Direct vs. AV Distribution: A Cost-Benefit Analysis

by Rob Ziv | Jun 12, 2017 | Education, Market

The Benefits of AV Distribution

“Oh, so you’re the middle man.” With implications of inflated costs and unnecessary complexity, this was the disparaging response from an old acquaintance while catching up after a time apart. Putting aside Almo’s “value add” let’s look at the real financial implications of sourcing equipment; considering both the hard- and soft-dollar costs of a purchase order. Hard-dollars are the unit cost of the equipment and freight. Soft-dollar expenses associated with purchase orders include:

• The time spent getting quotes.
• Receiving shipments (and associated work interruptions).
• Reconciling packing lists.
• Cutting checks.
• Balancing the checking account.
• The process of managing cash-flow.
• Coordinating returns with vendors.
• Warehousing and staging equipment until all items have arrived for a project.

Each of these soft dollar items has a direct cost in wages along with an opportunity cost from lost employee productivity. There are numerous studies available on the Internet discussing the costs of issuing a purchase order. Some studies show a range of $35.88 for automated purchase orders to $741 for some manual POs. To find your cost per PO, add up the time spent each week on all of the above activities and divide by the total number of purchase orders.

The following tables compare streamlined purchasing of equipment for a modest project through buying direct from manufacturers versus the same purchase from a distributor. These scenarios reflect actual prices of commonly used equipment. The soft-dollar average of $75 reflects the low-end of actual cost per PO as communicated by our commercial integrator clients. The manufacturer names and model numbers are masked to protect integrators and resellers from this information reaching the end user.

Scenario 1) Single Source from an AV Distributor

In order to provide a conservative estimate of savings: shipping is calculated to Lebanon, KS – the geographic center of the Continental US. Assumed origination point is a warehouse in Pennsylvania, even though closer options are available. This maximizes the distributor shipping cost in this example.

Scenario 2) Multi-source from Individual Manufacturers

Improving the Margins of Error on Your AV:

What would an additional margin of 1 to 4% do for your business? The above comparison favors using a distributor due to a 4.1% lower cost. This assumes per-unit costs are the same for purchasing direct and from a distributor. In some situations, not all, the per-unit cost for an item may be as much as 3% lower by purchasing direct. Running the above comparison with a 3% discount across all products for direct purchases brings the equipment total down $14,072.83 with a new total of $15,277.83. This is still a 1.3% savings by using a distributor. For the sake of brevity, these scenarios do not include every item necessary for a complete system. If we add in racks, cables, and all the other necessary elements for a complete system, the comparable savings would only increase. Additionally, in order to provide an “apples-to-apples”, the mount manufacturer specified above is constrained to the same manufacturer as the display and projector. However, over 80% of display and projector mounts are not supplied by display or projector manufacturers. As such, real world savings will be greater as more manufacturers are added to the mix.

But Wait, There’s More:

The reduced opportunity cost of streamlined purchasing can also result in productivity gains. This has the greatest implications for smaller firms where most people juggle multiple responsibilities. How long does it take a design engineer or sales person to regain full focus on a project after multiple interruptions by UPS, FedEx, and other freight deliveries for a single project? How much time is spent gathering quotes from multiple vendors only to find any potential savings diluted through increased shipping costs? How many “to-do” items are aging on your list and how would your business grow if more of them were completed? Regaining otherwise lost productivity through streamlined purchasing may allow for faster project completion, additional bid responses, selling more jobs, and greater efficiencies in general.

There may be circumstances where purchasing directly from a manufacturer may save a few dollars – perhaps with a single-item box sale. When considering some distributors also provide equipment staging, simplified communication with manufacturers, more flexible credit terms, technical expertise, and education; the benefits extend beyond streamlined purchasing. If you have not looked into utilizing the services of a distributor lately, you may be leaving money on the table.