Friday, August 22, 2008

Distributors Explained

I got an e-mail recently from a sales person asking how to become a distributor for Linvatec.

The notion of distributor seems to cause a lot of confusion for people who are from outside the orthopedic realm. That's partly due to the fact that a distributor in different industries can mean very different things.

There are large medical distributors like McKesson, Physician Sales and Service (PSS), and Cardinal Health that carry thousands of products. They can outfit a physician's office with everything from Band-Aids to exam tables. They carry a whole catalogue of products from hundreds of manufacturers. These companies are pretty close to the traditional notion of a distributor that might exist in other industries, like an electrical distributor or a distributor of building materials.

This is not what a typical orthopedic distributor is like.

Orthopedic distributors are typically of two varieties, as far as I can tell:

1. Individual reps with experience and a base of customer contacts in the industry who decide to go into business one their own. They pick up different lines to represent on a 1099 basis; these lines may be from smaller or start-up companies who want to develop a base of business but aren't ready to launch a sales force. These individual distributors or independent contractors may hire on associates to work with them if they get busy enough and typically have a fairly focused territory they are responsible for.

Unfortunately, the distributor is susceptible to loosing the product if it is successful in the market and the company develops direct sales force. If this happens, the distributor goes looking for additional lines to replace the lost revenue, and the cycle starts again.

2. Regional distributors with strong ties to a major manufacturer. The distributor owners run larger organizations with multiple reps over a multi-state area and may warehouse inventory. Sometimes, but not always, the distributor owners may have once worked for the manufacturer itself and have earned the opportunity to become a distributor owner (as in business owner) through stellar performance. Although they may carry smaller, non-competing lines, the major manufacturer's line constitutes the bulk of their business. They typically have multi-year contracts to represent the line, and are expected to meet the performance expectations laid out by the manufacturer.

Linvatec's distributors, and those of many of our major competitors, are of this second variety.

1 comment:

The Distributor Specialist said...

Very well thought out post. However, a word of clarification. The small distributors you referenced are generally called manufacturer's agents in other businesses. The key differentence comes in their contracts, whether they reguarly consolidate orders for a variety of companys and often by whether they take ownership of the product.

Frank Hurtte