ElectricalTrends

Some NEMRA Notes

noreply@blogger.com (David Gordon) — Fri, 10 Feb 2012 02:33:00 +0000

Last week the industry's electrical supply reps got together in San Diego with their manufacturers. Like other NEMRA meetings I've been at, there was much work conducted with everyone in one-on-one meetings for 2 1/2 days (at least) plus manufacturers having group meetings with their sales teams. For many manufacturers, this is their national sales meeting.

Some observations and feedback we heard:

NEMRA had a very good turnout.
While I didn't get to the opening session (sorry Ken), many people commented on the powerful message of the keynote speaker.
Many reps had a good / decent year. While this may conflict with a number of manufacturers, remember that reps carry a plethora of lines and typically call on multiple market segments (as well as geographic areas). Some commented about a few manufacturers that have cut margins over the years, said they were going to re-instate them, haven't, but expect a much higher level of performance (and paperwork).
Some expressed frustration with multiple manufacturers going to Salesforce.com, forcing them to use the same system differently for each manufacturer. One Pass & Seymour rep mentioned that they originally fought the Salesforce.com initiative but have since come to embrace it as they use it as a tool to also discuss all of the lines that they could sell on a project that is being tracked in the "P&S" system.
There was some comments regarding the ABB acquisition of T&B with a number of people trying to understand 1) why and 2) what will happen to T&B reps (either full-line or Ocal only).
A number of reps and manufacturers were trying to understand Crescent joining IMARK but took it as "we have no choice". Those who expressed themselves felt Crescent was looking for acquisitions (and maybe IMARK wanted to have an acquirer within the group.)
Christian Siebens of AD gave a very good presentation on the opportunities in Clean Energy. If you are an AD distributor, you should call Christian to get a copy of the presentation (or perhaps he'll do a webinar for the membership). IMARK members should also be able to get a copy as Steve Ruane sat in the session and took copious notes. If you are a manufacturer interested in understanding this segment better, Christian is probably one of the most knowledgeable in the industry on the topic - and sees how these opportunities can be monetized for distributors.

A few reps mentioned that NEMRA is settling into a 3 city rotation of San Diego, Chicago and either New York or Boston. This was viewed favorably. The only comment is that Saturday morning was relatively quite as the last bank of flights back east is around noon, so people were looking to leave early, hence shortening the opportunity for one-on-one meetings.

Overall, a very profitable and worthwhile meeting for a manufacturer.

Industry to Get Schrager to Shave Again for Kids

noreply@blogger.com (David Gordon) — Sun, 05 Feb 2012 01:31:00 +0000

Pat Schrager

Last year ElectricalTrends followers helped Pat Schrager of Panduit raise over $7600 for the St. Baldrick's Foundation and he asked if we could help him achieve his 2012 goal - $10,000.

Right now (2/4/12) he is 33% to his goal!

Knowing Pat's sales tenacity and, more importantly, the great work that St. Baldrick's does in helping kids with cancer, it was easy to say "yes".

Upon reaching his goal (which every distributor person knows Pat will do), Pat will be shaving his head. Last year he did and we've got the pictures to prove it.

A Hairless Pat Schrager Shaven for
2011 St Baldrick's Foundation

So help the kids out and let's see Pat shave off what he grew during the year! Show that the electrical industry cares!

(and he's promised to share another picture of his shaved head with us!)

Click here to donate

Click here to learn more about St Baldrick's

Crescent Joins IMARK

noreply@blogger.com (David Gordon) — Tue, 31 Jan 2012 13:40:00 +0000

Last week IMARK announced that Crescent Electric had joined IMARK, which blurs the definition of "independent". While Crescent is technically an independent distributor (it's not publicly owned), within the industry they've been considered a quasi-national chain as they have operations in 27 states and over 100 locations. Additionally, revenues approach $1 billion. A little different than the typical single state / regional distributor.
In talking with some IMARK distributors, they could understand the desire to increase the group's volume but were puzzled by bringing in such a large company. Additionally, they wondered if IMARK's deals were so much better than Crescent's.

A couple of observations / questions:

Are IMARK's deals better than Crescent's or is this an opportunity for Crescent to utilize IMARK's deals and "double dip"? Over 10 years ago IMARK and Crescent did talk about Crescent joining (with the IMARK Board of Directors approval). A dividend estimate showed a slight improvement for Crescent with the benefit coming from IMARK having deals with suppliers that Crescent did little with. Perhaps Crescent will renounce double dipping and commit to suppliers that it will only take the IMARK rebate?
Is Crescent joining so that it can get to know IMARK distributors better to facilitate acquisition opportunities?
What is the benefit of being in a group when all of your competitors are in the same group? While the rebate helps ensure profitability, the original premise of the groups was to put small / mid-sized independents on a more level playing field with the larger, national distributors?
Who's next? HD Supply's Utility / Electric division? HD Supply's Facility Maintenance division? - both are technically independent? Perhaps Sonepar (who may be in less states than Crescent)?
From a manufacturer viewpoint, if such a high percentage of their business is rebatable, and with the same rebate, should they consider the new JC Penny pricing model and reduce their pricing by the rebate amount and offer "everyday" pricing (aside from projects) and let distributors be responsible for their own margins? Is the value of the group(s) being devalued?

While I can see the benefit for IMARK - more volume, potential acquirer to retain volume in the group -

What is the benefit for Crescent (aside from introductions)?

Will most IMARK distributors do best practice sharing with Crescent (unless the information comes from Crescent!)

What is the benefit for IMARK distributors (doubtful that suppliers increased their rebates)
What is the benefit for manufacturers?

And does anyone really care and just view this as business as usual?

Lot's of questions, no answers.

Changing of the Guard and ERP Hang Overs

noreply@blogger.com (Allen Ray) — Tue, 24 Jan 2012 16:07:00 +0000

Changing of the Guard

Here we are at the beginning of 2012 and we hear that there are cultural changes underway within some of the top distributors. Some old and etched in stone ways of doing business are being replaced with a changing of the guard that is much younger.

We note with interest that for some distributors, you no longer need to sweep the warehouse floor or drive a delivery truck to qualify to work for that distributor. In fact many of the changes that we are seeing and hearing involve sales specialists being brought in to garner market share with their current following. Some express wonder as to how long it will be before they outlive their followers. In some cases there is an effort to recruit young / new blood (college educated ones) into the industry.

While some behemoths continue to close branches seeking to garner (or perhaps salvage) some sort of profit, many are still in a muddle. Other companies such as Sonepar are aggressively rolling up some very well run companies that they see value in.

Interestingly others are making plans for summer interns as they refresh their retiring ranks. Not all retirements are friendly as others seek a safe haven to land at.

Are you in the recruitment mode? Have you thought about when your salespeople retire or the need to plan for the next generation? What do you think of management training and/or intern programs?

Hang Overs from the last Cycle

Like musical chairs, some distributors got caught in the run up of the last cycle with ballooning amounts of the wrong inventory and many decided to upgrade or change their ERP system. About the same time frame, ERP software companies were being rolled up. What were Mothership software firms, began to fade into the sunset ... even to this day.

Some independent distributors got caught in the middle of an install, hadn't been trained or worse couldn't get the support phone line to be answered.

Just below the surface, a nervousness set in with many distributors.

Larger companies like Sonepar, took what appeared to a bad business situation and hired some of the best and brightest personnel from the ERP company, thus apparently solving their support issues. It also helped them gain access to their data, that heretofore had been run on a private database.

That will create a problem and disruption for other distributors if they can't get support.

