Many of the speciality ingredients used by Indian food manufacturers are made abroad. When a company needs one, it can usually either import directly from the manufacturer or buy through a distributor that imports it and holds it locally. Both routes are legitimate, and many manufacturers use both.
We are a distributor, so we have an interest in this question. This article sets out both sides as fairly as we can, because a customer who has chosen the right route for each ingredient is a better long-term relationship either way.
What importing directly involves
Buying direct removes a margin from the price. It also moves a set of tasks and risks onto the buyer:
- Order size. Manufacturers selling internationally usually set minimum order quantities, which may be far more than one product line uses in a quarter.
- Payment. Terms may require payment in advance or through bank instruments, tying up working capital before the goods arrive.
- Currency. A price in foreign currency leaves the buyer exposed to exchange-rate movements between order and payment.
- Clearance. Customs clearance, and the food safety import clearance that applies to food ingredients entering India, become the buyer's responsibility, along with the documents each requires.
- Lead time. Production, shipping and clearance all have to be planned, and a delay at any stage lands directly on the production plan.
- Inventory. Larger, less frequent shipments mean holding more stock, with its storage cost, finance cost and shelf-life risk.
- Support and claims. Technical questions and quality claims are handled across borders and time zones.
What buying through a distributor involves
- A margin in the price, which pays for the services below.
- Local stock in smaller quantities, closer to the point of use.
- Invoicing in rupees, with currency risk on each order carried by the distributor, although prices still move with the market over time.
- Import and documentation handled, including clearance.
- Local application support, in the buyer's time zone and often in the buyer's plant.
- One supplier across many ingredients, which simplifies purchasing, audits and supplier approval.
- A dependency on how well the distributor manages its relationship with the manufacturer, which is worth asking about directly.
| Consideration | Importing directly | Through a distributor |
|---|---|---|
| Price per kilo | Lower | Includes the distributor's margin |
| Minimum order | Often large | Smaller packs and quantities |
| Working capital | May be paid before arrival; more stock held | Local credit terms; less stock held |
| Currency risk | Carried by the buyer | Not carried on each order |
| Import and clearance | The buyer's responsibility | Handled by the distributor |
| Lead-time risk | Lands directly on the buyer | Buffered by local stock |
| Technical support | From the manufacturer, across time zones | Local, with access to the manufacturer |
| Usually suits | High, steady volumes of a few ingredients | Many ingredients, development work, variable demand |
When importing directly tends to make sense
- High and predictable volumes of a single ingredient
- An in-house team already managing imports, clearance and documentation
- Warehouse space and working capital to hold safety stock
- A settled formulation that needs little application support
When a distributor tends to make sense
- Many ingredients, each in modest volumes
- Product development and trials, where needs change quickly
- Demand that is seasonal or hard to forecast
- A need for application support close to the plant
- A preference to keep working capital and currency risk off the balance sheet
Many manufacturers settle on a mix: direct import for a handful of high-volume, stable ingredients, and a distributor for development work and the long tail of lower-volume lines.
Comparing the two fairly
A distributor's price and a direct import price are not like for like until the direct price carries everything it leaves out: freight, insurance, duty, clearance charges, the finance cost of advance payment and of stock held, currency movement, and material that expires before it is used. Only then does the real difference become visible. The same discipline applies to any two offers, as our guide to comparing ingredient offers on cost in use shows.
The quality of the relationship behind the price matters too. Our profile of Vinit Dalal looks at why a distributor's relationships with manufacturers shape what its customers experience.