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ElectricalTrends is a communications vehicle offered to the electrical distribution industry by Allen Ray Associates and Channel Marketing Group. The purpose of ElectricalTrends is to share Allen Ray Associates' and Channel Marketing Group's insights on industry trends, observations on industry activities and issues and offer ideas that may benefit industry participants in their endeavor to improve their businesses in the areas of growth and profitability.

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Sunday, April 20, 2014

Fishing in your product(pricing) for Hidden Liability

Selling your company
As some prepare to sell their company they go through a routine to maximize their profit, clean up returns, collect all the DSO's they can, and many make it a point to collect as many SPA's as possible.

They take the time to ensure that their manufacturer relations are good and so to speak have their blessing. Some will try and clean out all the slow moving inventory.

The Acquiring company 
Typically the acquiring company makes provisions to double check your inventory before the sale is finalized. More than likely the acquiring company reserves the right to check or re-check the inventory for value. Some of the more knowledgeable acquiring companies will look at a minimum of one year's worth of sales to look at:

  1. How much gibberish is in the sales history data
  2. Run some numbers to verify different ratios to make sure they match up with what is being offered for sale.
The hidden Liability
Within the past 5 years or so, I've been fielding calls about SPA/Rebate Liability and how to measure it. This very real liability that stems from the selling distributor "jumping a better SPA/Rebate" that a manufacturer reserved for say a Master Distributor. All of this is done without prior authorization from the manufacturer. In the electrical channel there have been some notable pay backs to manufacturers over the years.

Some manufacturers run SPA/Rebate audits more frequently than others and the smaller the manufacturer's sales with your company the less likely they will audit.

But if you buy a company and discover that the SPA/Rebate is NOT allowed and all of a sudden the company is on the hook to pay back the false claims? How do you guard against it?

With growth and an increase in real (organic) sales hard to come by the practice of "jumping another distributor's rebate" will probably increase. And to bear that out it has come to light that there are at least two rather larger electrical distributors that are currently undergoing SPA/Rebate audits.

But if you are trying to sell your company, do you know if you have a hidden SPA liability that might keep your sale from going through?

Wednesday, April 16, 2014

Legrand Reaches Consumers; Werner of Minnesota Using Video

As many know, Cree and Philips Lighting have been utilizing television advertising to promote their LED light bulbs, both to the benefit, from a channel perspective, of Home Depot.  Granted they are also helping to build the product category for everyone.  It's been refreshing to see the electrical industry utilizing mainstream marketing to reach consumers to build demand for products (and build their brand, although Philips has long been a consumer brand.)

Another company that has promoted itself to consumers and end-users is Lutron.

But with the advent of so many home repair / remodeling shows (and the HGTV and DIY cable channels), I recently ran across an ad for Legrand.  They were promoting their Adorne switches ... with a little logo from Lowes.  But, it's getting the brand in front of customers (but I don't recall Pass & Seymour being mentioned) and it's hopefully building some demand for everyone.  Click here to see the ad.



Speaking of video production (as that is what television is), check out Werner Electric of Minnesota's YouTube channel. Werner is creating it's own, well produced, videos of manufacturer products.  I reviewed the Philips one which is an installation video.

Videos can be powerful communication tools.  I know distributors who collect manufacturer videos for display at their counter televisions, they can be integrated into websites, promoted via e-newsletters, utilized on tablets, shared with outside media and more.  And Werner shows that "you don't need to break the bank."

Are you using video to promote your business? If so, self produced? Do you have your own little studio set-up? What tools are you using (cameras and software?)

Monday, April 14, 2014

SupplyForce, AD, Border States, ElectricSmarts and DISC Deliver Sales & Marketing Tools

Over the past couple of weeks there have been some interesting industry announcements that either could represent interesting "tools" for companies or have longer term impact in the industry.  This is somewhat of an eclectic mix of topics. Please share your comments on one or all of these issues.

  • John Burke taking the reins of SupplyForce could make SupplyForce an offensive force for independent distributors.  John, who had been at Kirby Risk, has significant distributor experience (including at WESCO) and, perhaps more importantly, has been involved with national accounts as he was president of SourceAlliance (the Rockwell-backed .com in 2000 that was launched to support national accounts), has been active in VNA (which is now merged with SupplyForce) and with SupplyForce.  With his leadership expect new energy and vision.  It would not surprise to see SupplyForce become more aggressive in pursuing opportunities and becoming THE independent solution for national accounts, especially industrially-oriented national accounts.  The can now compete stronger at industrial installations with Rockwell and get the MRO business (whereas WESCO has gotten companies to segregate the Rockwell business from the MRO spend.  Given the merger with VNA, Rockwell will, in all probability, be much more supportive of SupplyForce.
  • AD announced an expansion into Latin America with a focus on selected countries.  Natural expansion ... plays into NAFTA agreements, where manufacturers have a number of facilities (Mexico), where companies have outsourced services (Central America, most notably Costa Rica, and the Caribbean), and then into South America where they have some experience, and revenue, in Brazil (where there is also much construction due to the World Cup and the Olympics) and Columbia (which was a target for an EDGE acquisition that didn't occur.)  It will be interesting what benefits accrue to US and Canadian members.  And it should be a good play to support national accounts (and eventually SupplyForce).
  • On a marketing front:
    • Check out Border States' blog. They have many in the company involved in developing content (13) and have a proactive tool for engaging with their customers.  Websites are brochureware unless there is a customer / prospect benefit.
    • DISC unveiled a new marketing research database.  It's called Market Track Ziplines.  Now you can identify the potential of a marketplace at the zip code level by individual SICs.  Good for developing territories, targeting market segments, developing account lists, sales goal setting and more.  Combining this with other tools can enable distributors and manufacturers to target individual companies. And it is very cost-effective.
      • For manufacturers who collect POS information, ideally by zip code, or distributors who aggregate their sales by zip code, this could be an interesting tool to calculate your market share.
    • ElectricSmarts has introduced a new tool this quarter that could be very effective for distributors. Distributors can now essentially aggregate the e-catalogs that are in ElectricSmarts' Smart eCat and then have the entire package branded for the distributor (and there are many features resident in the catalogs).  Now your salespeople can visit any customer and have many catalogs at the click of a button, all in the same format, many with additional marketing content linked in, and it can be set to link to pricing information. There is a nominal cost for distributors but it could be a marketplace differentiator.

