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How can electrical distributors drive profitable growth?

Posted by Elizabeth Allcock on February 24, 2020 14:34:55

In a challenging environment, smart electrical distributors are finding new ways to drive profitable growth—not least, taking closer control of key trading agreements.

This isn’t the easiest of times to be an electrical distributor. The U.S. electrical wholesale industry is far from booming with projections of average annual growth amounting to just 2.5%. Meanwhile, customer expectations are rising, and omnichannel competitors such as Amazon Business are entering the market for ‘simple-stock, easy-buy’ items.

And yet. The many electrical distributors are rising to the challenge—developing a raft of new initiatives to help them outperform the competition, and grow their businesses and their profits.

These range from extending their value-add services, to diversifying into new market sectors like the IoT, and seeking out new operational efficiencies throughout the supply chain.

There’s still, however, one growth driver that’s being overlooked by all but the most forward-thinking electrical distributors: improving the management of supplier trading agreements. When distributors do address this issue, the result is almost invariably an increase in both annual revenue and overall profit.

We explore this opportunity in depth in our new eBook, but keep reading for the edited highlights…

Why strong supplier relationships are so important

For a U.S. electrical distributor, establishing strong supplier relationships is vital—and not just because it allows your businesses to work together to create greater customer loyalty. Strong relationships lead to well-designed, lucrative trading agreements, and an extra, and vital, revenue stream for the distributor.

These trading agreements come in various flavors, from volume- and value- based rebate deals, to market development funds and special pricing allowances.

Whatever form they take, the revenue from supplier trading agreements can have a profound effect on a distributors’ bottom line, while helping to fund the exactly the kind of growth strategies mentioned above.

Where U.S. electrical distributors are missing a trick

But—and it’s a big, million-dollar ‘but’—most U.S. electrical distributors still don’t view their supplier trading agreements strategically. A recent National Alliance of Electrical Distributors survey found that its members place “little focus on rebates and risk reduction”.

And they’re not alone. Research indicates 57% of U.S.-based distributors don’t make full use of supplier funds available to them, leaving money they’re owed right there on the table. Just 5% make full use of the funds available and then negotiate for more.

In our own experience working with distributors in every industry, we’ve found that businesses are failing to claim an average of 4% of the rebate revenue they’re due. In many cases, that 4% equates to millions of dollars lost, every year.

How distributors are allowing this to happen

Why would any distributor let this happen? Usually, the answer is simple. They’re either not aware they’re missing out so badly, or they feel helpless to do anything about it. That’s because:

  • Supplier trading agreements are so numerous, varied, and complex—distributors struggle to record the deals accurately, let alone keep track of progress against them
  • Distributors’ systems aren’t up to the task—leaving them drowning in spreadsheets, or battling with the limitations of their ERP systems
  • Business process inefficiencies get in the way—from a lack of communication between internal teams, to the lack of a consistent method of producing agreements
“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.

As you might expect, not having an effective way to manage supplier trading agreements can create a host of other issues for distributors. Accurate budgeting and forecasting gets harder, as does complying with financial reporting regulations. At the same time, posting misleading accounts—and simply falling into disputes with suppliers—becomes all too easy.

The way forward is already being established by electrical distributors

Here’s the good news. As discussed above, some electrical distributors are already improving the way they manage supplier trading agreements.

They’re doing it through a focus on closer collaboration with suppliers, through joint monitoring of progress, and through process and system reinvention.

You can find out much more about the practical steps they’re taking—including the stories of both Rexel Canada and AD —in our new eBook Collaborative deals: A new growth driver for electrical distributors.

Get your copy now, and you’ll also discover a host of tips for embracing a more strategic, collaborative approach to deal management—many of which any electrical distributor can act on today.

Electrical-CTA

 

Topics: Industry Sector: Wholesale Distribution, Supplier Collaboration