The Articles Part 2 – A Day in the Electrical Distributor Market

From The Articles – By Randy Eddy

Former CED Profit Center Manager – Published 2005

Bob is having a good day. As the manager of “The Big Contractor Pipe and Wire House” (TBCP&WH) he has always had a passion for selling the big commodities to the big contractors in town. As a part of that passion, he has always paid particular attention to the wire markets and put a lot of effort into being the dominant wire supplier in his market. Knowing that wire will go up quite a bit next week, Bob has secured pricing on three truckloads of wire below current levels with a commitment to buy a fourth truck at the same levels within a month. Of course, that is a bunch of wire, but Bob, being in the business of selling lots of wire to big contractors has called all of his favorite contractors and told each of them of the pending doom of prices skyrocketing in the next week. He has received commitments from each of the contractors to purchase most of the wire that he is about to buy. Due to his savvy negotiating (which he can do on wire because he is in that business), he is going to make a very nice profit on four truckloads of wire. What a good day.

Knowing that wire will go up quite a bit next week, Bob has secured pricing on three truckloads of wire below current levels with a commitment to buy a fourth truck at the same levels within a month

Joe is also having a good day. Joe runs the “Industrial MRO Electric Supply” (IMES) distributor in the market. Joe has always known that there had to be some kind of opportunity with one of the large industrial users to whom he sells. Though Joe has a respectable position at the account there is no real purchasing strategy, which is noticeable by the fact that they buy from a number of suppliers and basically just hand orders out. Joe had been thinking about this for quite some time and finally decided to make a pitch to the head guy at the large industrial plant to enter into a single-source, strategic sourcing agreement with Joe and IMES. Because of Joe’s creativity (which he has because he’s in that business) he was able to save the customer money while raising his margins through negotiations with the manufacturers, not to mention that he has now quadrupled his business at one of his largest accounts and shut the door on the competition. Now his selling job will be much easier because he won’t have all those competitors nipping away at his hard work all the time. Joe is truly having a good day, oblivious to the fact that the price of wire is going up next week.

Sally is having a great day. All Sally thinks about 24 hours a day is how to get better at fixture job business. The BIG order has been on the street for a couple of weeks now and she finally snagged it. The company she runs, “Fixture Job Business Supply House” (FJBSH), is known for being the best in the market at managing a multi-hundred thousand-dollar fixture order like this one. That reputation put her in the driver’s seat with both the customer and the manufacturers, allowing her to negotiate a good order with nice margins. Unlike many other distributors, Sally is feeling pretty confident that her job management team will both handle the order very well, allowing her to make a nice bottom line profit, and serve to further strengthen her reputation and relationship with the contractor. What a great day, Sally muses as she ponders the big order of the year. Of course Sally doesn’t care about copper, and doesn’t know what MRO stands for.

Sally’s reputation put her in the driver’s seat with both the customer and the manufacturers, allowing her to negotiate a good order with nice margins

Pat is having a different day. Pat is out making sales calls like he does on his regular routine as an outside salesman. He gets up first thing in the morning and, because it’s Tuesday, he goes to his favorite high-volume contractor (which is a big deal, because he has about 20 of them). Upon arriving at 7:00 AM, he chats with the receptionist for a while and drops off the doughnuts for the estimators. Then Pat goes to see the owner, Charlie, with whom he has a great relationship. Feeling confident, Pat goes through the initial warm-up process and then pulls out his best pitch–“anything I can help you with today?” Charlie ponders that difficult, probing question for a while and responds, “I don’t think so Pat. The only thing I can think of that is going on is that we just purchased quite a bit of wire from TBCP&WH. I would have given you a shot, but you guys really can’t compete with them on the commodities.” Pat, not feeling too good about that conversation grabs a doughnut and heads to his next call.

Pat’s confidence has been shaken a bit, but things are about to get better. Since it’s Tuesday, his second call is to his favorite industrial, where he has done business for over a decade. The strategy is simple, “all you got to do is call on them.” Pat has noticed that for years, all he has had to do is show up on Tuesday and they will find some order to give him. Sometimes the orders are really good orders. This time is a little different. When Pat stops in to see the PA, he uses his favorite pitch “anything I can help you with?” The PA responds, “Pat, unfortunately there isn’t anything that you can help me with today and there won’t be anything that you can help me with again – ever. I appreciate everything you have done for us over the years, but we must cut costs and IMES came to us with a strategic sourcing proposal that we just couldn’t refuse. All of our business will go to them from now on.”

Pat’s confidence has really been shaken now. So he goes to see another of his favorite contractors. A big lighting job has been on the streets for a couple of weeks and Pat needs to see where things stand. He knows he should have a good number, because he practically gave the stuff away. He and his inside salesman must have put a hundred hours into that quote. Pat talks to the owner, with whom he has a great relationship. Of course, the owner tells him that he was just barely edged out by FJBSH on the bid. Pat is thinking ‘Darn those FJBSH people, don’t they know how to make a decent profit? I practically gave the stuff away and they still beat me!’ As Pat is leaving, the owner asks him one more question, “Hey Pat, have you guys ever considered having one of those project management departments like FJBSH has?”

“Don’t they know how to make a decent profit? I practically gave the stuff away and they still beat me!” – Pat

Beaten enough for one day, Pat heads back to the office of his profit center – “We Don’t Really Know What It Is That We Do Electric Supplies.” Upon arriving, Pat goes to his manager, Gomer, with a few suggestions that he has come up with on his drive back to the office. “Hey Gomer, I have a question – why can’t we combine the purchasing power of our entire company so we can buy as competitively as TBCP&WH? We just lost a sizable wire order to them and the customer didn’t even give us a shot because he knew we couldn’t compete.

Gomer makes a note on his list of things to talk to his Division Manager about:

• Combine our purchasing power

Then Pat ads “Got killed by another national account deal today. That’s right, IMES just took another one right off the face of the earth.” Gomer thinks about that and responds, “But IMES is a local independent. How did they do that?” Pat quickly responds, “Well it wasn’t national, but it was … just like it; you know,–all the bells and whistles.”

Gomer’s DM notes now read:

• Combine our purchasing power
• National account initiative

Then Gomer asks Pat about the BIG order. Pat tells him that, even with the nano-margins that they quoted, they were still beat by FJBSH. Then Pat asks one final question, “Have we ever thought about having a project management department?”

Gomer’s notes:

• Combine our purchasing power
• National account initiative
• Competition taking orders at less than 1 %
• Project management department
• Follow up to question about cutting head count. Can’t do it-people are too busy as it is. Can hardly keep up.

Pat, and now Gomer are having a really, really bad day.