How to Become a Distributor of Products
Every day there are billions of dollars that change hands as products make their way down the distribution chain from manufacturer to consumers. You could become a product distributor if you think you can create an innovative new channel for distributing a product, have identified a new group of potential consumers with a demonstrated need for certain products, or you wish to capitalize on an existing consumer base by diversifying your retail offerings with new products.
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Instructions
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Decide which product you wish to distribute and determine if there are any regulatory requirements you need to meet prior to distributing it. For example, distributors of pharmaceutical drugs and medical devices must comply with special federal and state licensing regulations, in addition to laws like HIPAA and various controlled substance laws. Consult a lawyer as part of your investigation into the regulatory requirements to distribute your desired product.
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Determine the target customer to whom you will sell the product after purchasing and transporting it. According to "Entrepreneur" magazine, you can choose either to sell a product directly to its end-user or to another merchant distributor like a retail store. Avoid accumulating large inventories by carefully managing your supply chain and your relationships with your customers. Decide which channels you will use to distribute the product to your customers and ensure that manufacturers and other large wholesalers do not contractually prohibit you from using those distribution channels. For example, a manufacturer can contractually prohibit you from auctioning a product on eBay.
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Conduct a market analysis to determine the most dominant manufacturers in the product category. Ideally, you will only seek to distribute products that have significant brand equity and market share, although you may also choose to distribute products that have a smaller market share if you receive favorable purchasing terms in exchange. Favorable terms include better prices, larger or more flexible credit arrangements, and reduced risk thorough consignment and buy-back contract clauses that obligate a supplier or manufacturer to repurchase unsold inventory.
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Approach the product's manufacturers and big wholesalers to negotiate a purchase price and other purchase terms. In general, you should be bringing something to the table to command the attention of a manufacturer or large wholesaler. If you don't have an existing customer base or an established brand, you may need to have access to substantial credit and to take substantial business risks of spoilage or failure to sell a product to begin a relationship. Sometimes the product manufacturer will be based overseas, in which case you will need to import the product before distributing it domestically.
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Determine your inventory management practices, including where and how you will transport and warehouse the product. Rent or lease storage space that is in compliance with regulations on your product category. For example, food products have several important regulations concerning refrigeration and expiration dates that you must abide by. Acquire a trucking fleet or contract with transportation companies to deliver the product to your customers.
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Tips & Warnings
Consult an import lawyer for help navigating and complying with U.S. Customs regulations.
Evaluate the risk that the manufacturer can undercut your profits through direct distribution. Manufacturers are increasing turning to the Internet to distribute their products directly to end-users and thereby bypassing product distributors. Seek contractual promises against this behavior if you have enough leverage as a distributor.
References
Resources
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