For the right distributor, all of these can enhance sales as well as marketing capabilities.  How can these benefit you?

Sunday, April 6, 2014

Fishing with Silent Margin Killers....Part 2 of a series

What you did some years ago.
If you went to your favorite fishing hole in your business, it could be your Product Data and the way you priced product. Some are old enough to remember that when they set up their Bright shiny new ERP system software and computer, you were faced with loading product data and some type of cost, unit of measure, maybe a UPC # and maybe a price matrix for different customers. All felt well about their pricing.

Purchasing and Inventory
As many began to purchase product and began to try not to load up too big of an inventory, along came manufacturer price changes. Some went into a panic, while others viewed a price change as an opportunity to make more profit. All conquered the price change in different ways.

Inventory
In order to keep the right amount of inventory on the shelves, some elected to go the VMI route of Datalliance. Those were good choices for both the manufacturer and the distributor. Others used the math that came with their ERP system. But others still watched in horror as their physical inventory grew.

So some began to watch and control their special orders, non-stock orders and general ordering policies.

Rise of the SPA/Rebate
Manufacturers fielded request for special customer/political body pricing and thus came the horror of claims/rebates for the vast majority. For those that thought the SPA through, it turned out to be a loan to the manufacturer and then some distributors learned how to claim and get credit back in 72 hours or weekly. Others struggled.

But many distributors were stuck on 3% net at the end of the year ... and now their loaning money to manufacturers!.

Silent Margin Killers
There has always been a high cost to margin because of incorrect data. In fact there are distributors that cleaned their product databases and have seen an increase of 4% to as much as 8%.

But soon after attaining that increase in margins, distributors started reporting a decrease. Upon closer inspection of their transactions (down at the line level) it became obvious that some sales people were 'pounding in gibberish products' with some sort of price that only they knew about. The majority of these items had little or no profit. In some cases the product that was being shipped was a common everyday item and the sales person needed a better price to get the order. I could bore you with additional observations about price changes, but the keystrokes that your outside and inside sales people make could cut your margins by 4-8%.

How do you handle that?

Thursday, April 3, 2014

Is IT Core To Your Business?

The answer, obviously and increasingly, is yes.  Every department within your company is investing in technology.  Consider:

  • The network that is used for daily duties (i.e. Microsoft, Apple, Adobe, etc and the various hardware players)
  • Phones (VOIP networks as well as handhelds / smartphones)
  • The ERP system your company uses.  For distributors it could be Epicor / Eclipse, Infor, xTuple, and more. For manufacturers consider SAP, Oracle, Infor (yes, Infor offers manufacturing ERP systems) and others
  • and there are systems for dispatching, logistics, freight management, CRM, marketing automation, SFA, etc... (consider some of the software companies that attended the NAED regionals as an example.)

And now many are looking at e-commerce providers / web developers / storefronts.

The issue is that these are all software companies. An increasingly cloud-based services. And their pricing models typically have an implementation cost plus either services / support fees and/or monthly subscription fees.  The challenge is that the valuation of these businesses and their operating revenues need to come from monthly revenues as one-time implementation is, unfortunately, one-time.  So cash on hand becomes important to a sustainable business model.

What got me thinking about this?  One of the e-newsletters I received comes from Fortune.  It is written by Dan Primack from www.pehub.com.  Dan wrote:

Just asking: If and when America goes back into recession, how will it affect typical enterprise software companies? Particularly all of those unprofitable SaaS companies that have been going public? Will new orders stop as they did the last time around, with CTOs unable to convince boards to spend now to save later? Or will enterprise tech be fine, due to: (a) Giant corporate cash piles; (b) Lower prices/easier integration than in the past and (3) Fewer VC-backed customers as part of the TAM?

Now...

  • I'm not saying we're going into a recession, but the economy has been known to go in cycles ... so, perhaps someday.
  • I'm not referencing any specific company.
  • I am defining an "enterprise software company" as a company that offers software that is critical to the success of your business.  Obviously this is your overall network, your ERP provider, your website / storefront system, perhaps others.
But, I do think Dan has a very good point in the sense that
  • If a company isn't profitable and has a SaaS model, what is being used to fund development, support, and essentially ensure you that the y can provide the "infrastructure" to manage our enterprise.
  • If you're looking at companies for any of these functions, you may want to consider a financial due diligence, especially if you haven't heard of the company?  And how do you have access to your information, the system, etc
So, as you get involved with companies you haven't heard of, ask lot's of questions as IT is core to every aspect of your business.

Have you, or your finance department asked the financial questions as you've talked to software providers?

Channel Marketing Group | Allen Ray Associates