by Richard Vurva

Vying for attention from customers when you're the small fish in the pond is nothing new. Small distributors have become accustomed to battling the perception that bigger must be better.  Many are adept at demonstrating how their customized services, local inventory and even their prices are often more attractive than larger regional and national chains and catalogs.

What's especially aggravating to small distributors, however, is their ongoing struggle to curry favor with suppliers.  Distributors watch in frustration as their competitive position with suppliers dwindles. Suppliers rarely come to visit.  Co-op arrangements start to dry up. Most suppliers look at their shrinking marketing budgets and decide to put their investment where it can do the most good for the local marketplace (translation: with large distributors).

One way distributors gain attention from suppliers is by joining alliances, marketing groups and buying groups.  In many cases, the combined size of the member companies makes suppliers sit up and take notice.

"Distributors find themselves in the 80/20 rule conundrum," says Dan Potter, marketing director for Equity Industrial Associates.  The large chains and roll-ups get 80 percent of the suppliers' attention.  Small distributors fight over table scraps.

"Manufacturers spend 80 percent of their time on 20 percent of their larger customers," he says.  "What a buying group brings to the table is a national identity with a strategic focus.  We bring the focus of the associated suppliers back to the independent distributor."

According to a study by Pembroke Consulting of Philadelphia, the three most important reasons for joining an alliance are to gain better pricing from suppliers, to enable distributors to remain independent, and to gain a competitive edge against larger competitors.

"There are many interesting alliance and marketing group situations that essentially allow a distributor to appear big yet still remain independent," says Pembroke president Adam J. Fein.

Although most of the attention in the industry has focused on the largest marketing organization, Affiliated Distributors, whose member companies generated $13 billion in annual sales across three divisions in 1999, many small to medium-sized distributors belong to other alliances and marketing groups.

For example: Equity Industrial of Pittsford, N.Y., a spin-off from Equity Electrical Associates, is a marketing and buying group of 40 distributor members that collectively account for nearly $500 million in annual sales.

Industrial Network, based in Buffalo Grove, Ill., calls itself a business group focused on helping distributors improve sales, inventory management, methods of operation, operating expenses and executive development.  Distributor members range in size from $4 million to nearly $50 million.

Evergreen Marketing, headquartered in Carrollton, Texas, has 64 distributor members with about 200 locations in the U.S. and Canada. A typical Evergreen member is a $10 to $15 million distributor of construction and industrial products, largely focused on specialty tools and fastener applications.

Members of each organization share common goals and concerns.  They also recognize there's strength in numbers.

Creating the illusion of size
"In some cases, membership in the Industrial Network helps a distributor gain attention from a supplier that he couldn't get before," says Michael Baygood, president of the Industrial Network, which claims 27 members in more than 150 locations, representing about $1 billion in sales.

Suppliers would rather deal with a single entity than try to gain the support of a fractionalized base of independent distribution. Membership in an alliance enables distributors to bring a unified face to suppliers.

"The real benefit has been our ability to connect with manufacturers we didn't have access to in the past," says Jim Tomaino of Youngstown Rubber Products Co., a member of Equity Industrial.  "It has helped us funnel additional time into products without having to go out and search out a lot of manufacturers."

Alliances typically hold regular meetings between supplier and distributor members. There, executives discuss specific marketing plans.  In the past, it might have been difficult for a small distributor to get a supplier to return a phone call, let alone schedule a face-to-face meeting.

"Out in the West, we only see the supplier manager who chooses to do a swing visit to key customers," says Dick Bader of Acme Construction Supply in Portland, Ore., an Evergreen member.  His company takes part in Evergreen's annual partnership conference that brings together decision-makers from distributors and suppliers. "We would never have an opportunity to discuss mutual concerns face-to-face without belonging to Evergreen," he says.

Potter says a key benefit of his organization is providing distributors with marketing tools normally associated only with larger companies. For example, the typical Equity Industrial distributor has annual sales of $5 million to $6 million and lacks the sophistication and skills to develop marketing programs with suppliers.  Membership in Equity helps the small distributor earn attention from suppliers that previously ignored them.

"Distributors don't have internal marketing specialists and therefore lack the tools suppliers feel are necessary to develop business prospects in that local market," he says.  "We can take the tools available from the associated suppliers and allow the distributor to better focus their energies, money and marketing tools and make it easy for the independent distributor to utilize them."

