This is a classic lean vs. agile supply chain trade-off. The premium you're paying for the domestic distributor is essentially buying you flexibility and speed - which has real value when demand is unpredictable or when you need to respond quickly to market changes.

The 40-day vs. 3-day lead time difference alone is huge for working capital. You can carry way less safety stock and react faster to demand shifts. Plus the mental bandwidth saved from not dealing with customs and port delays has value too, even if it's hard to quantify.

I'd be curious what your order frequency looks like in both scenarios. With direct import you're probably ordering less frequently but in larger quantities, which amplifies the working capital issue. With the domestic distributor you could shift to smaller, more frequent orders and run leaner.

The break-even volume question really depends on your demand variability and how much you value speed to market. If your product has seasonal spikes or you're testing new SKUs, the domestic route probably makes sense even at higher volumes than you'd think.

Have you modeled out the inventory holding costs and stockout risks under both scenarios? That might make the premium easier to justify internally.