So the question becomes, what would you do if you got caught in the middle of an ERP system that was half-installed (talk about business disruption), or your staff was not completely trained? What if you couldn't get the support line to answer? What would you do, or are doing?

Leading Your Team For Your Customers

noreply@blogger.com (David Gordon) — Thu, 12 Jan 2012 02:45:00 +0000

Recently I was reading a couple of articles, 1 that was forward by a client entitled "Five Ways Leaders Must Get Their Hands Dirty in 2012" and a newsletter I received that entitled "How to Generate Repeat Business".

While many manufacturers and distributors benefit from repeat business, the essence of why, and how to generate more, is embodied in these two articles.

What caught my eye in the "How to Generate Repeat Business" article is their graphic that integrates Customer, Trust, Loyalty and Confidence (click here to see it).

To achieve loyalty you need the trust of the customer and their confidence. They need to believe that you can deliver on your unique promise on a consistent basis. If they trust you, they'll want to buy from you.

Simple enough you say. But how do you know you are delivering on your promise? How does your customer know (do you tell them how you perform in aggregate and for them? do they care?)

And if you have their trust, they can confidently give you more business (because you've earned it) which therefore increases sales and profits.

But to do this, you need qualified, trained, proactive, "thinking" employees that care for the customer and understand your business' dynamics.

Which gets to the "Five Ways Leaders Must Get Their Hands Dirty in 2012" article which essentially asks the question "Are you a manager or a leader?"

Leaders "get their hands dirty" and touch the business and their staffs. They don't stand in the ivory tower. Essentially this gets back to MBWA (management by walking around).

The article espouses 5 ways for leaders to touch their businesses, and people, to affect action (and sometimes change):

Rebuild trust & earn relationships
Share your points of view
Reconnect yourself with the business
Ask for help and find growth from within your organization
Showcase your creativity and get involved on the front lines.

So the correlation?

Leaders, who get involved, have a greater tendency to capture the trust and confidence of their people. This in turn gets reflected by them to customers. Additionally, if you are a leader, you're spending time with customers ... being on the front lines, hearing what customers are saying about their needs, about your company and about your competition. They trust you and have confidence in you, which gets reflected back to the company ... and they become more loyal to you.

Who are the leaders in your company? Who were some of the industry leaders of the past? Who are leaders of today? Which companies in the industry do you feel have good leadership? And is putting your "feet forward" too old-school to affect change and increase sales?

11 things we think for 2012

noreply@blogger.com (David Gordon) — Mon, 09 Jan 2012 16:25:00 +0000

In the spirit of welcoming in the New Year, first we wanted to wish you a Happy New year and best wishes for a happy, healthy and prosperous one.

Secondly, we recently talked about the coming year and thought we'd take the opportunity to share some thoughts on what we think we are thinking (currently) about issues for the coming year (in no particular order):

Sonepar, now the largest electrical distributor in North America with its 2011 acquisitions, is poised to further grow - organically, but more importantly, through acquisition. We expect by the end of 2012 they'll still be the largest, driven by more acquisitions. Questions become - how do distributors compete against someone who looks like them? As the company grows, what is the impact on manufacturers? What will other chains do? How will this impact the buying groups from which these distributors come from?
Electrical distributors may become electrical specialists with other types of distribution seeking to enter into the electrical space and offer a "one stop shop" service as their core value-added (think Grainger, Fastenal, MSC, Motion Industries, Kaman, etc). What else should you be selling?
The solar market is exploding ($12 billion in 2011). Will more electrical distributors finally jump into the fastest growing energy market segment? Is it to late? Or is it a market left to larger distributors / groups that can fund specialists, manage volatile industries and finance large projects?
There are contractors who are smarter than the average bear. Understanding your customer is critical. Some more advanced contractors are diversifying into other markets, market segments, trades; maximizing usage of technology (systems and hardware - iPads); becoming more professional at purchasing and more. Our upcoming 2012 Contractor Insights research will share more info.
Customer intimacy will become more important. Knowing if you are servicing your customers better than your competition is critical to delivering on your service promise (otherwise promises are just words). Customer intimacy relates to really understanding your customers' needs, business issues, processes and how you can benefit them. (And we'll be launching a strategy to support clients in this area during the first quarter.)
Margins will continue to be under pressure. Technology utilization and process improvement, especially in the back of the house, is required to achieve acceptable profitability.
With everyone carrying essentially the same thing, and saying that they offer the same service (and remembering that people's perception equals their reality), marketing is becoming more and more important for distributors
Sales processes, and channels, are becoming more complex and diffused. Multi-sales channels, for distributors and manufacturers, will be necessary to sustain growth.
With distributors marketing themselves more rather than promoting the benefits of their manufacturers, essentially marginalizing manufacturer brands, manufacturers need to ensure that they reach their end-user market ... the person making the brand / product decision. The usage of technology from a sales and marketing application viewpoint will accelerate and be more prominent.
Data is more important. Market research to understand customer needs, product opportunities, competitive positioning, share opportunities, product sales gaps and much more is becoming more important as ingredients to develop sales and marketing strategies. Gone are the days where "gut feel" should be solely used for making decisions. Research will become the mantra in the coming year for progressive distributors or those seeking to make changes.
Targeting niches will continue to be essential to growth for manufacturers and distributors. Reaching those segments is the real challenge.

We've kept this limited to sales and marketing related initiatives as affecting the "front of the house" is critical to ensuring the "back of the house" has business to process.

What do you see as key issues for distributors and /or manufacturers in 2012?

More Competition Coming

noreply@blogger.com (David Gordon) — Fri, 16 Dec 2011 19:04:00 +0000

Recently we were conducting some research on non-traditional competitors and unearthed some information that could represent opportunity (through insights) from a couple of companies:

Grainger

While many have heard the news of Grainger closing 25 locations and inquisitive minds have only been able to identify 1 location (Redding, CA) - and there are 5 closing in California - we've learned that most, if not all, of these locations are either old, in close proximity to another Grainger location, there are multiple in the same marketplace or are in areas where the customer base has left the marketplace (i.e. manufacturing was moved).
Grainger is distribution's marketing maven. They are using radio advertising extensively focusing on ESPN, sporting events, country western music and rural areas. Seems like they've done a pretty good job of profiling their customer base. We've also seen Grainger billboards!
Grainger has launched at least 16 print and online catalogs targeted at market niches such as ranching, paper, farming, wine producing, etc. While most full-line electrical distributors may not look at this as competition, Grainger looks at what the total customer spend could be. If they only sell a little electrical, that is a little less for the traditional distributor who is not tailoring their message to customer segments.
A recent radio ad focused on how Grainger can help companies of all sizes manage their supply storerooms. They are emphasizing the value-addeds they provide. None of their ads mention manufacturers.
We've also heard that they'll offer discounts to various groups, with minority-owned businesses also being a targeted market.

Fastenal

Reportedly Fastenal is looking to expand its business into complementary product categories. They "feel" that they have the fastener business in a facility, why not pursue the electrical, or HVAC, or tool, etc business within a customer. They are seeking "share of overall spend." Don't be surprised if they become an acquirer of companies that have high-turn products that can easily be taken nationally.

WESCO

While they are not an "outsider", WESCO recently announced that they have acquired RS Electronics, a $60 million electronics and electrical distributor in Michigan. This is a diversification move. RS focuses on serving companies in the industrial, medical equipment, automotive and contract manufacturing markets. The company has a commerce-enabled website that could provide WESCO with other opportunities to expand in niche environments ... possibly replicating come of Grainger's concepts but more focused on electrical and electronics.

