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Team Players

Teaming with a buying and marketing group can help distributors boost sales and profitability

by Rich Vurva

The recession of 2009 has forced distributors to scrutinize their businesses more closely than ever before. Where can they save money? Where can they grow sales? Some distributors have discovered that membership in a buying and marketing group can provide answers to both questions.

A buying and marketing group won’t insulate distributors from economic realities. But belonging to such an organization offers benefits that independent businesses can’t easily achieve on their own, such as greater buying power, cost savings, marketing support and new business opportunities.

“We’re typically able to negotiate better programs than an independent distributor can. We negotiate a program on behalf of our entire membership, so we’re able to command lower minimums, lower pre-paids and better payment terms than an independent distributor,” says Marty Bailey, general manager of INCOM Distributor Supply, the commercial/industrial arm of Do it Best Corp. in Fort Wayne, Ind. InCom is a member-owned cooperative with 475 distributor members. Distributors earn rebates on products purchased from more than 5,000 manufacturer-direct programs or from inventory maintained at InCom’s eight distribution centers nationwide. Bailey says that while overall business in fiscal 2009 was flat, sales from the warehouse were up 15% over the previous year. Since most of those products are shipped direct to end-users on behalf of the distributor, that lowers the distributor’s shipping, handling and carrying costs.

“We break case on 90% of the product we stock, and we stock 65,000 SKUs. When times get tough like this, distributors recognize the value in reducing inventories to increase their turns. What we try to teach our distributors is, why bring it into your stock, re-handle it and re-ship it? Let our warehouse be an extension of your own business,” he says.

Distributors such as Hanneke Hardware & Industrial Supply in St. Louis say the co-op gives them access to potential new vendors that can expand their line card.

“Our relationship with InCom allows us to utilize overnight deliveries from the Do it Best warehouse and serve customers in a timely fashion and keep the level of service up for those items we don’t stock in our stores,” says Tony Miller, Hanneke president.

InCom’s consolidated billing system enables Hanneke to pay for all of its orders placed with preferred suppliers in a single invoice, which further streamlines their accounting efforts.

With a broader product line, Hanneke is better positioned to become a single-source supplier for customers.

“Being diversified is a source of strength. With the breadth of product and marketing tools we offer, we can help independent distributors become much more diverse,” says Bailey. “Having a diverse base of customers and a diverse product line can help a lot of our members make it through these down times.”

Cost control assistance
“Distributors tend to rely on us more in a down economy,” says Jack Bailey, president of distributor cooperative IDC-USA in Indianapolis, which has 87 distributor members representing 224 locations in 42 states. “Our members are watching their bottom line more closely and this is when we can do our best work for them.”

Bailey says he’s noticed an increase in the number of distributor members using IDC to improve their inventory management. Because everyone in the supply chain is reducing inventories to manage costs, distributors are using IDC as an inventory stocking location.

“We see orders more often now and a lot more pre-paid stock orders than we normally do. I think it’s because they’re not stocking as much inventory. They know that if they send us a ground order, they’re going to get it the same day. They know that if they send in a pre-paid stocking order, it’s going to ship in 48 hours. They’re using us to keep their costs down,” he says.

To lower transaction costs and improve customer service, Bailey says distributors are also placing more orders through IDC’s electronic commerce site. “About 42% of all of our orders come through our e-commerce site. That’s an amazing number and I think it’s because we’ve made it easy for members to see our real-time inventory and, in some cases, see real-time inventory from manufacturers,” he says.

Ordering through IDC also reduces shipping costs. Bailey says one member recently saved more than $100,000 in freight costs by consolidating orders through the co-op’s distribution center. “They’re shipping from one location, and they’re pulling product from about 65 manufacturers, so it makes it easy to hit a pre-paid freight level. Plus, instead of cutting 65 purchase orders and getting 65 invoices and writing 65 checks, there’s one p.o., one invoice and one check, so those transactional savings have saved them a lot of money,” Bailey says.

Power in numbers
Dan Judge, president of NetPlus Alliance, a Lockport, N.Y.-based buying group with 390 members, says distributors often find it more profitable to pick up new lines through a buying group than by establishing a direct relationship with a supplier. Suppliers may offer lower minimum order requirements or more generous return policies for buying group members.

“One of the things we try to get our distributors to do is look at product line opportunities that they may have passed on before to help them grow their business. We encourage them to look at some of our other suppliers and consider adding them,” he says.

NetPlus Alliance plans to introduce a program in 2010 that will financially reward distributors for taking on new lines. In a pilot program tested in 2008, any distributor that placed $15,000 in orders from a supplier they had not done business with previously earned a $500 bonus rebate. The 10 distributors participating in the pilot program placed average orders of $40,000.

