How does the hobby supply chain work?

Model Railroader General Discussion (Model Railroader)
1

The recent thread on Tony’s has promped me to ask a question that I have wondered about for years. How does the supply chain work for this hobby?

There are manufacturers that sell direct, while Walthers is a distributor as well as selling their own products. Some of those manufacturers only sell direct while others make their products available for resale. It appears that some of the online stores will let you order anything that they can get, and the inventory level they show is populated somehow reflecting that. Tony’s is in this category. Other online stores only let you order what they have on hand. I believe MTS is in this category. Some sites let you backorder items while some do not.

Are there other big distributors out there like Walthers that we don’t see and would populate those inventory levels? I once tried to ask Tony’s why something I had on backorder wasn’t shipping even though Walthers showed it in stock. I didn’t get an answer but my item did ship a few days after that. I have also had them ship something that I backordered that was still showing out of stock at Walthers. On the other side of the coin there are items I am interested in that show in stock at Walthers and other sites but MTS has marked Out of stock.

Finally, I suspect there are items that are produced on a regular basis (think Atlas track) while other items are ordered from China in a run that may or may not be done again. Locomotives and rolling stock fall into this category. Building kits could be in either category. Is the number of runs determined by anything other than demand? Some items sell out fast which would indicate demand but they are not run again.

Things were turned upside down for a while due to the pandemic but most areas are getting back to normal. Is that true for trains stuff?

2

It is very complicated and ever changing. First a manufacturer may need, say a certain LED. They can not ship untill that LED is in stock to put into whatever they are making. Their delay affects others and contracts may specify who gets shiped to first. That is just one thing in a vast amount of things. A company also needs to deside where the profit lies, also companys discount stuff for X amount of order or not accept an order unless X amount was large enough. I remember when Bachmann would sell at a discount to anyone with a large enough $ order. To get a real feel of all this just look at a few Chinese manufacturing sites and look at the discounts offered for large amounts of product, things with a retail of say $1.00 can be bought for as low a 3 cents. Then you get a company that dose this and resells to a company that can’t afford that volume and buys from someone who can for x amount of discount and so on.

3

Rick, like rrebell said, it can be complicated and ever changing.

Back in the day 30-40 years ago and beyond, most products were made here, sold in bulk to regional distributors, and a few national distributors like Walthers, who sold small quanities to mostly small local shops. Most people paid retail, there was very little discounting, there was not enough markup to allow discounting.

There were distributors all over the country, most served just their region, think 300 to 600 mile radius as a limit.

Today there are still distributors, but there are a lot less of them.

Most manufacturers now sell directly to larger volume dealers skipping over the distributors.

TrainWorld, ModelTrainStuff, and other big online/mail order outlets buy most products direct from manufacturers.

But maybe what you really need to know is this, products not made by Walthers are often available from multiple other distributors, and direct from those manufacturers, usually at lower prices than the wholesale price from Walthers.

Walthers own products are sold at different price levels depending on how much volume you buy and your abiltity to buy case lots of some products.

So I don’t know the inner workings at Tony’s, and I don’t do business there, but Walthers is likely not their primary source for other brands of product.

So what Walthers has in stock likely only affects Walthers branded products for Tony’s and lots of other dealers.

Production - All model train products are made in batches, now, and 30-50 years ago.

So yes, things like track are constantly re-run to keep a steady supply, while things like locomotives are made based on expected demand and not just made to sit on the shelf and wait for a buyer.

It was different years ago, but there were fewer items, and higher prices (adjusted for inflation) which supported dealers, distributors and manufacturers efforts to keep product in stock betwe

4

The PSXX DCC Specialties circuit breakers are not listed by Modeltrainstuff nor Trainworld. They are by Litchfield Station, Streamilined Backshop and Yankee Dabbler. I suppose there is an economic answer for that.

5

In recent years Walthers has had something of a change of heart about how to do business. I think at one time their general thought process was to warehouse the stuff that was in their catalog(s) so it had a good chance of shipping when ordered by a dealer (or by an in person customer at the Milwaukee showroom counters). As a consequence sometimes not only could you get from Walthers what you couldn’t get directly from the manufacturer, but from time to time you could get from Walthers even when the manufacturer was kaput!

It is, or was, well known that Micro Engineering had a production schedule for their large variety of offerings so it was not uncommon for a certain piece of track to be unobtainable from them but still in stock at Walthers … for a while. Even Athearn was that way back when Walthers carried Athearn (and Athearn parts).

The other side of the coin is that Walthers would wait for a critrical mass of demand before re-ordering in quantity. And at inventory time (which I think was tied in some way to property tax valuations) they’d really let inventory get low.

Speaking of the Walthers showroom sometimes I’d be there when one or another of the smaller manufacturers would show up to deliver an order in person, lugging big boxes into the showroom. I guess they decided it was easier and more certain than packing and shipping.

The new thinking at Walthers seems to emphasize their own products more obviously, to discontinue compeltely certain lines

6

Thanks for all the great information!

With regard to the ordering differences at the online retailers, does this mean the difference in profit margin from buying a quantity for their own inventory vs ordering a small quantity to fill one order is enough to forgo the sale or is it a technology issue?

7

Rick, it is at this point that I feel I want to ask how old you are and what you do for a living?

But on with an answer to your question, at least partly.

If it is an item you normally buy direct from the manufacturer at a lower price, and you need to restock it, you might just order whatever minimum you need to order assuming they have it at the moment. This would be especially true if you are normally selling the item at a fairly deep discount.