This leads to some questions:

With an increased level of acquisitions coming, could more "outsiders" come in? Other distributors (Motion, Kaman, AIT, Ferguson, Anixter, etc) or could private equity return?
How should manufacturers handle these supply chain-oriented companies vs supporting traditional full-line electrical distributors?
Should manufacturers consider them as transactionally-oriented distributors and let them have access to their products or should they insist on distributors providing more than delivery services?

And maybe the biggest questions are:

What do customers want?
Where do customers want to buy from?
Are you thinking the proverbial "outside the box" on how to market and grow your business?

The French Buy and Sell

noreply@blogger.com (David Gordon) — Mon, 12 Dec 2011 02:25:00 +0000

Last week was a busy week for the French. While the European economy may be having challenges, their is one French-owned company continuing to make acquisitions while another continues its transformation.

Sonepar announced that it's Irby group is acquiring Treadway Electric, a 14 location electrical distributor in Arkansas. As many may recall, Elliott Electric acquired 2 Treadway locations back in March. According to the press release, Sonepar acquired the assets of Treadway, a member of IMARK. Sonepar, as many know, has been on a buying spree, having acquired Independent Electric (CA) and OneSource this summer. With these acquisitions (over $800M in electrical distribution revenue), Sonepar is now the largest electrical distribution material distributor in the U.S. - with much of that revenue emanating from acquisitions.

A couple of thoughts on this:

Given that Sonepar will continue to make acquisitions (there are major markets where they still do not have presence), what percentage of the U.S. market could they conceivably control? Is this good for manufacturers? Will manufacturers acquiesce to Sonepar demands, especially if they are doing business worldwide with them?
Sonepar's current strategy is to operate as "local operating companies". Are they gaining all of the potential sales, marketing and operational efficiencies they could? If they did, how would this impact independent distributors?
With Sonepar growing, does this become the new "threat" to independents and hence distributors in marketing groups? What will be needed in the future from marketing groups to support their distributors - especially if there is no potential U.S. acquirer? (Could larger independents form a separate group (or combine into one of the existing ones) to then either pool resources, or identify a funding source, to acquire strong independents - essentially creating their own "roll-up" / holding company or chain?
Or is it inevitable that the "Top 200" will quickly become the Top 100, then the Top 50 and consolidation of industry revenues occur pretty quickly - afterall, when it comes time to exit the business, owners have a tendency to sell to much larger companies so that they can ensure a short-term payout.

Secondly, Rexel is closing three locations in southwestern Ohio. CBT is acquiring certain assets but more importantly taking over the Rockwell APR (area of primary responsibility) for these nine counties. For CBT, which is already a Rockwell distributor, this is a significant expansion. Interestingly, CBT is looking at only 12 of the 45 employees that worked for Rexel (probably salespeople or Rockwell-trained personnel).

Some thoughts:

Could this mean that Rexel is now open to selling underperforming pieces of its business to local distributors?
Was the hidden hand of Rockwell involved? If these were underperforming branches and Rexel was not performing, or resourcing, the locations as Rockwell thought appropriate, could Rockwell have "encouraged" the parties to work something out?
Is this the beginning of the "Rockwell consolidation" which has long been talked about throughout the channel?
Rexel has talked about becoming more industrially-oriented (as have many distributors since this part of the business is outperforming other sectors). Why relinquish the premier automation line in an industrial state versus resourcing and identifying how to grow the business (unless it was untenable due to overhead costs)?
If Rexel was closing here, where else are they closing?

What do you think about these two moves? What do you think about Sonepar? Rexel? Or that two of the top distributors (revenue-wise) are foreign companies? What impact can this have on manufacturers? On marketing groups? And it's interesting that WESCO doesn't appear to be an electrical acquirer (and Crescent is historically a quiet company? Or will sellers sell to the highest bidder?

Could the Construction Market Be Improving?

noreply@blogger.com (David Gordon) — Mon, 28 Nov 2011 19:53:00 +0000

For the past month or so electrical manufacturers, reps, distributors and their salespeople have been trying to answer the question of "what is the market forecast for 2012?" When we spoke to people at the NAED Eastern, numbers were varied. We've heard:

Flat
3-5% for construction
6-8% for industrial
a national chain thinking 7-9% for their total business
a couple of large companies, in the same product category - one says 4%, the other 12%
Herm Isenstein, of DISC fame, predict overall flat
Electrical Wholesaling predicting, based upon its distributor survey, 5.1% nationally and from 3.9%-8.6% depending upon your region.

All we know with any certainty is what could be a "Yogi-ism" ... "every market is a local market and is subject to behave differently". And for distributors, it comes down to your strategy. Manufacturers are typically more interested in national projections and then look at their specific initiatives (new products, new channels, new programs, etc)

But here's some interesting news to factor into your crystal ball:

Reed Construction provides its Expansion Index on a monthly basis. This is their 12-18 month outlook for the construction industry (yes, much more than the electrical market, but at least a barometer.) The blue denotes "shrinking", yellow is "expanding", and red is "hot spots." In watching this over the past couple of months, the number of red and yellow spots have increased. The next update is December 1.
Construction employment rose in half the states and decreased in half in October and during the past year, closely matching the static national employment picture, according to the Associated General Contractors' analysis of Labor Department data. The even split between gains and losses reflects the accelerating improvement in apartment and private nonresidential construction, offset by a declining public market and stalled single-family sector.

And to get our own sense, we've launched an ElectricalTrends forecast survey. Click here to let us know what you think.

What do you think about the forecasts? What is your's?

Tech Tools to Drive Sales

noreply@blogger.com (David Gordon) — Wed, 16 Nov 2011 21:08:00 +0000

Technology will be a major driver of cost reduction as well as customer out-reach in the coming year(s). Here are some "unique" things to consider:

RepFiles is a new service being co-launched by NEMRA and John Hoelz, who is also with J.F. Nolan & Associates (which adds credibility to understanding what rep challenges are) that capitalizes on the power of tablets (iPads and Android powered ones) as rep presentation tools. Manufacturers essentially load information into an app that automatically synchs their content, through a central server, with all of their reps' tablets. This can be a major time / communications savings for manufacturers and help ensure reps have the right presentation materials at the right time. For more information, manufacturers and reps should contact NEMRA or John Hoelz.
ecoInsight, the developer of the NAED energy efficiency software, appears to be gaining traction. Distributor salespeople can walk around a facility, enter information into a tablet (and maybe an app), upload the data and then have a professional proposal developed. Reportedly motor and drive information is being added in Q1 2012. It's free for the first 3 years (don't know the cost thereafter). The software can be a leveler ... expertise is not needed to conduct an energy audit. Hopefully customers value the "right" material selection so that the energy efficiency market doesn't devolve into a commodity sale.
Looking to reach small customers? Take a look at http://www.bizydeal.com/. This is a "Groupon" / "LivingSocial" concept targeted at small businesses. It was launched by an ad agency. They've also recently launched HousingZone Deals to target the residential construction market and a commercial construction industry deal portal is in development. This could be a unique opportunity for distributors with commerce-enabled sites, larger regionals, national distributors or manufacturers that get creative and offer couponing / discounts through distributors.

What else are you using, seeing, exploring? And if you don't know the software name, let us know what else you're looking for.

Marco Makes Good. NAED Eastern Observations

noreply@blogger.com (David Gordon) — Tue, 15 Nov 2011 02:10:00 +0000

The Marriott Marco Island played the backdrop for the latest NAED Eastern Regional meeting. And while there were some who planned on staying through the weekend, turning it into a vacation, and some who had "socialized business meetings" on a green patch of grass, overall many had a business focus during the meeting.

