Ecmweb 17114 Electrical Products Service Pr 0
Ecmweb 17114 Electrical Products Service Pr 0
Ecmweb 17114 Electrical Products Service Pr 0
Ecmweb 17114 Electrical Products Service Pr 0
Ecmweb 17114 Electrical Products Service Pr 0

Products with a Side of Service

Nov. 17, 2017
Pressured by labor costs and tighter project timelines, electrical contractors are rethinking the products element of the job — and looking to supply houses for novel ideas.

There’s no doubt that the long, creeping shadow Amazon and its disruptive e-commerce model casts has fallen heavily on brick-and-mortar retailers in recent years. But the “Amazon effect” may prove to be broader. It’s likely shaping the future of wholesale product distribution and even helping frame a debate over what it means to be a 21st-century goods and materials supplier.

As the emphasis on driving down price and delivery time grows, what may be getting overshadowed is the broad concept of service. True, that didn’t prove to be much of a hindrance for Amazon when it came to selling books — it has decimated corner booksellers who thought they provided an irreplaceable service — but the same might not hold true in other realms.

One may be electrical products distribution — an arena where players see themselves as middlemen, furnishing product and taking a fair cut. Over time, growing competition has altered that myopic view some, encouraging reassessments of how service could be better incorporated into their business models.

Now, facing a new round of pressure from the spread of e-commerce, the stakes have become even higher for electrical distributors. Many may have to choose: double-down on the low-cost middleman model or take service to a higher level, even into areas never considered part of their job. In an age of “Amazonification,” progressive distributors may find their path to success isn’t mimicking Amazon, but distancing themselves. The rise of e-commerce, though, is only one factor driving distributor evolution. More influential is pressure from customers to be more imaginative and creative in their supplier roles — and to use their expertise and resources to become more of a support arm for contractors.

Supplier on-site

Interstates Construction, a Sioux Center, Iowa, electrical contractor, engages one of its primary suppliers to manage materials logistics on joint projects. Van Meter, Inc., Cedar Rapids, Iowa, not only sources the goods where it’s the lead supplier, but it also essentially shepherds the entire electrical products supply chain — from the time parts are specified until packaging of the final shipment of parts to the job site is removed. A lot must happen — and can happen — in between, and it falls to Van Meter to execute.

“We wanted an arrangement where we’d have Van Meter people on-site to handle things like receiving and staging, and deal with returns and back orders,” says Interstates president, Dave Crumrine. “We worked together and found a way to price that into the service model, and now we have four or five guys available for our traveling jobs.”

The alliance with Van Meter grew out of an effort Interstates made several years ago to identify levers that could be pulled to shore up the business, Crumrine says. Consultants it engaged identified better materials handling as a potential source of gains, and advised aligning with suppliers who could help. Interstates found Van Meter to be a willing partner, and the two have worked closely since.

The result, Crumrine says, is that Interstates has more efficient and organized job sites when Van Meter is involved. With materials handling issues handed off to employees of a third party, workers Interstates pays can focus on what they do best – installing products, not chasing them down.

“I need foremen doing supervision and coaching, not getting on the phone with the wholesale house looking for a missing cord plug,” he says. “So we hand that over to distributor people we call the ‘up’ men, who can do set-up, clean-up, or other things that involve getting things in place, moving tools around, getting stuff laid out for the morning, setting up temporary power — anything that’s not electrical work, we’ll look at that. We want our guys to be installers, not haulers.”

And putting those responsibilities on someone employed by the distributor, and not Interstates, is preferential, Crumrine says. “If there’s a problem, I want a Van Meter person talking to another Van Meter person about it.”

The two companies were probably early to the idea of stretching the boundaries on how contractors and distributors could work together. But their alliance might be a model for the future. For buyer and seller alike, the old ways of doing business may not work. In a world where successful business relationships are built more on cooperation, shared success, and willingness to discuss sometimes sensitive concerns head on, new approaches are on the table.

