Pros and Cons of Procuring Directly from Manufacturer vs. Distributor - SolarFeeds Magazine (2024)

If you compare today’s market trends and ten years before, there are many new technologies and innovations that have taken place. The middle persons or in-betweens in the process of moving a product from point A to point B have been reduced and the internet has a major role in this case.

However, if you are looking for the best and high-quality solar products and batteries, then you can buy them from the two sources of points: manufacturer and distributor.

Furthermore, purchasing products or goods from manufacturers is called direct purchasing while buying products or goods from distributors is called indirect purchasing. Now, let’s get into the advantages and disadvantages of buying products from manufacturers and distributors.

Advantages & Disadvantages of Buying Products Directly from the Manufacturer

Gone all those days when manufacturers were dealing only with retailers and wholesalers to move their products to the consumer end. All thanks to the Internet, it has made things simpler and now, people can access product manufacturers more easily.

First of all, the most important fact is the manufacturer of a particular product is an expert. Furthermore, manufacturers go through every stage of design and production and thus, they know every detail and feature of a particular product. They provide the best advice for any customer who wants to make a purchase for their requirement. So, when you go to the manufacturer to buy a product, you seek specialized advice from them and a number of options from a large range of products.

You can also go for the customized options and get a particular product manufactured of the required specifications. You can also get the products at low and better prices.

Purchasing a product directly from the manufacturer means, you are eliminating the middle person i.e.retailer or wholesalerwho buys products at a low price and adds extra margin while selling. Thus, you are avoiding those extra expenses by purchasing directly from the manufacturer.

Therefore, it becomes more beneficial for a consumer as they buy products at a lower price, receive more specialized customer service, design features, etc.

In addition, if you want to buy anysolar productsor batteries for your application needs, you can purchase them directly from the manufacturer which is called direct purchasing. Furthermore, solar panels or battery manufacturers design, manufacture, and brand their own products into the market. They bring out new technologies into the market and re-design the older products if their demand starts decreasing. Thesolar paneland battery manufacturers sell their products in two ways: directly to the end-user or through a number of authorized distributors. However, the key advantages and disadvantages of buying products directly from the manufacturer include:

Advantage Buying Directly from the Manufacturer

1. Lower Costs

I’d say that’s probably the only benefit. When you want to buy at least 1-2 40Ft container of solar panels, you bet you can get them at very cheaper prices.

2. Having a hand on the pulse of the supply chain

If you’re talking to manufacturers

Disadvantages Buying Directly from the Manufacturer

Minimum quantity order

Buying directly with the manufacturer, especially with Tier1 PV makers, needs significant spend levels in order to qualify as a customer.Typically BNEF Tier 1 PV manufacturers’ minimum quantity order are around 250-500 KW (one 40Ft container), while “Tier2 manufacturers” might require much less.

Relatively complicated logistics and trade terms

Currently China dominate the lists of biggest global solar panel brands. In fact, more than 71% of the world’s solar panels are made in China by 2019 according to Statista.com’s numbers. Therefore, “buying from manufacturers” essentially means getting shipments from China. A lot of so called “Non-Chinese brands” are mainly made in China as well, such as AE Solar (a German brand), Canadian Solar(a Canadian brand), Leapton Solar (a Japanese brand).

However, do you know the differences between CIF, FOB, EXW trading terms?

Requiring a much bigger cashflow

Also, during the times of disruption, larger authorized distributors may get the priority rather than the manufacturers.

Advantages and Disadvantages of Distributor-based Purchasing and Selling

If the manufacturers go for distributor-based selling, then there are multiple sales channels that include wholesalers, retail stores, international dealers to reach a wider audience, and online shopping portals.

In addition, if the manufacturer wants other parties to sell products for them, then they go through the distribution-based selling by connecting with the dealers. Furthermore, most of the manufacturers have a close partnership with authorized dealers who can distribute their products in a wider market. However, the manufacturer and the distributor follow strict agreements on the conditions around pricing, targets, territory, stock holding/levels, etc.

Depending on the business and type of products, most of the manufacturers won’t sell products in small quantities. So, it won’t be possible for an individual consumer to buy directly from the manufacturer. In that case, you should go to the distributor (who purchases products in bulk) to buy the product you need. Here, you may get products at an affordable price but higher as compared to the price from the manufacturer. Although, some of the advantages of distributor-based purchasing are the same as that of direct purchasing, let’s look into some of them.

Advantages of Buying from Distributors

1. Purchasing of Products in Small Quantities

Most of the manufacturers sell their products to the suppliers in large batches and if you are planning to buy a particular battery or solar products for your home application needs or small offices, then purchasing from manufacturers is not the right thing. In such cases, it is a clear advantage to buy solar products or batteries from the best distributors or suppliers in the market.