Overall registration was about 600 people representing 73 distribution companies and over 100 manufacturers. There were a number of new, smaller, distributors in attendance. Interestingly there were also 18 rep firms in attendance. Given NAEDs over the past few years, this was very well attended.

Some observations and overhearings, in no particular order:

The general session was relatively short. About 30 minutes for Bob Reynolds and Dan Nitowsky (NAED staff appeared via video) and an hour for the keynote speaker (Wes Moore) to talk about the elements of leadership based upon his life experiences.
The "Branding" session and the "Innovation" session received positive feedback, albeit limited attendance.
The Women in Industry networking meeting received raves from attendees as did the mentor-mentee program that has been developed. Seems like NAED has focused on this initiative. Perhaps the effort could be expended into other niches.
We spoke to a number of distributors and manufacturers about their 2012 projections. The consensus was flat to low single digits with the industrial segment faring better. The adage of "every market is a local market" is very adept as a number of distributors felt they could outperform this level due to introducing new services, targeting niches (solar, industrial, petrochem, energy efficiency, data centers, waste water treatment facilities) and taking share. Some expect to hire a number of new, younger, people to start to generate an employee "bench". Reportedly Graybar is hiring many young people in sales, expecting turnover, but knowing that they need to "become younger". The figure of 300 new hires was mentioned in regards to Graybar.
A number of distributors commented about Trade Service's new relationship with epaCube and its Margin Optimizer program. They felt it could be a useful tool to improve their profitability (or at least know what they could be missing.)
Distributors continue to invest in social media / marketing, and are trying to find out where the ROI is, especially for small to mid-sized distributors.
Solar received much conversation from distributors as a market niche for 2011. Issue is still on the PV modules due to cost volatility (which may eventually help adoption). Look for larger distributors / chains and groups that are already in this space to accelerate their solar business. Currently 25% of the solar business in Europe is done by distributors. Earlier this year we documented about 16% of the solar business being done by U.S. electrical distributors.
The petrochem market is strong due to the Marcellus Shale and the Utica Shale. Royalties and tax revenues in affected areas could also benefit local communities (projects) in the next couple of years.
VMI is catching on with many distributors as an effective tool for reducing costs, managing inventory and increasing sales with selected manufacturers (combination of having the right products and increased sales support - the manufacturer has increased accountability for the inventory!) It appears that the industry standard has become Datalliance.
Rare earth minerals and their impact on the way the lighting business has been conducted was a topic of conversation. Look for changes in the way lighting projects are quoted in the future and for more volatility in pricing ... they won't be held constant for long-term quotes / contracts.
There is some renewed conversation about "too many meetings". Challenge is that NAED operates 4 of the meetings. AD only has 1, IMARK has 2. Manufacturers then have Grainger, Graybar, WESCO and maybe a couple of other distributor-specific meetings, plus meetings for other channels (association and marketing groups). To reduce the meetings means NAED needs to reduce as the others have nominal ones and need the meetings to conduct company-specific business.
We also heard of a number of manufacturers who have zero-based budgeting going into 2012. No expense increases, combining of roles, increased scrutiny.

We also shared our "Changing Distribution Landscape with a number of distributors and manufacturers. Click here to see the presentation or click here to see an interview with Modern Distribution Management (click on the October Executive Briefing)

If you attended, what else did you hear. If not, why not?

Rockwell Distributors Thank Sonepar

noreply@blogger.com (David Gordon) — Thu, 27 Oct 2011 21:24:00 +0000

For a number of years Rockwell's electrical distributors have heard how Rockwell wanted to reduce the numbers of distributors they interacted with and reportedly this was to occur through natural acquisitions. It has been hinted during this time that Rockwell has the ability to influence potential acquisitions. While we have no direct knowledge of this, the industry engaged in conversation about whom could purchase whom.

Years ago some of the national chains acquired Rockwell distributors (Rexel, WESCO, Sonepar, CED) but there hasn't been much in recent memory. It's also been said that Rockwell favors "independent" distributors - they didn't want have too close of a relationship with the national chains.

This puts a crimp in the "more with less" strategy. Rockwell distributors were relegated to selling to distributors with neighboring APRs (area of primary responsibility) or large independents (Kendall buying Roden, potentially McNaughton McKay or Border States, etc).

A few years ago Sonepar purchased Stuart Irby, giving them their second Rockwell distributor (Standard Electric in Boston had the Boston Rockwell APR).

Well, Sonepar is now potentially giving Rockwell distributors another potential acquirer - they have purchased OneSource Distributors in California.

OneSource, for those who don't know, is a large, quality distributor with a good management team and strong operational platform. Their president, Mike Smith, has a strong Eclipse background and can also be a great resource to other Sonepar divisions in supporting Eclipse needs.

Presumably Rockwell was informed about this well before discussions reached the numbers phase and approved of the relationship. Question becomes - would they be amenable to Sonepar acquiring other Rockwell distributors ... or is there a Sonepar saturation point? Would Rockwell be open to other national chains acquiring Rockwell distributors (or only if they operate them as separate companies?)

Either way, the value of a Rockwell distributor has now increased.

When you can't do stuff very well...what do you do?

noreply@blogger.com (Allen Ray) — Mon, 24 Oct 2011 18:22:00 +0000

Many distributors end up paying really good money to purchase ERP software systems and either don't completely install (turn on) all the various features and functions or they have such a terrible time getting their personnel to use all that they paid for and they give up. The result sometimes is that they cause more problems than they had before.

Ballooning Inventory:

You might say to yourself that 'I've got my inventory under control' and then several things come along and you get outdated, obsolete or even NON-Stock inventory that finds it's way onto your warehouse shelf. Maybe it's your big three or four money lines.

You make an attempt to correct the situation and get it balanced. You wait for the right time to return product and argue with the manufacturer. But the net result is that your inventory is still out of balance. Returns and overstock are a continuing problem. Not to mention you've lost the ability to reallocate this investment into inventory that moves (or maybe save the money!)

Could it be that you don't really understand the math about setting service and replenishment levels (but don't want to admit it)? Or maybe you just choose to fly by the seat of your pants. But you tell yourself "I know what's best for my company". Right?

Well there is another way to get what you want by co-operating with select manufacturers. Especially your big money lines.

ElectricalTrends is in the business of identifying trends in the electrical distribution space and there is one that is really emerging with regards to distributor inventory. It is an old concept that revolves around the distributor sharing some POS data.

It is a head turner when distributors volunteer, on their own (no prompting/or prodding), that they are actually pleased and receiving value from a FREE service that involves some pretty big name manufacturers and respected distributors.

The service is provided by Datalliance....and it is FREE to distributors. Datalliance focuses on specific inventory for specific manufacturers and their distributors. They can't force product on a distributor. The figures we were quoted recently indicate that a real usage trend is underway. Consider that in 2008, Datalliance was providing service to 30 electrical distributors that represented 280 distributor locations. Now, in 2011 (in 3 years later), they will be providing service to 135 distributors with approximately 1540 locations. Here are some impressive success stories:

Some of the perks we've heard about make it almost duhhhhh! So what do you think? Does VMI still scare you?

Margin Problems?

Over the years most distributors have the same set of problems regarding getting the margins they want. Usually there are fights with sales people about selling prices, inventory cost and, unless it is an "A" item, all other priced items generally receive very little attention when it comes to enhancing margin.

