is a minor nightmare for our inventory management, it is ultimately fair and the only solution.