Most contractors have a favorite distributor. Based on a combination of product offerings, business practices, trust, and services aligned with your own needs, research indicates the relationship is long and deep. However, four decades of involvement with distributors and their customer bases reveals that most contractors aren’t taking full advantage of everything their favorite distributors can offer. If you do, it will mean more cash to your bottom line.
First, allow me to set the record straight: I’m not talking about renegotiating prices. My work with hundreds of distributors in the HVACR industry, as well as a half-dozen other lines of trade, has demonstrated this simple point: Real money can’t come from the distributor’s margin. Contrary to popular belief, the distributor’s margin is slim. In fact, the typical profit margin for the distributor serving you is less than 4 percent. Really.
Instead of price-driven negotiations, I recommend an exercise in cost reduction and a plan for cooperation and maximizing efforts. Pushing further, the ultimate customers for contractors and distributors (even the manufacturers supplying the distributors) are the same entities. It’s in everyone’s best interest to be the most efficient resource to that end customer. Simply put, if the contractor is more successful in serving that end customer, everybody wins.
Why leave this opportunity for greater success to the offhand conversation? When money and the future are involved, I firmly believe in planning and process. I propose you hold a nonselling sitdown with your favorite supplier. Let’s call it the strategic supply meeting. For the next few minutes, let me explain how the meeting will progress and, more importantly, explore a few of the topics and how they can put money into your pocket.
The distributor strategic supply meeting
With all due respect, this isn’t a routine meeting with your salesperson. While I believe the salesperson should be there, someone with broader decision-making authority should also be in attendance. In many instances, this is someone at the level of vice president, branch manager, general manager, or sales manager. I am not proposing a massive meeting, but it is beneficial to have others from the distributor’s operations, marketing, or accounting departments present. Ensure that your company has a solid representation. Remember, this isn’t about buying, selling, or price; we are here to explore some of the very core operating processes used in your business.
Set expectations with an invitation like this:
“You are our favorite supplier. We have come to rely on your products and services, but we would like to invite you to spend some time with us looking toward the future. Simply put, we would like to work more closely going forward with the intent of making our relationship better for both of our organizations.”
Below I have laid out points for discussion. You might use any combination of these to launch a problem-solving discussion.
How can we do business more efficiently?
This covers everything from communications to getting the right products to the job site. While every distributor sets its sights on ease of doing business, the small details often add to the costs of both the contractor and the distributor. The key is to look for ways to take inefficiency out of the transactions tied to doing business together. Here are a few points to consider:
- How user-friendly are the invoices and billings associated with the distributor? Is it easy to identify invoices and process payments or are there issues associated with handling them?
- Would summary billing work better on service department purchases at the counter? Would things be more easily handled if the distributor put an identifier on the invoice to give you the proper service truck number or job name?
- Are we processing orders efficiently? For instance, are we phoning in orders that you could better handle via fax, email, or some other manner? Do we have several people independently sending orders for similar materials at the same time?
- Does it make sense to package orders into kits that are transferable to job sites on a single pallet or box?
- Are our companies communicating in the most effective way? Do we send emails with copies to everyone? Are the right people receiving product updates and training opportunities, or must we forward this type of information to the right people by someone internally?
- Are there freight issues that we can eliminate by changing our procedures? Incoming freight for special orders and emergencies add to the cost of the contractor/distributor relationship. It is possible that slight changes in behavior could streamline the process and take waste from the total expense?
- Does the distributor have a list of materials always in stock? Is there an easy way for you to check availability from the field?
- Should the distributor establish a web portal for you to enter orders?
Can the distributor help solve bottlenecks in your labor processes?
There are many skill sets for which distributors offer special expertise. For instance, inventory management is a core distributor strength. Moving materials from one place to another with some degree of coordination is another. The question becomes, are you spending labor dollars in areas where the distributor might manage some of the tasks?
For example, improperly staged materials are often a source of damage and loss on job sites. Would it make sense to work on job site solutions with your distributor partner? Here are a few other examples:
- Can a distributor replenish your stock automatically and eliminate costs? This falls directly into one of the distributor’s core competencies. If done correctly, the contractor would end up with a more accurate record of inventory on hand, a better managed inventory, and a plan for eliminating obsolete products. Further, there could be cost reductions in labor as many distributors use automated systems for entering orders;
- Can the distributor stage products needed for larger projects? Large projects often involve a mix of equipment with long lead times as well as products generally found in the distributor’s warehouse. Eliminating downtime on jobs due to material outages can save big bucks; and
- Might the distributor provide container service at various job sites? Running special trucks with needed parts to keep a job going requires manpower. In many environments, it can lead to short-duration work stoppages. Many distributors in other industries are providing containers at the job site that act as extensions of the distributor’s warehouse. These impact workflow and have the side benefit of streamlining the hassles of returning unused materials.
Service work may require some special consideration
Service work and keeping your crew out producing revenue bring along a unique set of issues. During peak times tied to 100°F weather or massive cold spells, customers often measure your value in the efficiency of handling their problems. Common sense dictates that you should examine your service business needs thoroughly and often.
One could characterize most service trucks as mobile warehouses. The service truck drivers have much on their minds, and maintaining the right level of products is rarely one of their major skill sets. Furthermore, any inventory work they do takes them from the more important work of getting the customer’s HVAC system up and running. With this in mind, does it make sense to consider some form of distributor-managed inventory system for the truck? Again, this is your distributor’s core competency, and with their help, your trucks become more efficient.
Additionally, regardless of the best plans, sometimes the service technician must stop at the distributor’s counter. But is that time put to good use? Does the service tech sit idly by for 40 minutes waiting for the proper items? I recommend formulating a plan to attack this wasted time. Here are some suggestions:
- A no-wait policy where your technicians are moved to the front of the line;
- A plan for technicians to text in orders so needed materials are waiting upon arrival; and
- A special work zone designed to allow service drivers to handle paperwork or other needs. Ideally, these would be comfortable and equipped with a computer, printer, and other resources.
During peak season, some service-related visits are outside of normal business hours. Does your distributor have a plan for extending warehouse support to your company past the traditional 8 a.m. to 5 p.m. work day. Could the distributor establish a lock box for storing after-hour pickups?
We said this wasn’t about price but...
Sometimes there is a link between price and communication. For example, is there a way you could help the distributor anticipate your company’s orders that allows them to take advantage of pre-season specials or other price-reducing measures? If so, might there be a way to share in the savings? Has the distributor studied your purchases to recommend alternative products that provide a better value and lower cost? Have they tied labor savings into the “real cost” of old versus new product offerings?
The purpose of the strategic supply meeting is to streamline the supply chain and work together to deliver a better and more attractive solution to your “mutual” end customers. And the effort makes doing business with your team easier, faster, and better. That’s a strategic advantage.
Publication date: 09/25/2017