Often the distributor is faced with marshaling a pricing/margin project that looses steam or goes unattended after awhile. The net result is that getting the proper margins in your ERP system just doesn't end up happening. I estimate that less than 15% of all distributors actually finish a pricing project. And fewer actually maintain the discipline that is installed / agreed upon.

A few months back we reported seeing a Trade Service e-newsletter (Partner Connections) that explained that they were partnering with epaCube to offer a margin enhancement product for approximately 1300+electrical distributors that use Trade Service's eData-Flex.

The Trade Service/epaCUBE product is named MARGIN OPTIMIZER (MO).

Currently distributors download and run TSC updates without really realizing the true impact of price changes before they go live. MARGIN OPTIMIZER, in combination with Trade Service data, allows a distributor to see that week's specific impact on the distributor's bottom line. While this offering is web based, it allows a returning user the opportunity to impact their bottom line by 3-5% over time.

Is getting your inventory balanced and turns important enough to let a third party like Datalliance take a look at your inventory replenishment needs, especially if it is free and there might be some extra perks? Or how about being able to see the weekly price change impact to your business worth investigating Margin Optimizer?

IEC Convention Overview

noreply@blogger.com (David Gordon) — Wed, 19 Oct 2011 16:13:00 +0000

“Your Blueprint to Success” was this year’s slogan for the 54th IEC National Convention & Electrical Expo in Louisville, KY. Approximately 500 attendees took advantage of the numerous education courses as well as the trade show.

Here are some of our observations from the Independent Electrical Contractor group;

The organization has grown into a very professional run organization
Their education programs are considered extremely effective by the contractors we spoke to.
While attendance was on the light side, the education seminars were well attended.
The tradeshow had about 75 booths with Eaton, Schneider Electric, Graybar, WESCO, REXEL, and GEXPRO exhibiting as well as most of the industry top manufacturers.
The main sponsor was The Home Depot, which should say something about pursuing small to mid-sized electrical contractors as a viable business segment.
This year’s keynote speaker was Lt. Col. Rob “Waldo” Waldman. He did a great job melding the challenges of a decorated fighter pilot and the requirements for today’s contractor to face the new economy.
Generally, contractors feel the economy has bottomed out and there will be a very slow recovery over the next 3-5 years. Many said the new construction market is very quiet. Many also indicated they have transformed their company towards more service work to survive. When asked how their business was, many responded “OK”.
If there was any opportunity for new busy the contractors expressed energy savings. Many exhibitors were demonstrating products that fit this market niche.

Channel Marketing Group's Stan Rydzynski presented a seminar on marketing. IEC believes its membership needs to establish a marketing business philosophy to cultivate new profits in this challenging economy. CMG presented its “MARKETINGOPLY – Increasing Sales and Profits Utilizing Marketing Strategies/Tactics” program. Our program was received extremely well by the attendees. Many felt that with a slow / no growth economy and their adoption of diversified and service-driven business models, marketing was critical to their success.

Note: If you'd like to offer your contractors a value-added seminar, contact Stan at srydzynski@channelmkt.com to learn more.

What Would You Do With $500,000,000

noreply@blogger.com (David Gordon) — Wed, 12 Oct 2011 23:31:00 +0000

If you were Graybar?

Yes, it's a lot of money and many people are wondering, perhaps speculating, on what Graybar will do with a half a billion dollar unsecured loan. This gives them $300 million more than they had before. It's an intriguing question and ranges from "nothing" to "retiring prior loans / lines of credit that had higher interest rates" to "how can they spend the money?"

(And since Allen and I had some time to spend on the phone today, we thought we'd try to spend someone else's money!)

From asking around, we've learned:

There is no personal liability.
There are no real estate attachments
There are no stock attachments nor A/R commitments.
Part of these loans were renewal of old loans and cleaned up documents from as long ago as 5 years ago.

But, according to some "in the know", there are plans for the money.

But remember, the plan could be keeping the money "dry" and not using it ... essentially saving it for a rainy day.

But, why post something if we can't share ideas on how it could be used....

$500,000,000 would buy about $2 billion in distributor sales, so could Graybar go on a buying spree? These could be electrical distributors, automation houses (they bought AVAD), lighting distributors, etc.
Perhaps an expanded renewables initiative .... solar, entering the smart grid marketplace?
Do they need a cash cushion for business they want to pursue, especially if they are concerned about receivables / delayed payment?
Could some be invested into their industrial automation strategy? They are hiring many people around the country now (don't know if any are funded by Schneider Electric).
Or in more salespeople (Grainger is expected to hire 300 new inside salespeople this year). After all, Graybar's Bill Mansfield was quoted as saying manufacturers are reducing their salesforces
Perhaps enter a new business through an acquisition ... buy a solar distributor? a PT distributor? an ESCO to support their energy initiative?
Or expanding their utility business by purchasing HD Supply's utility group (which now includes their electrical group)?
Or funding the opening of new locations (they are looking to open 7-10 new locations per year for the next several years)
Maybe take a page from Grainger and do end-user marketing to build their brand and drive business?
From a financial viewpoint, is the loan viewed as liquidity / cash and an asset for a potential acquirer of Graybar, enabling some internal funding of Graybar being acquired? Could someone like Motion Industries (Genuine Parts) be interested in entering the electrical industry? Or another large distribution company? Or a private equity firm?

Lot's of choices. With cash much can be done. It's doubtful that Graybar invested its time to do nothing with the money. So what do you think they should do? If you had this much money (to spend in the business), how would you spend it? What could be a "game changer" to accelerate their business?

Technology @ a Crossroads? Motherships and etc.

noreply@blogger.com (Allen Ray) — Mon, 26 Sep 2011 05:00:00 +0000

Back in July, we seemed to have hit a nerve with some distributors and manufacturers about some former Mothership ERP's that are now drifting out of orbit.

As we read emails and listened to phone calls, it became apparent that some distributors had followed a similar path when purchasing their latest ERP system.

They did a quick survey to make sure they covered their Cardex system functions.
They talked to their industry buddies to make sure the new system would work (if it is good enough for them it is good enough for us review process!)
Some listened to tales of poor or waning support; Many did not pay attention.
Site visits became the norm and many realized that they would never achieve the level efficiency of what they saw. But they wanted it.
Not happy with their current system's support, many jumped to a system that everyone told them worked. But soon discovered that the support was as bad or worse than what they had left behind in their old system.
The installation of new systems disrupted their business to the point that they cut short training and data conversion.
Very few looked at ERP systems that ran on open databases, that would carry them into new technologies. To think that through was beyond their immediate goals. They just wanted a system that ran, regardless that it was 25+ year old technology and not very pretty on the screen.

"ERP systems that worked" But does it later on?

In the rush to install the "new" ERP system most overlooked two crucial items:

Complete training and turning on the complete system (like wireless warehouse/bar coding and EDI) These are not all the systems that didn't get turned on.
Correcting and cleaning their product data (this is like putting sugar, sand and sawdust into your car's gas tank.) Many just moved the dirty data forward and hoped for the best.

As time went, by distributors began to see the need to control variable costs and they looked at a number of other add-on modules. Many looked at various wireless warehouse solutions, only to find that their product data was so poor that they couldn't implement the process. The extent of the problem is best described in a recent article " Data Drives the Wireless Warehouse" by Beth Badrakan. If you wanted to bar code your data you had to meet certain standards. Many retreated from the project because of cost.

A side note about the data issue and closed ERP systems is that generally it forces you to go back to the original ERP provider, that now may be drifting off into space and no longer the Mothership that everyone thought it was. Even then, some were not successful because of the cost to add-on wireless warehouse.

