In a slow-growth market, many building industry distributors are seeking new paths to profit. A more strategic approach to supplier trading agreements can help.
Glance at the modest growth projections for the U.S. building and construction industry, and you could be forgiven for thinking distributors might struggle to achieve stellar performance.
But as always, the headline figures don’t tell the whole story. Many distributors are finding ways to grow despite the sluggish market, from developing value-added services to expanding overseas.
One area that’s often overlooked is supplier trading agreements. Distributors who overhaul the way they manage supplier deals almost always see an increase in revenue and profit, but not many currently fully explore the opportunity.
We’ve written a whole guide, but in this blog, I’ll set out the essential facts—and a little bit of practical advice.
Supplier relationships—fundamental to distributor growth
Strong supplier relationships drive distributor growth in two key ways. They enable the joint cultivation of a loyal customer base, and they provide an important source of revenue through trading agreements like rebates and special pricing allowances.
Revenue from these agreements can help distributors improve their bottom line, return greater value to shareholders—and of course—fund growth initiatives like market expansion and efficiency-driving digital transformation projects.
Distributors are leaving money on the table
Despite all this, few distributors take a comprehensive, strategic approach to managing their trading agreements. 2018 research indicates only 5% of US-based distributors make full use of available funds and negotiate for more. Worse, one in five don’t even have a strategy in place to maximize their use of supplier funds.
In our own work with distributors, we typically find that they’re missing out on 4% of potential rebate revenue every year. For some, this can amount to millions of dollars.
Why are otherwise ambitious distributors leaving all this money on the table? Often, it’s because they don’t have the systems and processes to manage these numerous, varied and complex agreements effectively.
“The supplier-distributor partnership is a win-win-win model, with benefits for suppliers, distributors and customers alike. But in my experience, few suppliers and distributors work in harmony today—because the processes and the technology are simply not in place to support truly collaborative working environment.” — Maureen “Mo” Barsema – CEO, Outside Looking In LLC, and former CFO, BJ Electric Supply, Inc.
When distributors struggle to manage their trading agreements, they regularly run into other problems too, from inaccurate budgeting and forecasting, to misleading accounts, regulatory penalties, and disputes with suppliers.
Simply put? Distributors who take strategic control of trading agreements stand to minimize risk and create a new, dynamic engine for business growth.
3 steps to improve collaboration with suppliers and drive growth
When it comes to smarter trade agreement management, close collaboration with suppliers is key. Here are three simple steps for any distributor looking to maximize rebate revenue, and drive growth.
- Focus on key suppliers and mutual success. Identify the suppliers that present the greatest opportunity for your business, then negotiate achievable deals that will help both your organizations reach their growth goals.
- Standardize processes, and create a single source of truth. Agree on a systematic approach to trading agreement content, internal approval and supplier signoff, change management, and rebate earnings calculations—and record agreements where they’re viewable by both parties.
- Monitor progress together. Both distributor and suppliers need to be able to track performance against trade agreements—and course-correct if they’re not delivering the intended benefits.
More practical advice—and some inspirational stories
Our eBook Collaborative deal management: A new growth driver for distributors in building and construction takes a deeper dive into this often-overlooked growth opportunity.
Get your copy now for more advice on strategic management of supplier trading agreements – and see how companies like Wolseley and Affiliated Distributors are using our cloud-based DealTrack software to maximize their supplier relationships and generate more rebate revenue.