AD rejects IDG; I.D.One decision pending
By Staff -- Industrial Distribution, 8/1/1998
Recent acquisitions made by Industrial Distribution Group have thrown a monkey wrench into the network of industrial distribution affiliations designed to level the playing field between national chains and independent distributors.Affiliated Distributors' board of directors decided in July to revoke memberships of all IDG subsidiaries, retroactive to May 1 when the matter first went under review.
"AD has a policy, established by the membership, that all companies and subsidiaries cannot be involved in competing entities and IDG was not in a position to honor that aspect of the membership agreement," says AD spokesman Chris Hartmann.
At press time, I.D. One was in the process of reviewing the membership status of IDG companies.
"We've been a cooperative of independent distributors," says Dan Judge, president and CEO of I.D. One, "and one of the questions is 'do these companies meet that definition, and is it still important to I.D. One that we represent independent distributors?'"
The gray area is caused by IDG's decentralized model of acquisition, which allows for the entire customer interface to be handled at the local level, with only overlapping operational functions between the subsidiaries.
"In cases where a distributor might sell his company and be absorbed into a larger organization there really isn't much of a question," Judge says. "[But] these companies are going to operate somewhat independently for well into the future. That's really what makes this question difficult for the board to answer."
iPower Distribution Group, a consortium franchise program made up of non-competitive independently owned regional distributors, has decided to uphold its IDG memberships.
"iPower's job is to reduce the overall cost in the supply channel," says Mark Kugelman, vice president of sales and marketing. "Long-term, [IDG subsidiaries] will be able to reduce the redundancies in the industrial supply chain. It's a win-win situation... iPower provides multiple commodities outside the industrial suppliers. So we provide a wonderful tool for IDG and a supply channel for them to work in. And it makes our members stronger and a lower-cost element in the supply channel."
The conundrum is further complicated by the various levels of competition created by the overlapping functions of the organizations. Both AD and I.D. One, for example, negotiate national contracts on behalf of their members, which puts them in potential competition with IDG and iPower's regional branches.
"In terms of national contract opportunities, yes, certainly at some point I think we would be in competition with IDG if that is in their business plan," Judge says. "From a purchasing power standpoint, I don't really see that as a competitive issue as long as we can bring value to our preferred suppliers."
Chuck Houston III, president of Industrial Suppliers of New England, an IDG subsidiary, hopes I.D. One will not revoke the memberships in question. "But if that is the case," Houston says, "IDG would have to redouble its efforts to develop our own programs to work with the preferred suppliers who want to work with IDG in a way that would be pretty similar to the way we're working with I.D. One."
To date, IDG has not bid on national contracts, but the possibility exists and the company will leverage its purchasing power in negotiating cost of goods sold.
"We're in the business of serving our customers. If that means that there is a national account opportunity, we certainly will consider it," says Doug Smith, IDG president. "But at this point we do not directly market and chase after national account business...However, IDG will look to reduce its cost of goods sold based on the aggregation of all of its companies' purchases, with the idea of reducing that cost."
The IDG subsidiaries stand to benefit from retaining memberships in the distributor affiliations.
"I.D. One is very important to us as a buying group; iPower is the primary means by which we market here in New England; and IDG gives us national buying power capabilities," says Mark Fuller, president of REFCO, Inc., an IDG subsidiary.
"We believe all [these] organizations are beneficial and synergistic," says Houston. "I have encouraged all of the leaders of these organizations to explore the potential of working together in a very open, very porous way. What happens here will probably lay a template for many channel dynamics that will be occurring."
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