Progressive Distributor - Power in numbers

Power in numbers

Buying and marketing groups help distributors compete on a larger scale.

by Richard Vurva

One way that independent distributors battle with larger competitors is by joining a buying and marketing group. By aggregating purchasing power with preferred suppliers and offering rebates to distributors that meet growth incentives, the groups help members improve their bottom lines. Some organizations have expanded well beyond the buying group model by developing training and educational opportunities for members or by actively pursuing regional and national contracts with customers.

Affiliated Distributors is the largest and one of the most successful marketing and buying groups among industrial distributors. The Evergreen Marketing Group is the leading organization among construction supply distributors. But other groups are gaining members and influence.

NetPlus Alliance, founded by former I.D. One executive Dan Judge in 2002, is the newest group to emerge. Since it was founded, the organization has ballooned to more than 200 distributor members with 600 locations in 44 states, representing a combined $2 billion in annual sales. Distributors range in size from less than $1 million in annual sales to a $200 million distributor, with a median size of $8 million annually. Distributors pay a $100 one-time membership fee and aren’t required to pay annual dues.

“We are a pure and simple buying group. That’s our sole mission. That allows us to focus on one thing for our distributors, which is increase their net profits,” says Judge, who formed NetPlus Alliance to help small to mid-sized distributors pool their buying power.

The group closely tracks sales from its 125 participating suppliers and urges members to consolidate orders through suppliers whenever possible. A same-stores analysis of distributors that have been members for more than a year shows a 25 percent increase in sales through NetPlus suppliers, he says.

“Based on industry averages, we should be able to double or triple a distributor’s net profit on a product line they buy as part of NetPlus. The more of our suppliers they use, the more it impacts their bottom line,” says Judge.

In May, NetPlus Alliance will hold its first annual meeting in conjunction with the Industrial Supply Association’s ISCON 2005 convention in Toronto. Judge says more than half of its distributor members and about 40 supplier members do not currently belong to ISA. NetPlus distributors will participate in the distributor conference booth program under the NetPlus Alliance banner, giving them added visibility at the convention.

“This will offer a stronger value for NetPlus members as well as bring new prospective members to the ISA meeting,” he says.

Customer solutions
When IBC was founded in 1999, its goal was to become home to mid-sized distributors that did not participate in industry-leading groups such as A-D and I.D. One.

“Our goal originally was to provide a true buying consortium where we could combine all of the purchases together under one umbrella and allow distributors to leverage that buying power. We were very successful in doing that early on,” says executive vice president Dan Burnham.

It soon became clear, however, that distributors needed more than simply a few additional margin points to compete effectively against integrators and national chains. They needed a format to compete head-to-head with national players for integrated supply and single-source supply contracts with large customers.

IBC launched a national account program in 2002 to help distributors solicit business from large customers interested in a strategic sourcing solution across multiple product categories.

“We offer the end-user customer significant cost savings by combining their suppliers under the IBC umbrella, providing them a seamless billing experience through our technology platform, and also maintaining a relationship with a strong local independent distributor that truly understands their business,” says Burnham.

Today, IBC manages 28 regional or national contracts with customers that cover a variety of product lines, including industrial, bearings and power transmission, safety and electrical. Using its proprietary TechPlus technology platform, Burnham says IBC receives electronic transactions from distributors, aggregates that data, and submits a single invoice to the customer.

“It’s a robust system that allows us to aggregate all of this information from disparate distributors and give the customer a unified look and feel,” Burnham says.

IBC also developed 15 cost savings programs that distributors can use to demonstrate the hard and soft-dollar cost savings they’ve generated for customers.

“Our national accounts manager makes sure distributors are looking for cost-saving opportunities on a regular basis. We typically have quarterly meetings with customers to review the cost savings we’ve generated for them to date,” he says.

In 2003, IBC documented more than $500,000 in cost savings for Bridgestone/Firestone.

IBC’s status as a minority business enterprise (MBE) also enables members to market their ability to earn credits from companies that strive to do business with minority-owned suppliers.

IBC has 150 distributor members representing more than 500 locations and $2.5 billion in annual sales. In 2004, distributors generated a 30 percent increase in product sales from preferred suppliers. It recently announced an alliance with the Safety Marketing Group, 54 independently owned safety supply distributors with more than 140 locations in North America.

“Many of IBC’s members carry some level of safety products, but when a national agreement requires safety specialists, we don’t have an opportunity to compete for that business. With this alliance, we can now check the ‘safety box’ on all RFPs,” Burnham says.

IBC changed its focus over the last five years because customers demanded it, Burnham says. “We’ve always asked ourselves, ‘What does the customer need? What does the distributor need? What does the manufacturer need?’ Then, we’ve built programs around what they were looking for,” he says.

