Distributor’s letter on channel fees seeks to gain vendors’ favor
Where one company sees an opportunity to raise prices, another company sees an opportunity to capitalize on that competitor’s price increase.
McKesson General Medical, Richmond, Va., announced late last year plans to assess what it calls a 3% “distribution channel fee” to be paid by manufacturers participating in McKesson G.M.’s alternate site distribution program.
As was reported in Health Industry Today (“McKesson G.M. assesses 3% ‘distribution channel fee’ on alternate site vendors,” March 1998, p. 3), a McKesson G.M. spokesman explained that the fee “applies to small vendors to help us balance out the costs associated with processing their products through us.” Privately, at least, several distributors agree that measures should be taken to improve distributor margins, though most expressed reluctance to take unilateral action.
Vendors were informed of the 3% fee via form letter.
Now, Grogan’s Healthcare Supply, Lexington, Ky., has circulated a form letter of its own to the company’s vendor partners. Highlights of the slightly tongue-in-cheek letter, written and signed by company president Alan Grogan, is reprinted below (all emphasis his).
March 18, 1998
Dear Vendor, ‘Dear Vendor’ letters may be bearing ‘Dear John’ status in their close association with the bringing of bad news.
This letter will not inform you of a “3% distribution channel fee” we plan to impose, though it clearly is an important issue that affects the success you can have with your products in a rapidly changing distribution environment. In the spirit of celebrating the differences between our company as a distribution partner and our natural competitors, we prefer to work together with our vendor partners rather than dictate terms without discussion.
We need margin improvement as much as the next company, as we too provide services that are often “value-added” (“free-of-charge”). Yet, some of those services benefit our customers and it should be our problem to get them to pay for them-not yours. Further, it is not your responsibility to compensate us when our pencil gets too sharp and we find that business we have gained does not deliver the return we would like or had expected.
Regarding distribution channel fees, it would be easy to simply say “if they get it, we want it too,” a request we are confident has a sound legal basis. But, traditionally, we have survived and prospered by offering both customers and vendors greater value than our larger competitors. So, we invite mutual dialogue with you to discuss how we can be kept competitive with competitors demanding “distribution channel fees” while aligning our objectives to give you something tangible in return for your money.
At the heart of the Efficient Healthcare Consumer Response initiative is the need for critical analysis of anything that adds cost without adding proven value. In the same way that most distributors have questioned the value of group purchasing organization administrative fees, we would have to question arbitrary distribution channel fees.
We want to understand your company’s policy on “distribution channel fees” and request your response in writing as soon as possible. Thank you for your consideration. We look forward to moving ahead in a partnership that works both ways.
President, Grogan’s Healthcare Supply
COPYRIGHT 1998 J.B. Lippincott Company
COPYRIGHT 2004 Gale Group