2. Lower Inventory and Payment Risks for You

As an installer, if you buy one or two 40 ft container at once, you’d be dealing below risks:

• Shipping risks
• Payment risks
• Inventory risks

Your cash might be trapped in your inventory if your company’s installation sales is lacking. If you buy from distributors

3. Buying all components from one place

This one is easy to understand. If you have to buy each component directly from manufactures, you would be dealing with at least 5 suppliers for just one project.

Disadvantages of Buying from Distributors

• The supply chain strategy of the manufacturers can be revalidated with their business objectives.
• It can result in franchise agreements with short notice.

Relationship Between Manufacturer and Distributor

The manufacturer can get their products into the market in two ways: direct sales and distribution channels.

Furthermore, selling products directly to the customers hold many challenges for the manufacturers and they should be spe

cialists in storing, building, marketing, selling, and delivering products to the customers. So, most of the manufacturers go in partnership with distributors and carefully manage their relationship.

However, the manufacturer-distributor relationship varies from industry to industry while some are strategic and some are tactical. In a strategic relationship, the manufacturer and the distributor come in collaboration for marketing, branding, and product development. In this type of relationship, long-term goals are being met.

In a tactical relationship, the manufacturer and distributor focus mainly on increasing sales. Here, the manufacturer builds the products, logistics are handled by the distributor, and marketing enables those products in getting into the hands of customers.

If the relationship between the manufacturer and distributor is like a seller and buyer or an employer and employee, then that might not work out. Rather, every manufacturer and distributor relationship should be like a partnership. However, some might not approach this kind of relationship as it would be more challenging but if they, then they pay off big dividends.

Challenges of Manufacturer & Distributor

Some of the challenges that manufacturers come across are:

• When the products pass through the distribution network, manufacturers have to maintain the integrity of their brand.
• Creating engagement with the right customers, reps, and distributors.

These challenges can be achieved by the manufacturers only through partnership.

This can help them in marketing and undergo best practices to convey brand attributes.

Furthermore, some of the challenges that distributors come across are:

• It is important to accept that the manufacturer-distributor relationship is not a kind of an employer or employee. They have independent business goals.
• Distributors should attract top sales talent to sell their products.
• Firstly, it is necessary to understand the distributor’s business. If you have no proper alignment of your business goals and if the product is complex, then you might be negatively affected with your business.
• Most of the distributors face a common issue, i.e. lack of support. So the manufacturer and distributor should put in all the essential efforts in their relationship.

What Does a Distributor Want from a Manufacturer?

When the manufacturer and distributor are in a business partnership, they get benefited in each way. The distributors purchase products from wholesale manufacturers and sell them to consumers through a network of retailers.

However, there are some things that a distributor expects from a manufacturer. They are:

• Honesty –A distributor does not allow a manufacturer to sell products directly to the end-users. In this case, a distributor expects honesty from the manufacturer. The manufacturers should accept the fact that they do not have the same skills as that of distributors and they should respect their knowledge and services that they contribute to selling their products.
• Transparency –Transparency comes in a closer connection with honesty. A distributor expects the manufacturer to be honest but transparency comes into the play only when the manufacturer accepts the distributor as a partner. Furthermore, such kind of relationship makes their future intertwined and enable them to be together-successful.
• Innovation –When a salesperson is going to a customer to sell a particular product, they need a strong reason to tell why a particular product is the best compared to the other products in the market. In today’s modern world, everything is about the design, service, and price of a product. So, every distributor wants their manufacturers to react to the market changes and innovate, create new exciting features and design of a product. Distributors always expect wow response from their clients.
• Reaction –We all are humans and we do commit mistakes knowingly or unknowingly. So, in one or the other case, if the end-user is unhappy with the product sold by the distributor, he/she gets back to the distributor and complains about the product. In this situation, the distributor relies on the manufacturer for certain help and expects a positive response. Something like: this might be a solution and it may work out. We’ll discuss this again when the client is satisfied and take necessary steps to prevent it. Such kind of response can help them to build a strong relationship.
• Marketing/ Leads –Sometimes, the distributor might receive leads from the manufacturer as well. For suppose, if the customer from a targeted audience goes to the manufacturer to buy a product, they can pass-on that lead to the distributor instead of direct selling. Also, distributors expect manufacturers to provide marketing support i.e. custom branded literature or websites.

Types of Distributors

There are three types of distributors and they are: intensive distributors, selective distributors, and exclusive distributors.

• Intensive distributors –When the manufacturers want to sell their products in the fastest way possible, then they choose intensive distributors. These type of distributors work with many manufacturers and sell products in high volumes and at lower prices. In this case, the profit margins are generally lower.
• Selective distributors –In this type, manufacturers select experienced distributors who are specialised in distributing their products. However, in order to reach the targeted market and maximize profit margins, the manufacturers can restrict the number of retailers that a distributor can supply.
• Exclusive distributors –If the manufacturers have a particular niche market and products, then they opt for exclusive distributors. They have only one exclusive distributor for each territory. Furthermore, manufacturers opt this kind of distributor when it is important to maintain brand image, brand integrity, and high pricing points.