But that’s what plumbing and heating distributors do day in day out. Well, all right maybe there aren’t bananas back there on the shelves with the pipe nipples and copper fittings. But the produce analogy fits in well with the difficulty in supplying whatever material you need to keep you on your productive way.
“No two orders are exactly the same,” says Tim Arenberg, vice president of sales and marketing for Chicago-based Columbia Pipe & Supply. “Just the raw service we provide by stocking, in our case, $20 million worth of inventory is a value-added service.”
Columbia, however, offers plenty of other value-added services. Its ShopMaster inventory management program helps keep contractors well-stocked with everyday necessities right at their very own shops.
Its Rolling Warehouse is literally that — a trailer hauled onsite, loaded with gear for short-term projects and regularly re-stocked along the way. And its Columbia Express service stands ready to make a delivery within two hours of any product to any jobsite within a 30-mile radius of the supply house’s eight Chicago locations.
“The expectations contractors place on our performance are a lot higher than they’ve ever been,” Arenberg says. “With labor being a contractor’s most expensive item, we need to find strategies to reduce the amount of labor it costs to deal with us.”
Columbia’s no exception to taking on these higher expectations. Plenty of other wholesalers are continuing to find better, quicker and less expensive ways for our readers to interact with this vital link in the chain of distribution.
“Loyalty goes to the guy who has the material you need when you need it,” says John Provencal, vice president/plumbing and heating sales for F.W. Webb, Burlington, MA, a distributor perhaps best known for its “Wholesale Or No Sale” slogan.
To that end, his company’s fill rate is 98 percent for will calls at all its 52 locations. The company’s slogan is “only one piece of our personality. There are other reasons for contractors to buy here. Namely, we’ve developed tools to keep a contractor’s time at the supply house to a minimum, and his time in front of his customers to a maximum.”
Availability and Service: That’s good news since availability of material and service were the top picks contractors use to determine which PHC wholesalers to deal with, according to a special survey we recently mailed to 1,000 PM readers to evaluate attitudes and opinions toward wholesalers. Now the bad news — almost 60 percent of our respondents go to the nearest home center when they need something ASAP.
We received a very healthy 32 percent response rate to our survey. In particular, we received some interesting feedback worth comparing between this survey and the last time we polled our readers about wholesalers in 1986.
We did ask some of the questions a bit differently 12 years ago. Still, the answers between then and now bare notice. When asked in 1986, for example, to rank the top three factors that lead them to buy from a given wholesaler, here’s the top three in order of importance:
2. Availability of Materials
What’s more, price won hands down, with more than two-thirds of our respondents in 1986 making it No. 1. Loyalty to the trade — no stranger to controversy even 12 years ago — finished a distant fourth place.
This year, we asked contractors to rank from “extremely important” to “not at all important” how they would rate a similar set of factors in determining which wholesaler to do business with. Here’s what received the highest scores in terms of “extremely important:”
1. Availability of Materials
3. Loyalty to the Trade
Price, while still “extremely important” to 50 percent of our responding subscribers, dropped back to 4th place.
So important are these two keys of availability and service, however, that the third attribute of loyalty often goes out the window.
Fifty-seven percent of our respondents admitted buying from a home center. When we asked for an explanation, 64 percent indicated they buy from a home center only when it’s near a job and they need something immediately. That’s right. Six out of every 10 of our readers not only set foot in the belly of the beast, but part with cash otherwise destined for a wholesaler. Another 28 percent indicated that they thought home centers had a decent selection of major plumbing items, and at better prices than wholesalers. (Maybe that’s one reason for that full-page Lowe’s ad on page 17)
In addition, in written responses to our “Other” category regarding why they buy at home centers, 10 contractors indicated they bought items wholesalers didn’t carry. Four contractors also indicated that they bought from home centers on nights and weekends when their regular wholesaler was closed. In addition, thirty percent say it’s where they buy their tools, and 25 percent say they buy “loss leaders” since the price is better than it is at the supply house.
Wholesalers can at least breathe a sigh of relief considering only 6 percent of our respondents said they give home centers just as much of their business as any wholesaler; while 44 percent said they could never get a complete job order filled at a home center.
All this despite more than 70 percent of our respondents believing they had a good working relationship with their wholesalers. In addition, three–quarters of our respondents said they bought 90 percent of their annual purchases from PHC wholesalers.
