Best practices in the PT/motion control industry

Savvy distributors are always on the lookout for ways to utilize technology to lower their costs and work more effectively with suppliers. Here’s a look at how three PT/motion control distributors — Eastern Bearings, Shingle & Gibb Co., and Bearing Service Inc. — have put best practices into place to improve their competitive advantage.

Bill Hodgson, director of purchasing, Eastern Bearings Inc., Waltham, Mass.

Best practice: Provide accurate and complete information

Electronic tools have changed the way we do business. It used to be, distributors would receive an order and go to the warehouse to see what was there. We inventoried by size, and everything in that size was side-by-side on the shelf.

Today, we inventory by brand and part number and rely on the computer to tell us what we have. If the data in the computer is wrong, no one even knows it’s there.

When a manufacturer changes the price or part number, my department enters that information into the system so all of our branches have access to correct information for purchasing, quoting and sales. Out of about 100 employees, 70 have phone contact with customers. When a customer needs a part, our people go to the computer to determine its location and its cost so they can quote a fair price. If the data in the computer is wrong, it means there’s a breakdown in the system and the customer will be quoted an incorrect price.

When a salesperson receives a call, he enters the customer’s account number into the system, retrieves a price and quotes the order with a few keystrokes. Once he places the order, he hits one key and the system prints the shipping papers and generates the accounting paperwork, and the warehouse ships the order. There’s nothing to look up in the catalog, and no duplication of effort.

Errors in manufacturer-provided data create two problems. First, when the bill arrives with a price different from what we entered, our computer can’t authorize payment. Our salesperson and the vendor’s contact must get involved with our accounts payable department to determine what went wrong and correct the problem. For the manufacturer, there’s extra work in terms of issuing credit, rebilling and processing returns.

When you consider how many vendors we deal with, it adds up to a lot of time. Recently, one incorrect cost in the system translated into a purchase order and multiple customer orders with errors. Correcting the problem required mounds of paperwork.

If our salesperson sells an incorrectly priced product, he has to go back to the customer to try to get him to pay more. We may lose the order or end up eating the cost and losing margin dollars. This type of problem occurs weekly.

Many vendors now offer online ordering, which benefits them, because we perform data entry for them. But if the manufacturer doesn’t keep the data current, the system breaks down. Once we find one error with a vendor, we begin to question the quality of all of the vendor’s data. When a vendor cannot maintain current pricing, salespeople start to look elsewhere because they lose faith in that vendor.

Our market position is not to sell on price. We know that price is an important factor for the customer but we try not to allow it to become the primary factor. Even when it’s not true, customers tend to see the products we sell as interchangeable with our competitors’ products. These types of errors put price front-and-center and give the perception that we’re selling commodities.

Bottom line: When information is accurate, the customer gets the right part at the right price at the right time. And, that’s what we all want.

Bob Oberholzer, chairman, Shingle & Gibb Co., Moorestown, N.J.

Best practice: Work with me to reduce costs

A few years ago, we started to see a sharp increase in supplier requests for cost-of-goods-sold (COGS) data, sometimes called point-of-sale data. It started at the high-tech end of our business, but we’re now getting requests from suppliers of power transmission products as well.

In order to keep the line or earn full discounts, many suppliers require us to provide COGS data. Requests vary widely in terms of scope, from sales of a particular product by state, to complete customer contact information, from providing data on a monthly or quarterly basis.

We currently report POS data to about 20 suppliers that comprise more than 50 percent of our total sales. We report data in 20 different formats, because each supplier wants something tailored to their system. With that many formats, it’s a mind-boggling process to pull this information together. It takes one person two days a month to compile this data, which amounts to basically 10 percent of his time, month in and month out.

That’s why I’m a big proponent of the Cost of Goods Sold Transmission Format developed by PTDA and the Association for High Technology Distribution (AHTD). The format would allow me to provide data to every supplier in a single format, with tremendous cost savings implications due to reduced time to prepare reports and to develop programs to exchange COGS data. And, because we wouldn’t have to enter it by hand, my suppliers would get data with fewer errors, meaning better data for market analysis, production forecasts and sales force compensation.

I also support the sample confidentiality agreements that PTDA developed, which protect the confidentiality of my proprietary information and prevent the manufacturer from using my information to my detriment.

Convincing half of our suppliers to accept COGS data in the standard format would save a tremendous amount of time and free my staff for more productive activities. Once enough distributors and manufacturers begin using the format, we could go to the various distributor software companies and ask them to incorporate it into their packages.

All of the data we need is already in our system; if Prophet 21 would convert their software to support the COGS format, we’d be able to hit a button and give our vendors what they want in minutes.

Our suppliers would benefit too, because they’d get more accurate data. Whether they use it to analyze customer trends or improve forecast advantages, better data offers a raft of advantages. If they use that market data to better service our customers’ needs, we see some benefits also.

Bottom line: Anything that can reduce redundancies in the channel benefits distributors, manufacturers and customers by saving time and cutting cost. That’s something we’re all focused on today.

Doug Savage, president, Bearing Service Inc., Livonia, Mich.

Best practice: Tell me how not to waste your time

Manufacturer-secured Web sites help save time. We used to get a call from a customer who explained what he wanted. We’d call the manufacturer for price and availability, call the customer to give him a quote, take the order, then call the manufacturer back to place the order. The process might take half an hour.

For several items, we’d send a fax and the manufacturer would fax back the answers, which would take even longer. In the worst case, the manufacturer might provide incorrect information. We’d make a commitment to the customer, only to discover we couldn’t get the product.

Today, when a salesperson gets a call for a standard product, he opens the manufacturer’s site while he’s on the phone with the customer, quotes price and availability to the customer, takes the order and places it before hanging up. Total time: Three to four minutes, with the bonus of increased order-entry accuracy. Plus, we’ve reduced overhead by decreasing long-distance phone charges.

Because the manufacturer’s customer service people spend less time on the phone with us, they spend less time taking orders for standard products and can focus instead on the exceptions and custom jobs. Plus, customers get the answers and product they need more quickly.

The best systems have sophisticated filters that flag potential errors, such as unusually large orders or strange part numbers, and kicks them out for manual verification.

Face it: we’re in a reactionary business. Customers generally call us when something breaks. Before, if a customer called at 4:30 p.m. with a problem, we missed the window to get something shipped out that day. Now, when a customer calls late in the day, we can process the order by 5 p.m. and have parts in our hands by 9 the next morning. For customers, that means less downtime.

Since the process is transparent to the customer, it appears that our inventories are deeper; in reality we’re putting less inventory in the channel. I can lower my safety inventory and my costs, and the manufacturer gets more turns for slow-moving items. Because the computer tells us up front if the part is out of stock and the lead time, the customer can make an immediate decision about how urgently he or she needs the product.

Bottom line: Distributors are only human: we’re going to take the route of least resistance, which today means going first to the vendor that can get us the quickest answer. Vendors without these systems are definitely losing business.

This article originally appeared in the September/October 2003 issue of Progressive Distributor. Copyright 2003.

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