Why would you order one item from a distributor at a price that may be just barely below the price you normally sell it for? - Better to miss the sale and take care of your profit margin and your other customers.

Also, most retailers try to have some alternate sources, but you are not going to keep accounts with every distributor around the country so you can hunt for stuff that might be in stock somewhere.

People who do not live in the business world often like to think that every business that sells them something is making some outrageous profit margin - that is seldom the case, and surely not the case in this business.

I will not reveal what I know about current/recent pricing models in this business. But I will share how it was “back in the day” when I managed the train department in a hobby shop to illustrate what I mean.

Back when the cities and towns of America were populated with Mom and Pop hobby shops, and most people paid retail price for model trains, and the retail prices were printed on the end of the box, the pricing worked like this:

Fancy locomotive retail price $100

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I am 71 and retired. I spent 35 years in the financial sector. As such I have a curiosity about business models. I have been in the hobby from long before Al Gore invented the internet and remember shopping by scouring the ads in MR.

What had me wondering is that some retailers do allow you to order items that they do not have in their possession, while others do not. A great example is pre-orders. Tony’s will and MTS will not. I probably order more from MTS than all the rest combined, but there are times when I get tired of waiting for MTS to get something in.

9

Actually showing up for work helps the supply chain tremendously.

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I would make a comment about that but I don’t want this thread shut down for a political discussion.

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Well I will ask the question, because I don’t understand this comment and don’t see where it has any bearing on the OP’s question?

These are all small companies, be it the manufacturers or dealers, here in North America.

My bet, few of them have labor problems of any kind, except sometimes finding qualified people in the first place.

Most people who work in this business do it partly because they are emotionally invested in it in some way.

I would bet, in their North American operations, nearly every company in this business has less than 100 imployees and most have less than 30 - and those are the BIG companies.

If Douglas is refering to China, I too will simply not comment further, mainly do to lack of accurate informaton on my part.

Sheldon

12

I think that is a result of not wanting to devote resourses to tracking those items/customers - and not needing to. When you are selling out almost all new product that

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My comment wasn’t meant to be a cryptic political statement. Maybe i don’t fully understand OPs question.

Some of what he describes sounds like a business model, where a retailer might call somthing in stock if he feels he can get it quickly. Or another business does not have somehting in stock whereas another business does, but a distributor may be out entirely.

I don’t see those issues as supply chain issues, but more about chosen inventory management processes or choices.

My comment was more about obvious breaks in a chain. Where, say, and IM metal wheel set starts with iron ore being mined near Lake Superior to the USPS delivering the packaged wheelset to your door. There co

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[quote user=“Doughless”]

ATLANTIC CENTRAL

Doughless

Actually showing up for work helps the supply chain tremendously.

Well I will ask the question, because I don’t understand this comment and don’t see where it has any bearing on the OP’s question?

These are all small companies, be it the manufacturers or dealers, here in North America.

My bet, few of them have labor problems of any kind, except sometimes finding qualified people in the first place.

Most people who work in this business do it partly because they are emotionally invested in it in some way.

I would bet, in their Nrth American operations, nearly every company in this business has less than 100 imployees and most have less than 30 - and those are the BIG companies.

If Douglas is refering to China, I too will simply not comment further, mainly do to lack of accurate informaton on my part.

Sheldon

My comment wasn’t meant to be a cryptic political statement. Maybe i don’t fully understand OPs question.

Some of what he describes sounds like a business model, where a retailer might call somthing in stock if he feels he can get it quickly. Or another business does not have somehting in stock whereas another business does, but a distributor may be out entirely.

I don’t see those issues as supply chain issues, but more about chosen inventory management processes or choices

15

I’ve been to Walthers as well, the whole building, warehouse, store, and where they once manufactured all sorts of products - about 100,000 sq ft.

Sheldon

16

The supply chain includes the entire process of producing a product from raw materials to delivery to the consumer. My original question was mostly about the final phases - distribution. I don’t know if inventory control would technically be considered a part of the chain but it certainly impacts the consumer.

Here is a simple question that will help me. Say I wanted to open a train shop and get into online sales. How many places could I order Atlas track from?

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Probably about a 8-10 places, there are likely that many distributors still supplying the hobby.

But only one would have the good price - direct from Atlas in New Jersey.

So what price are you going to try and sell Atlas track for?

The retail price for 5 pieces is $43.95

Model Train Stuff sells it for $32.99

You will go out of business fast if you buy it from a distributor and sell it for 32.99, your margin will be less than 20%.

If you buy the whole case of 100 pieces, Model Train Stuff will sell it to you for $599 a case, compared to the retail price of $875.00

At the last train show I was at, I tried to buy a case from a guy there, he would not go below $700, why would I do that when 10 minutes up the road I can buy it for $599?

Sheldon

18

Good point. I suspect Atlas would have a minimum order quantity. Would the discount be based on individual orders or an annual amount?

19

They all work differently, but generally those accounts are subject to both, a minimum order size, and minimum annual purchases.

Sometimes there are addtional small discounts for prompt payment - 10 days, or orders over a specific dollar value, but these are typically single digit percentages…

When I worked in the hobby shop, we purchased gas powered R/C cars direct from two big manufacturers of that time. We did it as a co-op with another shop on the other side of town. Order requirements where in the $3000 range in the 1980’s.

Back before Horizon, I don’t think Athearn had a minimum annual requirement, but order requirements were case lots of same stock number, typically 12 pieces per case, and a dollar value in the $2000 range - again 1970’s or 80’s money, IIRC. That is a lot of $3 freight car kits and $22 F7’s less 60%.

Sheldon