Progressive Distributor - Channel jumpers

Channel jumpers

When business is tight, distributors sometimes jump channels to look for new sales opportunities. Channel jumping is especially acute in the hose and accessories channel.

by Richard Vurva

Remember the old days, when you knew who your competitors were? Battle lines were drawn along traditional boundaries, with hose distributors competing against other hose distributors, while
general-line or construction houses fought among themselves. The world of distribution is not such a simple place anymore.

Today, channel jumping is becoming commonplace. It happens when distributors ignore traditional rules of engagement and start to pick off sales in non-traditional product or service areas.

Progressive Distributor research shows that 75 percent of hose and accessories distributors believe they lose business each year to alternate channels of distribution.

"There are people selling hose today that I've never seen or heard of before," says Linda Murphy, president of Flex Enterprises, a hose distributor from Victor, N.Y. She recently learned of a manufacturer's representative who started competing against her. "It has become a dogfight for who can maintain the business. There are people who weren't in the channel before looking to sell hoses so they can hold on to a piece of the pie that's shrinking."

Competition comes in various shapes and sizes. Power transmission powerhouses like Applied Industrial Technologies and Motion Industries annually sell millions of dollars worth of hose and accessories products. Consolidators like Integra swoop
in and acquire a rubber specialty house (Rubber World Connection in Landisville, Pa.), promising to leverage that expertise in other regions of the country.

Competition sometimes comes from unexpected sources. For example, five years ago, Winona, Minn.-based Fastenal was still known primarily as a major distributor of fasteners and construction supplies. Over the past few years, the company has gradually expanded into other product categories, including hose and accessories products. Today, Fastenal sells more than $20 million worth of hoses, couplings and fittings a year, says Rick Czeczok, product manager for the pneumatics and hydraulics division.

Fastenal offers crimping services and employs people in its 12 distribution hubs with expertise in attaching various hoses and assemblies. If a customer presents a problem that a branch salesperson can't solve, they're put in touch with vendors for
troubleshooting. In other words, Fastenal offers many of the same services that traditional hose specialists offer.

Traditional hose distributors would argue that a company like Fastenal doesn't offer the kind of hose product expertise that a specialty hose distributor can bring to customers.

Czeczok disagrees.

"We have our own training modules plus vendor training that our branch people can go through to learn to develop not only their sales skills, but to learn the who, what, when, where and why of the hydraulic and pneumatic division products," he says.

What's a specialty distributor to do when faced with new forms of competition from channel jumpers? In some cases, specialty distributors might be better off without the business channel jumpers siphon away. If your company has lost business to channel jumpers, take a look at the kind of business you're losing. If you're like most distributors, you might be surprised to learn that the bottom 10 percent of your accounts take up to 40 percent of your time.

"If there are channel jumpers coming in and taking two reels of bulk hose from one of those bottom 10 percenters, they're probably doing you a favor," says Chuck Connors, president of Omni Services of Worcester, Mass. Let the channel jumpers have that business, so you can focus your cost of sales on profitable existing and prospective customers.

If, however, you're losing profitable business, then examine your company to determine what sets you apart from your competition and do a better job of emphasizing that value with customers.

Inoculate yourself
The way for specialists to defend their home turf is to inoculate themselves, says Connors, current president of the National Association of Hose and Accessories Distributors.

"The best way to inoculate yourself is to be proactive and not reactive," he says. "Distributors need to do a better job of learning what I call the fine art of taking a bow."

If you have a customer who is easily persuaded to jump suppliers in order to save a few cents per foot on a reel of hose, that customer either doesn't need some of the value-added services you offer, or doesn't understand what value you bring.

Value comes in many forms. If you have experienced industrial hose and connectors salespeople, they should know considerably more about hose and connectors application engineering than someone from outside the channel. That's value added.

"A NAHAD distributor really is a specialty distributor," says Connors. "We know a lot about a little. The big houses know a little about a lot. That's where you begin to explain what makes you special."

In sales presentations, Omni has shifted from a product-centric emphasis to a customer-centric approach.

"We tell them about the special benefits they receive because we are an Aeroquip Premier distributor. Our people have gone to school for certification. We also participate in the NAHAD Institute and comply with NAHAD assembly guidelines."

Become a channel jumper
Channel jumping isn't limited just to outsiders jumping into the hose and accessories channel. Some hosers are jumping outside of their traditional niche as well.

"The customer is driving everybody to be able to provide as many products as they can," says Jim Tomaino of Youngstown Rubber Products Company in Youngstown, Ohio. "That has given us an
opportunity to bid on a lot of items we never had an opportunity to bid on before."

Youngstown Rubber is actively looking to expand its product line, partly through forming alliances with other types of distributors and partly through developing relationships with manufacturers in other product areas, such as electrical products.

"We see ourselves becoming more involved in a lot of areas that five years ago we were never involved in," Tomaino says.

The best opportunities to enter new channels might be among large companies that are going through vendor reduction efforts. As the companies downsize, they have fewer and fewer buyers. They don't want to add buyers to qualify new suppliers. So they turn to existing suppliers with a good track record of on-time delivery and quality assurance and ask them to pick up additional product categories.

That's how Flex Enterprises began to expand its product and service offerings.

"As customers downsize, they look for us to supply more and more," says Murphy. "So where we might have just supplied a tube or a tube and fitting before, now we're building the whole assembly. Today, we're a production facility in addition to being a distributor. We have a quality control department, which is different from most distributors."

Thinking outside of the box has opened up new opportunities. For example, three years ago, a major Flex Enterprises customer had a requirement for specialty tubing that was braided. The previous supplier bought the material in bulk and shipped it to another company for braiding. When the braiding was done, that supplier shipped it back to the first supplier, which in turn delivered it to the customer, who tested each lot.

"There was a 36-week lead time," Murphy says. Her solution? Flex Enterprises bought a side-by-side double braider and began braiding the product onsite. "In other words, we added value."

Companies that continually look for ways to add value are better able to compete against channel jumpers, and might discover opportunities to jump into other channels themselves.