In career moves that have intrigued the industry, two former Tucker Rocky executives have founded a company that helps vendors sell directly to dealers. Direct 2 Manufacturer (D2M) is the brainchild of Tim Pritchard and Del Munoz, who served as the distributor’s VP of sales and director of sales, respectively, before leaving in 2009.
A couple of other industry veterans have joined D2M as partners: Josh Whitaker and Walter Clark. The former has held positions not only at Tucker, but KTM North America — as its marketing director. He’ll serve the same function for D2M. Clark, a former VP of Biker’s Choice, will manage the firm’s V-Twin Division.
D2M is now serving 18 vendors (listed in sidebar) and will cap the number at around 30 different segments. No vendor can compete directly with another, meaning there will be only one helmet line, one street apparel line, etc. So what does D2M do? First, it has assembled — and manages and pays — a group of manufacturers sales reps who market the vendors’ entire product lines. The reps also help dealers in educating their staff and even offer tips on merchandising and holding events. D2M has about 20 reps and hopes to increase that number to 50 or more by midsummer. Because D2M works with such a variety of vendors, the reps can approach nearly every dealer in the country.
Beyond sales and marketing, D2M assists in fulfillment. It owns and operates a 27,000 sq. ft. warehouse in Fort Worth, Texas, and has leased warehouse space on the East Coast that it will operate as soon as demand warrants it. A similar arrangement for the West Coast is in the plans. “We operate much like a third-party logistics provider, but the difference is we understand the product,” Munoz says. “Because of this, costs are far less.”
Each vendor also ships product from its own warehouse. D2M has built an online ordering system in which dealers can see the inventory levels at each warehouse. A computer automatically decides from which facility to ship. The goal is to eventually have one- to two-day service for the majority of the country.
D2M collects a percentage of each sale for services, and passes on costs for back-end services such as warehousing and fulfillment. Vendors get paid every month for products sold during the previous month.
If a vendor wants to offer terms or free freight, it incurs the costs. D2M vendors may also work together to offer programs. D2M and the vendors share in administrating customer service.
Most vendors of D2M were already selling dealer-direct. The company just provides economies of scale and expertise. Instead of ordering from each vendor separately, dealers can fill out just one invoice, receive most items boxed together, and have one payable for all the manufacturers.
Which sounds a lot like the big distributors, right? D2M, in fact, describes itself as a hybrid offering the best of both selling direct and selling through a distributor. Its main advantages over two-step distribution, it says, are low costs, focused road reps, no margin loss due to a middleman, and transparency in the supply chain, allowing the manufacturers to monitor sales and adjust production accordingly.
In combating a potential competitor, the big distributors could counter with their own economies of scale, and argue that D2M simply charges a commission in place of a margin. Pritchard admits that due to the smaller volume, D2M does pay its sales reps about twice the percentage earned by distributor road reps. But in regard to overall operations, he claims D2M benefits from drastically lower overhead.
Pritchard’s family, for example, once owned one of the largest dealerships in the U.S. “I know what my operations costs were in that business, I know what my operations costs were at Tucker Rocky, and I know what my operations costs are at D2M, and we’re very competitive from an operations standpoint,” he says.
Pritchard won’t share what vendors pay in commissions and other costs, but as an example of how D2M increases the dealers’ bottom line, he claims that dealer margins on KBC helmets sold through Tucker averaged 35 percent, but through D2M they will be at or above 50 percent.
This story originally appeared in the Dealernews April 2011 issue.