So some distributors turned their attention to managing margin and cleaning up their data as it was updated by using epaCube. This let the distributor work at their own pace as data flowed in. The payback was over a longer period of time. Still others looked at ways to get at product usage data reports, which many assumed came with the ERP system. Not many mastered the use of the report writer and none had access to the source code. The key to getting access to the data lay in being able to convert the database files using a product like Kore Technologies offers. This allows the distributor to convert files to software products that they most are familiar with.

Game Changer Technology

Just around the corner is technology that will allow "Tablet computers" that are not Apple ,to deliver HD functionality and connectivity using free WiFi or a data plan:

Log on to a distributor's site or system/send a RFQ or order
Click on a distributor/manufacturer catalog (PDF), populate an order and send it you the distributor.
Receive delivery notices
See signature capture.
See training videos in HD....etc
All of this could be done with a distributor's salesperson being in attendance.

Manufacturers, ERP providers and distributors will probably want tablet delivery systems. Distributors for quote/order capability. ERP's will be forced to offer connectivity. Manufacturers will want to deliver training and product videos in the field.

What's a distributor to do with their partially functioning ERP system as they look out across their competitive landscape with changing technology that becomes a game changer?

How do you hook up to tablet-like technology? Good data is required (and it is a separate discussion of how a distributor can get there ... what is the definition of "good" and who has the scale to deliver it?) What Mothership ERP package will offer that connectivity and open the way for future productivity?
Is it time to get serious about driving variable cost out of your business? That means letting computers do the work....good data drives three way matching, collecting SPA Rebates, bar coding, accurate price matrix etc
Good data, along with an accurate pricing matrix, can drive more profit to the bottom line.
Or, do you start seeking a buyer for your business?
Or do you seek to open up your ERP system's data in preparation to starting a new ERP search?

What do you think? Share your thoughts with us.

Recent Acquisition Thoughts

noreply@blogger.com (David Gordon) — Tue, 30 Aug 2011 14:44:00 +0000

The last couple of weeks we've seen a couple of transactions that could be interesting:

First is yesterday's announcement that Hajoca, the sister company of CED, acquired HD Supply's plumbing and HVAC group. It wasn't much of a surprise that HD divested of the plumbing group. Their "contractor" groups have underperformed since HD was created as an amalgamation of acquisitions. And bringing in someone from Ferguson to run it was a signal. It begs the question of "when will HD Supply sell its electrical group?" They did sell their Canadian electrical group to Sonepar.In thinking of potential acquirers that make sense ... there could be some synergies for Sonepar (as well as some new territory expansion); CED given that Hajoca knows the right people and CED is always an acquirer at the right price; Rexel ????. It doesn't make sense for HD Supply to sell the parts piecemeal (too many legal expenses). We wouldn't be surprised to see something happen this year as the outlook for resi / commercial construction remains dismal.

Secondly, Cree purchasing Ruud Lighting, which also sells to distributors under the BetaLED name. Interesting that Cree is expanding into the fixture business. Gives them 2 sets of reps selling LEDs, at least for now, and a business that is known for selling direct to contractors (Ruud). Will this put any more pressure on the major lighting companies to expand their LED offerings? Does Cree think it can accelerate LED sales? Is the fixture business more profitable than being an OEM supplier? Or did Cree think that competition for the LEDs is increasing and it needed its own fixture manufacturer to ensure its business? With other electronics companies entering the LED space, are there more OEMs out there? Click here for an interesting interview with Cree and Ruud but the question of "how will this impact the distribution side of your business" wasn't asked. As a distributor, would you prefer to purchase from a BetaLED, owned by Cree, or purchase from one of the leading fixture manufacturers (Cooper, Lithonia, Philips Lumieres (Thomas Lighting, Lightolier, etc), Juno) or is the name of the game "value-engineering"?

And according to sources, we should expect more distributor and manufacturer acquisitions by the end of the year as there is a drive for market share and diversification at the right price. As the market is changing, are you having "what if" sessions within your company? What do you think of these acquisitions?

Free Agency and Electrical Distributors

noreply@blogger.com (David Gordon) — Mon, 08 Aug 2011 20:59:00 +0000

The recent signing of the NFL collective bargaining agreement signaled the start of the football season. And pre-season has been a frenzy with a record number of available free agents, a few signing for megabucks, most simply looking for a new home (and a paycheck). And just like there were no signings (free agents or draft choices) for over 4 months, so has the electrical industry gone without many acquisitions for awhile.

But it looks like a feeding frenzy is starting.

Over the past few months there have been a number of acquisitions throughout the country ... and with some common attributes. The commonalities:

Contractor-oriented distributors being purchased
Companies with limited / no succession plans

Couple this with a tepid, if not disheartening, outlook for the construction markets; the fact that some, if not all, of these companies had no, or minimal, profitability in the past few years; and that the acquisitions represented some strategic synergy for the acquirer and you can see why companies could be enticed to sell. They saw an opportunity to, like a football player, "take the money and run."

The deals we're referencing include CED purchasing Yale Electric (PA), 3E purchasing City Electric (IA), Sonepar's recent purchase of Independent Electric (CA) and there has been a small deal in west Texas. We're also hearing rumors of a few other deals in the pipeline.

Which brings us to the question of "how long can some contractor-oriented distributorships hold out in the face of nominal industry performance, uncertain healthcare expenses, taxation concerns and general business uncertainty, especially as we see the industry dynamics favoring companies with a penchant to invest in energy efficiency, solar, datacom, safety, institutional sales and more. The distributor of tomorrow appears to be either a well-diversified company or a niche player.
,
Companies that have been heavily concentrated in the contractor-oriented construction segment, in many markets throughout the country, are challenged to deliver a return to their owners. And if there isn't an avowed succession plan, perhaps now is the time to consider positioning the company for a sale (like the above companies did).

Optimizing your selling price requires planning to improve your top and bottom line while showing an acquirer that there is more value in your business than meets the eye. Consider:

Have you gotten your back office as efficient as possible?

Have you turned on all your EDI capability?
Are you able to identify all of your non-stock sales? Are you making adequate margin on them?
Are you claiming all your SPA’s in a timely fashion (inside of 24 days) and therefore giving your manufacturers an interest free loan?
Are you using a wireless warehouse?
How fresh is your inventory? Has it gone stale? Have you got product that hasn’t sold in the last year? There are ways to get rid of that inventory.
How are your margins? Are they the lowest they have been in several years? Do you know the 3 keys to increasing margins relatively painlessly?
How is your ERP system working for your company? Is it causing you to lose sales?
How good are you at collecting outstanding invoices with your customers?

How are your customer and revenue generation issues?

Do you know where the opportunities are in your marketplace?
Do you have any brand equity?
Do you really know your customers current needs?
Do you know how your customers perceive you vs. your competition?
Do you know your marketshare and do you have a plan to increase it?
What is your sales plan? Your marketing plan? Your product mix?
Where is the growth opportunity for an acquirer? Can you sell them on a vision? On your plan? Are your manufacturers vested into your strategy?

While selling a business is about the numbers, if you're not in negotiations know you still have the ability to impact your numbers? (we know it can be done ... we've done it)

So, do you see more acquisitions happening in the near future? Why (or why not)? And do you think a company can "pretty itself up" to "sign the big deal"? And what does this mean for acquirers ... will acquirers be solely Sonepar, CED and larger independents (does Rexel have the capability? will WESCO go electrical or not? Gexpro and Graybar haven't been acquirers; will Crescent finally make a deal?)

Much to ponder. Should be an exciting season!