“Our hope is that more distributors will try a new line or consider converting a line, not only to earn the conversion incentive, but also to continue to grow the sales relationship through rebate, special pricing and marketing opportunities with NetPlus preferred suppliers,” says Judge.

The program will offer a tiered purchase approach, so members of all sizes will benefit.

Marketing support
In addition to rebates, most groups provide marketing support to help distributors in their marketing efforts. They typically publish catalogs and sales fliers that members can customize for their own promotional campaigns and some also provide online catalog capabilities.

“We offer affordable marketing tools including catalogs and niche catalogs that we imprint with the distributor’s name, logo, phone and fax. It’s a very impressive marketing tool that most distributors are unable to produce themselves,” says InCom’s Bailey. InCom also offers a business-to-business e-commerce platform (www.incomsupply.com) that members can brand with their own company name, allowing them to offer online shopping capabilities to customers without investing in their own software solution.

Judge says NetPlus Alliance publishes a monthly newsletter and e-mail newsletter that feature supplier promotions, articles of interest and new product information.

“We also do some targeted e-mails to NetPlus distributors that are buying from a particular manufacturer. We’re working pretty closely with our supplier base to help them grow their business,” he says.

The NetPlus Alliance Web site provides opportunities for distributors to buy or sell dead stock and an exchange program where members can source and sell hundreds of product lines.

Choose wisely
Andrew Sheinberg of Sheinberg Tool Co. in Corpus Christi, Texas, says distributors should examine the benefits of group membership carefully before joining any group. He says the rebates and marketing support can improve a distributor’s profitability, but he’s discovered that pricing arrangements negotiated by buying groups are not always better than deals he already has with manufacturers. He also wants to know the exact rebate percentage amounts buying groups have negotiated with suppliers before he’ll try to convert business from one supplier to another.

“If you’ve been doing business as a distributor with a line for years and it’s not a member of that group, I can’t see changing. You don’t change your business to accommodate the group. If it helps your business, fine, but I don’t change my business based on where the group is going,” says Sheinberg.

In the end, Sheinberg believes membership in a buying and marketing group can reap positive rewards for distributors but the decision to join should be based on more than just the lure of a rebate.

“Most people say you don’t join the group for the rebate. You join it for everything else. The rebate is the icing on the cake,” he says.

Before joining a marketing and buying group, distributors should ask the organization to demonstrate how their company will benefit from membership. Bailey says InCom can help distributors analyze their expenditures with existing suppliers to determine if they can provide more favorable pricing and also offer access to new suppliers.

“If a distributor is buying from a specific brand and has $20,000 of inventory on their shelves, they can utilize our warehouse, reduce that inventory and become more profitable,” Bailey says. “We can help them with that analysis.”

Growth opportunities
In order to help distributors decide if it’s beneficial for them to convert business from one supplier to another, IBC shares rebate information with members. Distributors can determine the size of rebate they’re receiving from specific suppliers, plus find out which suppliers provide additional growth-based incentives.

“That’s helpful because if they know that if they grow sales within that brand, there’s an additional profit incentive,” says Rich Poole, vice president of IBC, a 640-member organization of independent industrial, bearing, power transmission, electrical, safety and chemical distributors headquartered in Hartford, Conn. “Distributors are looking toward brands that will help them make more profit. They’re more profit conscious than ever.”

For distributors that are reluctant to convert all of their business to preferred suppliers, he encourages them to consolidate as many purchases as they can to one or two key suppliers. “It helps the distributor with their annual profitability and helps the supplier get more brand equity out of the channel,” he says.

IBC also focuses on implementing strategic sourcing solutions and integrated supply contracts with end-users in the U.S., Canada and Mexico. Poole says more than half of IBC’s distributor members participate in regional or national contracts. As a minority-owned business certified by the Connecticut division of the National Minority Supplier Development Council, IBC meets NMSDC criteria as a Hispanic and veteran owned company. As a result, distributor members can earn minority credits for contracts they pursue in their local or regional markets.

“We can help our local independent distributors compete against much larger companies for national and regional contracts. In other words, belonging to IBC helps distributors grow their top line and improve their bottom line,” says Poole.

IDC-USA’s Jack Bailey says the co-op’s management team is spending more time on the road visiting distributors and going on joint sales calls to drum up new business or look for missed opportunities. “In the last few months, we’ve been doing a lot more field work helping IDC distributors. Every time we visit a member, within the next one or two weeks we notice that their purchases through us have gone up because their sales have increased,” he says.

This article originally appeared in the Sept./Oct. 2009 edition of Industrial Supply magazine. Copyright 2009, Direct Business Media, LLC.

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