"Middleman" is a cost-saver

In his article in the July 1998 issue (see "Years-old cabling carries end-users toward future," page 55), Patrick McLaughlin states, "By purchasing all the cable, connectivity components, cable-housing equipment, and network electronics directly, the University of California at San Diego (ucsd) saved money because it didn`t have to go through a middleman." On the surface it would appear that buying products directly is economical, but the fact is, it isn`t.

Richard E. Bartnett

Sales Manager

MPHusky Corp.

Greenville, SC

In his article in the July 1998 issue (see "Years-old cabling carries end-users toward future," page 55), Patrick McLaughlin states, "By purchasing all the cable, connectivity components, cable-housing equipment, and network electronics directly, the University of California at San Diego (ucsd) saved money because it didn`t have to go through a middleman." On the surface it would appear that buying products directly is economical, but the fact is, it isn`t.

Manufacturers of cabling products consistently spend money on research and development. They are faced with the issue of getting new products to market in the most cost-efficient manner. The company may have a factory-direct sales organization or may contract with manufacturers` representative companies to sell products on commission.

How can these manufacturers get products to market cost-effectively? If they sell direct, they must consider central warehousing or perhaps regional warehousing, which adds to the cost of goods. Expenses are associated with warehousing space, employees, transportation, and handling the goods two, three, or four times before they reach the customer.

In terms of billing practices, the administration of handling direct accounts is a virtual money pit. The personnel required to handle receivables will escalate to a point where manufacturers are forced to charge more for their goods and services because of increased overhead.

The advantages to the consumer who purchases products from a manufacturer`s distributor network are numerous. The distributor inventories products for the local market, maintains inventories from many manufacturers, and can meet customers` requirements from its own inventory. Also, with manufacturers` support, the distributor learns the applications and markets of the manufacturers` products and expands the manufacturers` customer base by giving them more "feet on the street."

The distributor has the ability to work with customers on a local level. The distributor becomes an information source and a problem-solver that extends credit to a local customer base.

All these services save manufacturers money, which, in turn, reduces costs to the ultimate end-user. So purchasing products through distribution is more economical, not more expensive.

In addition, the term "middleman" should not apply, because the distributor is actually enabling the manufacturer to lower costs by providing local availability, a broad array of related products, technical expertise, ease of doing business, and payment terms. When the manufacturer must perform these functions, overhead goes up, as does the price of the goods.

The author replies:

The July 1998 article revisited an article published in this magazine`s October/ November 1993 issue, entitled "Standards-based wiring system ensures networking flexibility." In the 1993 article, the author, a network specialist with the ucsd, stated that the decision to purchase cabling products directly was made "to cut costs." My comment in the July 1998 article referred solely to the ucsd project and was not intended to be a blanket statement categorizing direct-purchasing as the most cost-effective purchasing method in all instances.

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