Pressured on labor, margins, and project delivery timelines, contractors are looking for ways to be more competitive. They’re looking to the entire electrical products sphere as an underdeveloped source of greater efficiency. Distributors challenged by the emergence of new sales channels, industry consolidation, and even more manufacturer-direct transactions want to draw closer to their core customers — and may look to expanded or reimagined service as the surest way to get there.

Rethinking costs

Ultimately, the biggest casualty in the changing world of contractor-distributor relations may prove to be the notion that product price is paramount. The emerging view is that total project cost is key, and that the price paid for materials doesn’t always correlate to their true value. While far from dying out, the buyer obsession with a narrow concept of product cost may be moderating.

That’s partly a function of growing sensitivity to labor costs on the part of contractors. There’s heightened awareness of the potential labor consequences of using cheaper products. Distributors that dwell on price, and are pushed to do so by customers, may secure products that are compromised on some level and end up being harder to install. Seen through a labor lens, that could affect contractor productivity and produce higher unit labor costs.

“The price a contractor pays is not always the cost they incur,” notes Robert Powell, founder of and now a senior sales representative for Kunz-Powell & Associates, an electrical products manufacturers representative based in Malvern, Pa. “If it’s not delivered properly with the right packing list or takes an extra half-minute to put into place, it might be more than the higher-priced item. That’s significant when contractor labor is billed at between one to two dollars a minute.”

Kunz-Powell factors that in when deciding the makeup of its product line. Most of what it handles is on the “higher side of the price spectrum,” Powell says — products that command a premium partly because they’re labor-friendly. Only once has the company handled a line positioned as the low-price leader, and that lasted all of six months.

That’s a choice many distributors consciously make, electing to be the source of premier lines that carry a higher price tag. Others choose to handle a mix of lines spanning a price and quality spectrum, and let customers choose. Neither approach, though, immunizes distributors from contractors trying to squeeze them, a practice that while still commonplace could wane as buyers begin to weigh the consequences. As they take a larger view of true and total costs, progressive contractors may be rethinking the wisdom of relentlessly making suppliers dance to the tune of price, price, price. They’re probably still in the minority, however.

“A good many still have not changed their outlook and they continue to focus on unit price,” says Frank Hurtte, a distribution channel expert who is founding partner of River Heights Consulting, Davenport, Iowa. “If buyers look to price alone, they’re making a big mistake.”

Contractors that do so risk running into more suppliers who have their radar up for the tactic, Hurtte says. As supply houses consolidate, grow bigger, and become more selective, more may brand habitual bottom feeders too costly to continue serving — or at least serving well. Contractors that make a practice of demanding concessions, he cautions, overlook the advantage of cultivating suppliers who will be accommodating when price really matters, such as on big, competitively bid jobs the contractor is eager to snag. And they sometimes miss the forest for the trees.

“In most projects, there’s an opportunity for contractors and distributors to increase what they ultimately make on it,” Hurtte says, “because there’s no such thing as a perfect job.”

Visionary contractors, says distribution channel consultant David Gordon, Channel Marketing, Raleigh, N.C., look at materials costs on a project-by-project basis, and rarely approach suppliers on price with a one-size-fits-all strategy.

“They have to consider what’s important to them for that project,” he says. “They probably need suppliers to be competitive on price, but beating them up for the lowest price is hard. Are a couple percentage points going to improve profitability that much if you’re marking up from 15% to 40%? If you get a lower price from a distributor, then you’ll get lower incremental gross profit dollars.”

Contractor conditioning to being sensitive to materials costs has a long history and may prove hard to break. Even as growing labor pressures confirm that their core function is delivering labor, and not sourcing product, contractors can’t exactly avert their eyes from the price they pay for something that accounts for about a third of their revenue.

“Labor is the wild card, and there are so many things that impact it that are out of my control that we have to try to minimize risk there,” says Frank Holleran, president of H.B. Frazer Co., a King of Prussia, Pa., electrical contractor. “If I can organize materials, I can better organize labor.”

Materials logistics

That’s becoming a mission for many in the contractor ranks who want to develop a more  holistic view of electrical products sourcing. Interest is growing in finding suppliers who share the understanding that materials are only as good as the logistics and service infrastructure needed to put them in an electrical worker’s hands. In that calculation, product unit cost is only one piece of the puzzle.

