Today’s distributor market for rotating equipment components is rife with spreadsheet bid and buy practices, calls to do more with less, and strident demands for ever-lower pricing. The result: reduced distributor margins, deflated customer loyalty, and the devaluation of many critical services.
But within this landscape, industrial distributors have a largely unused tactical weapon with which to fight back. It is called the dollar sign. Put one next to the total value of your service offering, and earn recognition as a trusted business partner rather than just another source of supply. Here’s how:
Fully Understand Your Value Stream
Typically, distributors are adept at valuing the factors they personally control, like their people, delivery practices, and direct business services. More difficult is putting together a value proposition that encompasses the resources of supplier partners and the synergy that arises with help from this extended team.
Consider a distributor’s supplier partner of rotating equipment technology, for example. Premium suppliers will offer a host of engineering, administrative and business services at little or no cost to their authorized distributor partners. These services can directly translate to major cost savings for a distributor’s end user customer. When a distributor brings its premium supplier’s engineering resources to bear on a customer’s troublesome equipment performance, your service can be calculated into a cash value.
A supplier’s root cause analysis of recurring premature bearing failure in a motor or pump is a case in point. By analyzing the bearing’s marks, wear patterns, heat discolorations, and other tell-tale indicators under laboratory conditions, rotating equipment technology experts can often determine the root cause of failure. The cause might be as simple as a soft foot under the machine or as subtle as a slightly misaligned shaft. If the condition is left untended, the premature bearing failure is virtually certain to recur, costing the customer lost productivity, unplanned maintenance, and downtime. Estimates for machine downtime can reach $20,000+ per hour. Multiply the number of hours it takes for repair by the number of times the bearing failure would have recurred over, let’s say, a year, and you will have a powerful cash value to show your client during the next contract negotiation.
Understand Customers’ Challenges
Understanding customers’ costs and needs can provide insights on how your products and services impact their bottom line. Map out where your products and services are used by targeted customers, then assign values to what that equipment does for them. For example, what is the production cost impact for a particular piece of equipment?
Valuate Your Services
Mapping helps pinpoint areas where your value far exceeds the price you charge for rotating equipment components. Here are some ways that distributors can put a cash value on inventory services, products, and talents:
- Review your client’s inventory usage, help them to optimize it, and calculate the resulting reduction savings.
- Compare your on-staff talent and knowledge, along with your supplier partners’ expert technical assistance, to the relative cost of hiring outside consultants or suppliers, including their time and travel.
Training sales personnel to apply cash values to your offering can present a challenge since it is far more than simply cost plus mark up. Ideally, your sales team should know how to identify equipment operating costs and go beyond superficial equipment relationships, such as costs to operate and maintain. Call into play supplier partner benefits, such as collaborative sales planning, joint calls, and, of course, those critical engineering services. Break out specific inventory that is supporting a given customer and define how that inventory was used (Examples: breakdown support, fast response and shortened lead times). Train your team to negotiate the value provided as part of their quotation process.
Finally, take full advantage of your supplier partners’ capabilities to improve your value. Armed with documented savings attributable to you and your supplier partners’ combined services package, you can trump many of today’s “out-for-bid” component buying practices and avoid being victimized by aggressive buyers.
Too often, distributors know this, but fail to invest the time to calculate these critical metrics.
Bill Moore is Sr. Vice President, Special Projects for SKF USA Inc. He can be reached at email@example.com.