So while loyalty is a major criterion for picking a wholesaler, it certainly seems like a majority of our readers look the other way when it’s convenient to march through the doors of the nearest big box home center.
Multiple Wholesalers: Price does have a major impact in another response sure to be a sore spot for wholesalers. Our respondents routinely shop around among various wholesalers for product.
A third of our respondents shop four to six wholesalers every month, and 11 percent go to six or more. More than half deal with two or three supply houses. Only 5 percent of our respondents said they only deal with one distributor.
The numbers, however, remain quite high — with price being the biggest objection to picking a sole wholesaler. More than 80 percent of our respondents said they would stick with one wholesaler if they could count on competitive pricing on all items.
This “shop around” notion uncovered by our survey, as well as additional research done last year by the American Supply Association, illustrates our industry’s wider problem — an “auction pricing” mentality that “permeates all levels of the plumbing supply industry form a major inefficiency issue that has to be addressed,” according to the ASA study done by Frank Lynn & Associates.
In the ASA report, manufacturers described no less than 16 different types of discounts, special pricing deals and rebate programs that proliferate throughout the industry:
- To keep track of these pricing deals, some manufacturers have to keep a separate pricing book for each wholesaler.
- One manufacturer said it has 12 employees who spend almost three–quarters of their time dealing with wholesaler pricing problems, and estimates that it could be losing as much 10 percent of its revenue due to its inability to track special pricing deals it has with wholesalers.
“Undoubtedly, these pricing practices result in operating inefficiencies not only for manufacturers, but also plumbing wholesalers and contractors,” the report states. “If every contractor asks different wholesalers for three bids per order and each of these wholesalers get three bids from each manufacturer and this happens hundreds of times each day, the cost to the plumbing supply industry has to be enormous. We recognize that bid pricing is a way of life to contractors, but other industries function in a bidding environment and have been able to operate in a more structured pricing environment.”
Transactional costs between manufacturers and wholesalers, and wholesalers and contractors have always been viewed as just one of the costs of doing business. These inefficiencies, however, aren’t being taken for granted any longer.
“We all recognize the price of an individual item,” Columbia’s Arenberg explains. “But what’s the total cost of that transaction? One wholesaler, for example, might actually be cheaper than another. But it takes five deliveries in order for the contractor to receive everything. Total cost is not as easily recognized by manufacturers, wholesalers and contractors.”
Arenberg’s sentiments go to the heart of the matter. It’s not the price of an item, but the total costs of customer interaction involved that are on the minds of wholesalers these days as they try to reduce operating costs and maximize efficiencies.
One way the ASA researchers have seen such a cultural change take place in other industries is by moving away from “one size fits all” channel compensation systems toward a “pay for performance” channel compensation system. Manufacturers in these other industries provide discounts to wholesalers who, for example, submit orders via EDI. At some point, wholesalers adopt a similar approach with their contractor customers.
“The industry would then have the more rational pricing structure everyone seems to be looking for,” the report says.
The report also relates the possibility of creating a “faceless information partnership” between wholesaler and contractors. The researchers are familiar with industrial manufacturers and distributors investing in putting product design and application data on the Internet or proprietary Intranets.
“Contractors’ interest is an information partnership with their wholesalers is not unique,” the report says. “What appears to be unique in this industry is the time-sensitivity of this data and information to contractors.”
As a result, the researchers expressed surprise that plumbing manufacturers and wholesalers had not paid attention to this matter. “Capitalizing on the time-value of bidding information is another vehicle to offset the ‘price-price-price’ culture of the plumbing supply market.”
F.W. Webb is a prime example of a wholesaler who has paid attention by dedicating various electronic methods to communicate with them. Webb Connect, for example, allows contractors to dial into Webb’s computer 24 hours a day and check inventory, pricing, and place orders electronically. Its Dealer’s Choice program helps contractors manage inventory at minimal levels, thus cutting back on contractor’s payables.
“We replace tomorrow what they use today,” Provencal explains. “We’ve helped put inventory dollars into working capital.”
Provencal says a contractor’s service department can increase by 25 percent thanks in no small part to cutting back inventory levels without cutting back service calls. “That’s like adding a one full day’s worth of work for every five,” he adds. “There’s no other place in your business where without one cent of investment, you can put that much profit to the bottom line.”