Equity developed an Award Incentive Marketing (AIM) program in which members earn points by performing sales and marketing functions with vendor partners, such as counter days, joint sales calls and direct-mail pieces.  The idea is to accumulate enough points to award salespeople and other personnel incentive prizes ranging from T-shirts and caps, to television sets and vacation trips.  The ultimate goal is to get the distributor to focus more attention on that vendor's products and to give the distributor specific tools to be more effective.

Evergreen's Planning for Profit program, now in its sixth year, provides members with a framework to develop annual sales and marketing plans with preferred suppliers. Evergreen members set goals with suppliers and earn incentives for reaching the goals.

Customers take notice
Another goal of marketing groups and alliances is to help distributors compete for national contracts and integrated supply business.

"The customer is driving everybody to be able to provide as many products as they can," Tomaino says.  "For us, it has given us an opportunity to bid on items where we never had an opportunity before. It has helped us grow our business."

Herb Haggard of Haggard & Stocking Associates in Indianapolis, a member of the Industrial Network, says membership has provided opportunities for his company to quote on multi-site integrated supply-type business.

"We've been able to list some of the Industrial Network members as partners so we can go in and handle that facility as part of an integrated package," he says. "If we're working on a contract and the customer has a facility located in an area where a member of the network is located, we have a partner to handle that facility."

Industrial Network's merchandising and buying programs help distributor members compete with national competitors by offering access to more products.  It's common for members to contact one another to share inventory, creating greater accessibility to a broader product offering without increasing shelf space. Industrial Network also developed a variety of promotional brochures, product flyers and direct-mail materials that member distributors can customize to promote themselves at the local level, yet still appear to be part of a larger umbrella organization.

"Our focus is on the local marketplace," says Baygood.  He says local distributors, not national companies, are best positioned to meet the needs of the local marketplace.

"Each market is different.  Each company is different.  Each customer is different.  They don't want vanilla, they want the rainbow.  In other words, they want to do business their way," he says.

Of course, even when small independents form an alliance to provide a broad range of products and services in an integrated setting, they still suffer because they aren't on a single operating system.  Some groups, however, have developed a solution that allows them to provide a single solution to customers that want to deal with fewer suppliers.

For example, Equity Industrial forged an agreement with distribution software provider Commodity Management Software to allow members to provide single-source billing and single-source ordering on a local level.

Sharing costs
Membership in alliances creates other economic benefits, such as sharing the cost of establishing an e-commerce offering. An example is a recent agreement with Eventory to develop Web storefronts for Industrial Network members.  The agreement spreads the cost of building and operating an e-commerce infrastructure across several companies, while still allowing each member to maintain its individual brand identity.

"It would take another year and probably $100,000 to get to this point on our own," says Bob Cameron, information technology director for Haggard & Stocking Associates.  "This arrangement with Eventory allowed me to get the company up to speed much quicker."

Says Haggard, "We have to create efficiencies to be competitive in the marketplace. If you can do it on a shared-cost basis, you can be more competitive in the market."

Alliance membership also brings education and training to members. "Our program is strongly focused on training and education," says Kevin Higginbotham of the Evergreen Marketing Group. Evergreen is best known for its schools of product knowledge offered in a training facility near Dallas.

"We train them on application of the products they're selling," Higginbotham says.  "They drill holes in concrete and set anchors.  They use powder-actuated tools.  They cut concrete and grind metal.  All of those are applications they sell every day. The fact that they have done it gives them confidence that puts them ahead of their peers who don't get that training."

Evergreen also offers a series of business forums to train appropriate distributor employees in areas such as sales management, credit and collections, and human resource practices.  A core part of each program is sharing best practices. Bader says membership in Evergreen helps distributors like him network with the best in the business.

"Evergreen has created an education and best practices format that we could not duplicate under our own steam," he says.

While alliance membership reaps obvious benefits, it also brings problems. Distributors are concerned when major manufacturers won't participate in the group, choosing to focus their efforts on larger organizations and independent chains. Manufacturers become frustrated when distributors don't give their products the level of support the manufacturer feels it deserves.

"I doubt we'll ever get 100 percent support of participating vendors, because in some cases a vendor partner could be a direct competitor to a major line a distributor carries," says Haggard.

Other problems surface when a distributor switches to another alliance, or leaves after being acquired by a larger company, creating a hole in the group it left.  Groups continually struggle to maintain the proper balance between distributors and manufacturers and an appropriate geographic mix.

Despite their problems, most alliance members believe the good outweighs the bad.

"I would like to see every vendor belong to our group, and they would like to see every distributor belong," says Bader.  "Our founders did not set it up that way and our past decade of success shows they knew what they were doing."

This article originally appeared in the September/October 2000 issue of Progressive Distributor magazine. Copyright 2000.

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