Does a PAR Win?

noreply@blogger.com (David Gordon) — Fri, 22 Jul 2011 02:45:00 +0000

Last month NAED released the results of the most recent PAR report, which highlights distributor performance for 2010. For many this becomes the "Bible" of distributor benchmarking and profitability. It is also frequently cited to manufacturers as the reason why distributors need better rebates or other financial considerations.

But is PAR the benchmark that privately-owned distributors should use to measure their performance?

According to PAR, distributor net profitability before tax increased from 1.1% in 2009 to 2.4% in 2010. Doubling profitability in a year of growth, especially after 2009, is admirable. Unfortunately, rebate as a percentage of sales for distributors in 2010, according to PAR, was between 2.5-2.7% (depending upon size of distributor.) So rebates = net profitability?

And remember, these are privately-held companies. Many are sub chapter S companies. But they are privately owned and can do what they want within their company. In fact, the proper measurement is for each company to aspire to stretch net profit objectives or set an objective with excess funds being reinvested back into the business (or shared with employees).

So what's feasible? There are two companies in the industry that are publicly held ... Rexel and Wesco. And remember, everyone's business is different ... different market focus, different margins, different objectives. Wesco just released its Q2 earnings. They reported a 5.6% operating margin.

Given the breadth of PAR, about 125-150 distributors, and the fact that 33-35% of distributors are in either A-D or IMARK, perhaps a better benchmark would be for each group to conduct its own PAR study and share the results. Suspicion is that A-D's affilitates would be higher given their industrial weighting (at least over the past couple of years.)

Now for some of us shooting a par would be great on the golf course. But is striving for PAR good enough for your business?

What do you think about PAR? Is PAR level performance what you strive for or do you set internal goals?

Changes Coming in Servicing the Industrial Market ... New Report

noreply@blogger.com (David Gordon) — Sun, 17 Jul 2011 22:48:00 +0000

The industrial market continues to power growth for many distributors. Recently we spoke with a number of manufacturers and distributors to get the current pulse of the industry. The result ... industrial continues to grow fueled by the OEM market, industrial MRO and capital expenditures. Additionally, many industrially-oriented electrical distributors are excelling in the energy market (perhaps because they are more used to selling to end-users) and a number are getting into renewables. Contractor-oriented electrical distributors still, for the most part, are challenged with limited larger projects around the country and it seems fewer small, light construction projects. There are some exceptions as we spoke with one contractor-oriented distributor who is up 29% ... as they repositioned to focus on the energy market and are in a state that only has 7.6% unemployment.

While industrial is expected to continue to power the electrical industry until more credit is available, companies start hiring and business confidence improves to enable new private commercial construction, there are a number of changes taking place in the industrial market.

Channel Marketing Group recently gathered insights from almost 2000 industrial end-users and industrially-oriented electrical contractors. They shared their challenges; what they desire from distribution; their move, and acceptance, of "e" initiatives and more.

Some of our key observations:

The market is getting more nuanced. Mass marketing won't work in the future. Customer intimacy will be key to account development, account penetration and account retention.
"E" is accepted, and growing, for everything from product research, training, account management and procurement.
Distributors are viewed as transactional or service-oriented. The key is deciding what you want to be and managing to profitability accordingly.

The report is available for purchase in the Research section of ElectricalTrends.

What are you seeing in the industrial market?

Is Your ERP system a Mother-ship or a Satellite?

noreply@blogger.com (Allen Ray) — Sun, 10 Jul 2011 19:14:00 +0000

Most distributors of any size invested in a distribution-specific ERP system that handles the specific nuances of the wholesale distribution business, save a few goliaths. The goliaths invested in SAP or an Oracle based system. But there are not that many goliaths.

ERP Software Consolidations

If you noticed, there have been quite a few software consolidations that have taken place over the years, and for good reason. The first few were because the distribution industry consolidated for the most part, yielding fewer 'check writers'. Then the industry took a swan dive with the recession, hit bottom and didn't rise very much from there. Capital investment wasn't the number one thing on distributor's minds, so more consolidation among business systems could be expected.

That's exactly what happened. Epicor recently bought Activant, which had previously acquired Eclipse, Prophet 21, Array (TSS), Prelude and Speedware. Activant also has Vista Information Services (which distributors and manufacturers use) and is the platform / partner for IDEA. And Infor just completed purchasing Lawson. And these are just a couple of examples.

So, now what? What happens when an ERP company buys others? Well they want a return on their investment, of course. The way to get that return is to minimize the investment in multiple platforms necessary to keep the profitable part of the customer base. They have issues, though. Distributors tend to hang on to their older systems and don't migrate as quickly as the acquirers would like.

The acquirers do like any stock portfolio manager would do. They look at products like stock and calculate the return they can get. Then they pick the winners and invest in those. And they look for products that cover multiple industries, unless an industry is very large and lucrative. The other products are slowly taken off life support. Sometimes not so slowly, like when we're still in a very slow capital investment environment and they can't rely on new installation income as much to hide the poor performers.

ERP for GROWTH or cash flow?

Having kicked the tires on a few business systems, there are some favorite criteria for choosing ERP systems in different situations. But the probable fate of your system in the ERP maker's portfolio of platforms has risen to number one on the list. And it should rise to number one in your criteria as in this "new" economy.

Here's a baker's dozen of other difference makers you might consider....

What comes with the base package? How do they charge for it? How do they install and train your people?
What are the add-on modules and what do they cost? What type of pay back do you get?
How well do they execute EDI transactions-orders, invoices, automatic ship notifications, SPA price notifications, SPA claims and credits????
How complete and easy is it to use their product data warehouse or file?
How complete and easy is it to use their warehouse management/wireless bar code reading equipment?
How complete and easy is it to export data to Excel and PDF documents?
How easy is it to link your product database to a web store front?
How accessible is the DATABASE? Is it proprietary or an open access database like SQL or Oracle?
How easy is it for order entry to look up non-stock items in a complete product database outside of the production file?
How easy is it to execute matrix pricing? Or load a price matrix you prepare off line?
How good is the forecasting and purchasing capability in generating automatic replenishment orders? Can it handle multiple logistics setups, like CDC, hub and spoke, or multiple instances of these?
How easy does it execute 3-way matching of orders, thus streamline accounts payable work?
What new capabilities are they investing in with this specific system? Like mobile apps. or margin control.

Of course, there are more that can be added to the list. But do you have the above considerations on your list?

ERP Lifespan

Most of all...you really need to determine what the lifespan of your current ERP system is. Will it be supported? If so, how long? How fast will you be able to get support? ("All support technicians are busy, your approximate holding time will be 45 minutes...give or take an hour"). Will they invest in it? What is their deal to migrate you to the "Mothership" package?

This is business,folks. When you have branches that don't deliver or people that don't deliver, you look to serve the customers some other way than through the branch or person that's not making it.

ERP product lines aren't all that different. Whatever is not delivering to the bottom line has to be consolidated or cost reduced. Plus if you slowly draw down the resources devoted to a package (i.e. additional programming investments and installed base support), maybe the buffalo herd won't notice as much and will stick around so you can migrate them over time to your Mothership.

The moral of the story? Get on a Mothership. Start compiling your criteria now if you're not already on one.

And here's another tip. Find out what percentage of the parent company's sales your package is. And if you can get it, the percentage of the total INCOME (revenue) for the company, then you will know where you stand. Is it the Mothership or a small satellite?

Distributor needs change

Tell us how you look at your current ERP system. Does it meet your current and future needs?

