Keeping an eye on product innovations
Distributors who focus only on price may miss value-added opportunities
By Staff -- Industrial Distribution, 2/1/1998
Distributors took notice at the ASMMA/I.D.A. convention last fall when Mike Bailey of Deere & Co. warned that his firm would no longer pass along extra costs to customers due to inefficiency in the supply channel. The message was clear: cut costs sharply for end users or risk losing business.Many abrasives distributors are taking steps to reduce prices as demanded by customers like Deere, which in some cases involves documenting cost savings and competing with commodity pricing. Yet several company executives say that while looking to reduce redundancies, distributors must also remain vigilant for new products that make manufacturing more efficient. In some cases, companies engaged in integrated supply contracts and saving money through logistics processes may miss out on new technologies for the production floor. Distributors who take their eye off the technical ball risk losing big opportunities to achieve greater production efficiency for clients.
"The channel's trying to deliver products cheaper, but sometimes it misses what's happening on the manufacturing floor," says Lee Eagan, chairman and chief executive officer at Oliver Van Horn Co., Inc. in New Orleans. "We're trying to keep up our product knowledge that a major integrated supply company does not have...and building your niche builds the bottom line.''
Increasingly, abrasives distributors have become what James Hanson calls orchestraters of cost savings for their customers. End users demand documented productivity enhancement, cost-per-piece reductions, pricing stability and reduced inventory, among other efficiencies.
"It's no longer just good enough to sell a product. You have to sell solutions,'' says Hanson, director of industrial sales at Norton Co. in Worcester, Ma.
Robert Kraisner, president of Strong Tool Co., Inc. in Euclid, Ohio, calls saving customers money by cutting redundancies "the main issue today.''
"If you look at the distributor's role in the marketplace, he's a gap filler, his job is to reduce the cost of the gap and manage and analyze it,'' he says. "The gap is the inefficiencies in the channel between the end user and manufacturer.''
Eagan, however, says that as a result of integrated supply more abrasives products are viewed as commodities and some distributors miss opportunities to reduce manufacturing costs through product improvements. He does not oppose integrated supply but says distributors miss out if they focus chiefly on meeting prices set by the customer. For example, he mentioned a new finishing belt for fine grit work that is more expensive but lasts longer than another product, and is expected to ultimately save money for the customer.
Allan Chartier, president and chief executive officer of Midwest Industrial Tools, Inc. in Omaha, Neb., says more of his customers want the company to "sell them boxes and also support them technically.''
"We certainly still have a place and we're doing integrated supply contracts ourselves, but our IS people have not lost that technical part of the business,'' he says. Doing both when some customers prefer lower prices versus improved production processes has become a significant challenge for some of his salespeople, Chartier says.
"Salesmen who have called on accounts for years and called on the technical side, if we are not the integrator and the customer has lost focus on improving the process, the challenge is how do our salesmen stay active on those accounts?" he asks. "There's a real shaking out going on.''
Eagan advises other abrasives distributors to "add to their integrated supply agreement the technology part of our business that is slipping away."
David Yeager, president of Pacific Abrasive Supply Co., a mid-sized abrasives converter in Buena Park, Ca., agrees that customers' insistence on the lowest price and, in some cases, purchasing brand name products presents the distributor with tough options.
"There is always hesitation on the part of a large distributor handling one of the major names in coated abrasives because of loyalty or because he doesn't want to alienate the large manufacturer,'' Yeager says. "Today they are being faced with taking advantage of these new suppliers or losing their customer to some smaller, more aggressive distributor down the street who is using this new channel of manufacturing to reduce the customers' cost. For the most part...it's a new ball game."
Selling More in '98
How abrasives distributors intend to increase their business
Add customer base 92.4%
Engage in strategic planning 64.5%
Increase product lines 60.5%
Hire more technically inclined salespeople 53.5%
Expand geographically 51.7%
Further specialize product line 47.1%
Invest more heavily in technology 43.0%
Provide more engineering capabilities 38.4%
Diversify into non-distribution businesses 22.7%
Delete customer base 22.1%
Merge with or acquire another distributorship 15.7%
Source: Industrial Distribution Annual Survey of Distribution Operations
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