Macfarlane Group: UK Packaging Distribution & M&A Strategy

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One of the things I always think about with distributors is whether or not key suppliers can go around them and what would motivate that. You don't have to talk about Smurfit necessarily, but is that something you think is a reasonable risk to worry about?

The danger arises when distributors drift into the manufacturer's world. In this market, manufacturers want to send a 40-foot container of boxes to you in three days, and you'll call them again when you need another container. They tend to have fewer SKUs, maybe five or six big volume SKUs. Distributors trying to enter this market often lose out because they can't sustain it.

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I've spoken to a couple of people who thought that the emphasis on individual site P&L management could lead to interesting situations. Everything might not be harmonious. There's healthy competition between sites, but not everyone acts in the interest of the company. Is that something you ever saw, or did it work quite well?

Yes, there are pros and cons to it. You highlighted a strong con. If you're an RBM of a site, you are bonused, measured, and targeted on the success or failure of your operating profit. Sometimes you should be more altruistic and help the neighboring site, but do you really want to? Probably not, because it could impact your site. The typical issues were about sharing resources, whether salespeople, administrative staff, or logistics. There was no incentive to do it.

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