Who Should Be Carrying Product ... Reps or Distributors?

noreply@blogger.com (David Gordon) — Fri, 08 Jul 2011 02:28:00 +0000

Over the past few months we've been talking with a number of reps throughout the country as we work with an electrical manufacturer to review their reps and, in some instances, recruit new reps. Because of their product type we've inquired about their warehousing capabilities, solely because their competition has a number of reps with warehouses.

In many instances we've had reps tell us that the had had a warehouse but closed it a number of years ago, frequently to positive reaction from medium to large size electrical distributors... and have seen their business grow.

Which then led to a thought, and some conversation about reps as an inhibitor (today) and possibly a contributor (tomorrow), especially for larger markets, of distribution consolidation.

Now you may ask why but consider, whom does a rep warehouse benefit? In reality it benefits those who don't want to carry inventory ... either due to logistical reason or financial reasons. Typically this is a small distributor or a small branch. What would be the impact on small distributors, or small branches, if they couldn't send a truck to a rep warehouse, sometimes multiple times a day, to pick up material?

And couple this with manufacturers increasing pre-pay shipments to cover increased freight fees?

A major role of a distributor is to carry inventory to support their customers' needs. This can be at a location or through a distributor-owned redistribution system. Well run medium to large distributors can invest in systems and inventory to bring value to manufacturers and their customers. The smaller companies frequently don't want to carry the inventory (they can't afford carrying the inventory).

So, could reps be helping small distributors stay in business (and are they getting a premium for it)? Should reps have warehouses or should product go directly from the manufacturer to the distributor (or customer if it is a drop shipment)?

Would you prefer to work with a rep that has a warehouse and enables your competition (and puts them on a level playing field with a distributor that carries stock) or with one that supports distribution / end-users and you are responsible for your inventory management?

It also makes one wonder if NEMRA has done a study to identify which model is more profitable for a manufacturer and for a rep?

Thoughts?

How Well Does the Channel Communicate?

noreply@blogger.com (David Gordon) — Wed, 29 Jun 2011 14:28:00 +0000

Communication is critical to developing strong relationships. Be it at the local level, to salespeople, from manufacturer "corporate" to distributor "corporate" and more, sharing direction, information, expectations and performance is important to achieving success. In fact, this is why most companies take on some type of planning process (albeit with the marketing groups representing about 40% of the industry it has devolved to more target account planning).

A recent study by Channelinsights, highlights how the lack of information available to channel sales executives results in loss of revenue and opportunity. The survey, which solicited responses from 112 senior channel sales and marketing executives — all members of the Baptie Channel Focus Community.
While the research focused on the tech industry which has a history of sharing end-user information with suppliers, the findings also have relevance for the electrical industry. Conversations with electrical manufacturers is that there are more and more focused on vertical markets rather than broad types of electrical distributor customers. This means that they want to know where (or what type of project) the product is installed. The more information, the more opportunity to replicate the sale in other venues.

“In any industry, information and insight are keys to success, but when it comes to channel sales, information is at a premium. Without quick, accurate sales data, companies experience lost revenues, overpayments and ineffective incentive programs,” said Mark Geene, CEO of Channelinsight. “Today’s survey results validate the need for greater visibility into channel sales and demonstrate that companies need new tools to help them attain this information.”

The Channelinsight survey also found that while companies know their partners (87 percent can always or usually segment their channel revenue by partner type), they rarely have insight into market segments (54 percent of respondents said they cannot identify partner market segments).

But the key is that conversations start with information ... about each company's direction / vision as well as needs and expectations, the local marketplace (afterall, the economic influences in Houston, TX may be different than national dynamics), major initiatives, resources and action plans. Follow-up is critical. Unfortunately the quality of communication is inconsistent within a company let alone within the channel.

So what type of communication do you expect from your manufacturers / distributors? What are the attributes of a good communicator? And whom are some of the industries best, and worst, communicators (companies only - don't want to make this personal)?

Loyalty & Commitment ... What are They?

noreply@blogger.com (David Gordon) — Wed, 08 Jun 2011 19:06:00 +0000

I recently posted this on TED Magazine's LinkedIn site and, it seems, it's gotten buried, so I thought we'd re-start the discussion here.

We're working on a project with a manufacturer and during our discussions the topic of "loyalty" and "commitment" came up in the context of distributor programs / rebates. Essentially, in determining "support" to provide rebate, how to define a "loyal / committed distributor and how to reward them.

In conversations with some distributors, some felt manufacturers should consider loyalty / commitment as something other than sales volume, or sole line relationship, to the manufacturer, but they couldn't define what the "something other" should be (and be something easy to measure and that wasn't too subjective (and hence left to a salesperson to decide!)

In speaking with distributors, they want a manufacturer to be "loyal" to them and to reward them for their "commitment". Manufacturers want the same thing. But most often both parties are doing business with competitors (distributors representing multiple lines, manufacturers selling to multiple distributors in a marketplace covering a comparable customer base - since many manufacturers have barely selective or saturation distribution policies.) Both want to increase their sales and profits.

So, what should be the definition of loyalty? Commitment? Are they the same? How to define, and measure? Or just tie to sales and share the profits (rebate!)?

A Hesitant Marketplace?

noreply@blogger.com (David Gordon) — Mon, 06 Jun 2011 02:29:00 +0000

Last week was a tough one for the stock market as it dropped for another week with one day dropping 280 points on a quartet of bad news ... low new hiring (only 54,000 new non-farm jobs), the ISM manufacturing purchasing managers' index fell to 53.5 in May from 60.4 in April, the U.S. auto industry suffered its first significant setback in more than 18 months (a 3.7% year over year decline), and the continued decline in home prices (not to mention that it doesn't seem as if any new homes are being built and sold!). Coincidentally I was also speaking with some distribution management personnel, catching up on industry insights. One topic seemed to sum up much of the industry's sentiment.

Some want blood from a turnip

Essentially the comment was that everyone seems resource constrained. Few, if any, are doing any hiring unless it is opportunistic or to grow a niche / target area. Business owners are concerned about the nascent "recovery", taxes, healthcare, government regulations, the banking system (and lack of credit), the deficit and more. Employees are focused on keeping their jobs and being able to make their mortgage, given the dearth of available opportunities (jobs).

While there are pockets, and market segments, that are strong, there are a comparable number of areas and segments that are weak. This marketplace dichotomy, especially after the recent recession, makes business owners hesitant. And hesitancy drives people to be risk adverse.

While no one had an answer, the consensus was that many business owners may wait till 2013 (elections and the "start" of the new healthcare initiative) to decide if they want to return to being a growth company ... preferring to settle and be a lifestyle company at this time. While sales have stabilized, or grown for some (especially industrial or energy efficiency-oriented companies), profits have grown at a faster rate due to personnel and expense management.

With housing down, re-locations are difficult, forcing companies to limit searches to local candidates. Housing also tends to drive light commercial; and larger companies need to continue to grow to justify larger commercial facilities. Is the export market the economic salvation? (It's helped many industrially-oriented distributors and manufacturers.)

Meanwhile, at the same time we're seeing some of the nationals hiring in selected areas and sniffing / making acquisitions - looking to take share. And sometimes these acquisitions create opportunities for strong independents in those marketplaces ... are you positioned to be opportunistic when someone creates business for you?!

With many waiting, is this creating opportunities for you to profitably take share? Are you hiring to prepare for future retirements (and new opportunities) or trying to just make it for the next couple of years (and if you are, will your company be as valuable to someone else if you don't have a succession plan and need an exit strategy?)

Are you hesitating or investing and taking advantage of opportunities?