Distributors vs professional source-to-pay solutions providers

Distributors and professional source to pay services (S2P) providers offer different types of value to their customers, particularly in the areas of cost savings, efficiency, risk management and strategic partnerships.

Cost Savings

Distributors can help their customers save cost in some categories where they have special deals in place with the manufacturer or those that an enterprise client buys frequently or in large quantities. In some cases, however, the distributor may not be able to buy directly from the manufacturer and must buy through an intermediary, adding more cost. Additionally, many distributors follow a “list less” pricing method whereby the list price can fluctuate, making it difficult to determine what your price truly is.  

Professional source to pay solution providers, on the other hand, specialize in sourcing strategies that thoroughly test the market regularly and select partners for significant, high-value categories or brands, typically with an agnostic approach. 

They can use various techniques like e-auctions, or employ mass bidding tools that effectively source thousands of items at once to ensure that their customers get the best value for their money, leading to a higher overall cost savings. One of our global enterprise clients streamlined their systems and vendors - and saved 17.3% in just 120 days based on their last paid price.

Efficiency

Distributors can provide efficiency to their customers in several forms. First, if a company decides to partner with a distributor over a large portion of their spend, it can reduce the amount of time needed to source items and reduce the number of suppliers to manage.  

Additionally, distributors provide many value added services such as vendor managed inventory (VMI) and vendor managed ordering (VMO), which reduces the time internal stakeholders must spend on these activities.  

Finally, one of the biggest efficiencies that distributors can offer is in their ability to support vending programs, which can reduce the time needed to manage PPE, cutting tools and other high use items. This efficiency comes at a price, however, and it’s difficult to understand that cost unless you are able to competitively bid items out regularly. 

S2P service providers bring their own unique efficiencies:

• They employ tenured team members with specialized knowledge to establish strong buying strategies.
• Award business to those suppliers that provide competitive pricing and value-added services such as vending and VMI/VMO 

In a sense, customers can “plug in” to these strategies without being beholden to a particular supplier or distributor.  

Additionally, because S2P providers take on the work to consolidate POs and invoices, many companies go from having to manage thousands of invoices per year to one weekly invoice. What does this look like in the real world? 

We worked with a multinational medical devices and healthcare company with revenues of over $30b, presence in 160 countries and 560+ suppliers. This meant a complicated invoice processing and requisitioning process. This went down to one (DSSI) as we took on the complexities and management of all their global supplier relationships, freeing up resources on their procurement and accounts payable departments. 

Some S2P providers, including DSSI, even take on the work to provide PO confirmations and shipment tracking details to avoid requisitioners having to spend time tracking this info down. 

Many of the leading S2P providers today have also invested in powerful integration technology to enable seamless transaction processing between existing ERP and IM software and a custom e-catalog to cut out previous manual processes. 

Risk Management

Distributors can manage risk by taking a more active role with the manufacturer, which includes product warranties. This can help manufacturers mitigate risks associated with product sales and distribution.

S2P providers provide risk management in a far more comprehensive way starting with creating and qualifying a preferred supplier list and ensuring that their customers work with reliable and high-quality suppliers. They can also advise on risk management strategies related to sourcing and supply chain management and, typically, more quickly identify alternative sources in urgent situations or in times of significant supply chain disruption.  

Strategic Partnerships

Distributors can strengthen their value proposition with customers by providing value added services delivered by local branch personnel.  

S2P providers approach strategic partnerships in a more sustainable way, starting with thoroughly testing the market and selecting partners that align with the customer’s long-term goals and risk profile. From there, they can ensure reliable benchmarks and a strategic roadmap for the future that includes both the customer’s internal needs and a continuous improvement plan.  

In summary, distributors can offer some value to customers by reducing costs on select parts of the spend, increasing efficiency by reducing site-level workload, managing risks with manufacturers, and fostering strategic partnerships, often by serving as an intermediary that adds services to the supply chain. 

Professional S2P service providers provide strategic value by leveraging their specialized knowledge to optimize the supply base and procurement processes, manage supply chain risks and help customer’s build a sustainable procurement strategy, empowered by data.