For a variety of reasons, small distributors may not be able to bid on national contracts or keep business ties with customers that enter national contracts with other distributors. Sometimes, their customers are purchased by larger entities, and new purchasing contracts exclude the local distributor, or reduce its participation. Small, local distributors may not have the range of products demanded by the purchasing department.

In these cases, buying and marketing groups can add buying power to the distributor's repertoire and help them capture such business. They offer support via generic labeling, pricing and marketing, and some help small distributors sell on the Internet. Groups operate as cooperatives, or fee-for-service, for-profit companies.

One of the most important benefits of belonging to a marketing group is the group's ability to get otherwise isolated distributors talking with each other about a variety of business topics, says Teresa Smith, COO of the Independent Distributors Cooperative-USA, of Indianapolis, Ind. And there are many other reasons, she notes.

Members of IDC-USA cite purchasing-volume discounts, a national service contract initiative, member-to-member networking, and consolidation of purchases on one purchase order. Small distributors should have the opportunity to compete on any level, says Smith.

"[Purchasing from one warehouse] results in one purchase order, one shipment, one receipt, one invoice and one payment," she says.

"What our IDC distributors have found is that, if they don't have alternatives, they lose to the big boxes," Smith says.

Joining a group means having a better chance to be included in winning bids for national contracts, Smith says. One of the main reasons large companies sign a national contract is the selling organization's ability to service plants locally (regardless of the fact that overnight delivery is available on nearly all products), says Carol Shackelford, president and CEO of Sphere 1 , a cooperative of independent tool and fastener distributors based in Yorba Linda, Calif.

Distributors located close to customers are comforting to purchasing departments, not only for the proximity of the products but because expert help is close at hand, she says. Sphere 1's member markets are commercial, residential and specialty construction.

"The independent [distributor] offers more in terms of quality, understanding of the product offering and market awareness than their bigger competitors," Shackelford says. "The only thing the independent typically lacks is buying power."

Fiercely independent companies might fear joining a group because they perceive a loss of control of their business in a larger market picture, she says.

"We encourage prospects to speak with our preferred suppliers to understand that this will not change the way they do business, just offer an overall enhancement to their business," she says.

Smith agrees, but adds that small distributors fear losing the lines they already have.

One distributor involved in a buying group that has a large catalog of services is Haggard & Stocking Associates, Inc., a two-location MRO distributor based in Indianapolis. The company recently joined Industrial Buyers Consortium , or IBC, a buying and marketing group based in Hartford, Conn. IBC has services in line with the needs of his company, says Haggard & Stocking's president Bill Holden.

In addition to year-end rebates, IBC offers integrated supply services, e-commerce technology, marketing tools and national account participation, Holden says. Rather than complicating the issue and raising costs proportionately, the added services are appropriate and necessary, he explains.

Distributors interested in becoming regional or national players need to be involved in some sort of group for information exchange and buying power. Holden says the manufacturer rebates are important, but secondary to his company's other needs, including networking.

"The rebates are nice, and making back at least the cost of belonging is a necessity, but the ability to discuss activities, problems and solutions with people in exactly the same business is most important," he says.

Holden and the management at the company compared the strategic direction of Haggard & Stocking with that of IBC before opting in, he notes. The demographics of the membership base and the sophistication of IBC's technology were factors in joining, as well.

"The distributor's sophistication and the markets that a distributor serves should have a major bearing on which type of group it gets into," Holden says. "One of the most important reasons to join a group is networking with a small number of contemporaries."

Marla Endicott agrees wholeheartedly. Endicott, co-owner of Precision Tool & Fastener Supply in Tucson, Ariz., a small distributor with one location, said that her company had "quite a good year" in sales, due in part to its membership in Sphere 1. At the cooperative's recent meeting, which she attended, many distributors reported mixed results for 2002.

"A few years ago, we weren't savvy about the benefits of groups," Endicott says. "We have found that buying from preferred vendors is a valuable tool for a small distributor."

Endicott notes that the reasonable signup fee and membership charge is easily recouped. While large distributors also are members, one important benefit is the ability to network with distributors that are the same size and have identical problems, she says. Most of Precision Tool's business is in commercial and industrial construction.

"It is crucial that the small voice is heard within our membership," Shackelford says. "We measure the success of our members by the percentage they increase their business each year with our preferred suppliers [rather than in gross dollar volume]."

One cooperative member gets one vote at the annual meeting, so that no member feels they are lost in the crowd, she adds.

Not everyone agrees that more services are better. One new group specializing in boosting the buying power of small distributors is NetPlus Alliance , which started up in September, 2002 and is based in Lockport, N.Y. Membership requirements are few, and the initial cost is $100. There are no annual fees and no minimum purchase requirements, says president Dan Judge. While networking with other distributors in a group is essential, some of the peripheral services are not, Judge says.

"Other groups have gotten away from the basic need for joining a group: buying power," he says. "And, small or medium-size distributors are more likely than large distributors to be loyal to the group."

This means more loyalty to preferred suppliers, as well, Judge says. Small distributors are more likely to switch to a group's suppliers. Another advantage to belonging to his group is that most small distributors increase net profit by two or three times on each preferred supplier's product line, due to significant rebates, he says.

The trend in management of groups — to offer more "value-added" services for distributors – is, ironically, hurting the very businesses they are determined to help, Judge says. In these cases, the additional services like Internet connections, marketing agreements and back-office software, sap the dollars that should be going back to members.

In a recent INDUSTRIAL DISTRIBUTION column, Judge explained this reversal of intent of pure buying groups.

"By offering a potpourri of support services to distributors, many buying groups in effect are decreasing the amount of money they can return to distributors," he wrote. "[Smaller distributors] are attracted to pure buying groups because they know they focus strictly on negotiating with suppliers for pricing and rebate programs."

Another buying group, Industrial Network , is developing a mix of services while keeping the goals of the organization simple, says president Mike Baygood. Industrial Network, a group of 24 distributors based in Buffalo Grove, Ill., developed a plan to help distributors get a monetary return on their investment. In this case, investment means involvement and change, Baygood says.

"Some small distributors want to keep doing business the way they always have," Baygood says. "It is essential that they be willing to change, and work with other distributors in the group for the benefit of all."

Buying groups are trying many different strategies to help their members, and be the group that potential members join, he says.

"Our approach is summed up very simply: we are a business group aiming to better the economic reality of each member," Baygood says.

After 20-plus years in the industrial group business, Baygood says that keeping the rules and methods of operation simple is imperative, while implementing timely changes as member businesses change. Groups that will prosper are those that can continue to change by giving members what they need at the time.

"Situations do not remain static. Each distributor is different and there is no one element that is ideal for them all,"

Baygood says. "Unfortunately, there is no magic bullet."