Training and education
Evergreen Marketing Group executive director Kevin Higginbotham emphasizes three key benefits when he speaks to distributors about the cooperative’s value proposition: training and education, business development, and partnering with a select group of suppliers.

“Rebates are part of the reason why a distributor would participate in any group. Because of the value we deliver to the manufacturing community, they’re willing to provide a marketing allowance to the group. But in discussions I have with distributors, I talk about education and partnering with suppliers. If that resonates with how an individual thinks about business, then the marketing allowance is icing on the cake,” he says.

Up to 400 distributor employees attend 12 to 15 training programs every year at Evergreen’s 11,000-square-foot training facility in Dallas. The programs provide opportunities for distributor salespeople to gain hands-on experience with hand and power tools and other products their companies sell, learn about the different phases of the construction process and which applications to discuss with customers during each phase, and attend a variety of inside and outside sales training courses. Last year, Evergreen introduced its Evergreen Certified Tool Specialist certification program. Eight distributor salespeople earned the designation after completing more than 140 hours of training.

“We firmly believe the smartest folks on the street will win. Our goal is to have our distributors have the smartest folks on the street,” Higginbotham says.

In addition to sales and application training, Evergreen also developed programs for other aspects of a distributor’s business, including accounts receivable, inventory control, how to run a profitable tool repair operation, finance for non-financial managers, marketing, sales management and human resource management.

Its Planning for Profit program provides a mechanism for distributors to develop comprehensive sales and marketing plans with a select group of preferred suppliers. Evergreen’s 67 distributor members in more than 230 locations throughout the U.S. and Canada represent about $900 million in sales.

Evergreen’s goal is to have the No. 1 and No. 2 supplier in each product category become preferred suppliers and to attract the top independent distributors in each of its markets.

“In most markets around the U.S. and Canada, the distributor who is the player in that market is probably in Evergreen. But headcount is not what motivates us. We’re more focused on growing our programs to deliver value to our members,” Higginbotham says.

The group recently held its first new product introduction workshop in Dallas. It invited a handful of preferred suppliers to present their newest products to distributors and discuss their plans to go to market.

“Our goal is to be that go-to group when manufacturers develop a new product, so they come to us to build their market share,” he says.

Reducing the cost of doing business
National Supply Network, the Industrial Supply Division of Ace Hardware, is among the newest groups to focus on serving independent general-line and specialty distributors. The group was formed in late 2001 and now has 30 distributor members. Most range in size from $5 to $15 million in annual sales, but it also includes a $675 million distributor.

Through its 15 distribution centers in the U.S., NSN provides access to 570,000 MRO items from 2,100 vendors in 23 major product categories. Backed by the buying power of a $3 billion hardware cooperative, NSN provides distributors more attractive pricing and freight terms than they can typically negotiate on their own.

“NSN enables us to consolidate purchases from one source. And we don’t buy just the small lines from NSN, we buy some of our main lines from them also. Many times we can get a better deal through a buying group than we can as an independent industrial distributor,” says NSN member Sue Stark, vice president of Montague Tool & Supply in Branchville, N.J.

Stark says NSN makes sure her local manufacturer’s rep gets credit for sales to her company, so she continues to receive the local support she requires from the manufacturer even when she no longer buys direct.

“Our broad product offering helps our distributor affiliates reduce their customer’s supply base, cuts transaction costs and provides competitive pricing in 23 MRO product categories,” says Dan Fazio, national sales and marketing manager.

Fazio says NSN is more than a traditional buying and marketing group, because it touches virtually every aspect of a distributor’s business. For example, NSN can perform a detailed market analysis to help distributors determine growth opportunities.

“We provide a comprehensive approach to support small to medium-sized distributors in advertising, procurement, logistics and supply chain management,” he says. NSN also developed a Procurement Technology Affiliation to offer procurement, logistics and technology support to larger distributors.

Stark says she uses NSN’s Quote Master sourcing software to get up-to-date vendor pricing.

“Keeping price sheets accurate and up to date is almost a full-time job. NSN allows us to get pricing from one source rather than have someone request, collate and sort 400 price sheets,” she says.

Montague also uses NSN’s general-line catalog and two of its six specialty catalogs to market to customers.

“The specialty catalogs opened up new business for us,” she says. “I gave the material handling catalog to a local transit authority customer. He’s building a new shop and just picked out $30,000 of equipment from the catalog. If I didn’t have the catalog, I never would have gotten the order.”

NSN also developed an e-commerce template to provide distributors with a cost-effective way to accept online orders. Currently, more than 400 end-user customers use the system, Fazio says. Its Distributor Web site Builder helps distributors design an Internet presence where customers can view products and place orders online.

“We touch every aspect of a distributor’s business. Our objective is to give our affiliates the tools they need to be on an even playing field with national competitors,” says Fazio.