That’s what put Van Meter people in direct, on-the-ground charge of product supply for Interstates’ jobs. It’s also what has pushed Van Meter to initiate discussions with other customers that led to the forging of closer ties along additional lines.

The company, says Chief Growth Officer Mike Gassmann, is exploring ways it can smooth the edges off the task of product sourcing for customers. From setting up automated transactions using an electronic data interchange platform to wire spooling to pre-fabrication and product kitting services, Van Meter is trying to redefine what it means to be a responsive electrical products supplier.

 “We’re continually thinking about ways to drive the value proposition that our customers can understand and buy into,” he says. “And we have to be creative, nimble, and quick because they’re requesting more, especially along the lines of reducing their labor needs.”

Only about 15% of Van Meter’s customers now engage in what Gassmann terms “partnerships,” but those that do are some of the firm’s bigger customers who’ve gotten deeply engaged in the process. He expects contractor interest to grow as more realize that improving materials handling is low-hanging fruit in the push for greater efficiency.

While he remains sensitive to the price he pays for his electrical product needs, Holleran is evaluating his suppliers on other service measures. Those consistently getting materials to job sites on time and staging them properly help H.B. Frazer cope with the challenge of compressed timelines and stay on his radar.

“Work scheduling is much faster, and there are fewer lay-down areas for materials today,” he says. “Every project is becoming just-in-time construction, so we have to get parts deliveries every day. What used to take days now has to be completed in hours.”

Tighter time frames are also an issue for Interstates, and having Van Meter in charge of product acquisition has helped the company stay better aligned with project schedules. Job planning has improved, and there are fewer unwelcome surprises, Crumrine says. He factors that and much more into what he pays Van Meter to be his extended-service supplier, and is confident the service component is producing both monetary savings and some intangible benefits.

“Our foremen like the security blanket of having the materials there as they’re needed,” he says. “And keeping materials off the site until they’re needed makes tradespeople safer and more efficient. It used to be organized chaos.”

Disordered job sites are becoming  taboo, and subcontractors are expected to better organize and manage their pieces of the project. Kevin Adams, president of Shaffer and Nelson, Inc., a Portland, Ore., electrical products manufacturer’s representative, says general contractors are growing less tolerant of subcontractors that don’t practice good housekeeping.

“A lot of them want product shipping materials gone, and many don’t even provide for on-site trash disposal anymore — or will charge to have it done,” he says, adding more labor-squeezed subcontractors are trying to add that to the list of services they’d like their distributors to handle.

But suppliers eager to expand their service offering beyond the routine are looking at more than materials logistics. Some are moving deeper into contractor employee training, allocating resources to deliver electrical code and safety education and even equipment applications knowledge and initial deployment assistance to contractors and their customers.

“Some distributors are getting involved in controls, commissioning and start-up, monitoring and layout,” says Channel Marketing’s Gordon. “Some contractors value it and others don’t, seeing the services as a potential threat to their own business.”

Paying for service

That level of service may exceed the boundaries of what suppliers might be expected to roll in as charity to their materials bill to contractors. However, package deals of equipment acquisition and closely related services could become the norm as both parties better appreciate the value of forging committed, partner-style relationships.

In the Interstates-Van Meter partnership, there are few hard and fast rules on how compensation for services is handled; each project is
generally evaluated on its own.

“We’re not directly managing their margins — they are,” says Interstates’ Crumrine. “But we do compensate them directly for some of the services they provide, and we’ve negotiated and talked about the value an expanded service relationship can bring to both.”

Van Meter, Gassmann says, does often itemize for some highly customized services. In other cases and with other customers as well, compensation for services will be a factor of how extensive a project is in terms of its overall product volume. In all cases, he says, “we try to find the best way to make it cost effective for both, but we need to get paid for what’s provided.”

The expanded services approach that Van Meter and other suppliers are taking may well become the template for the future of supplier-contractor relations. Nevertheless, the specter of Amazon and other comparatively bare-bones e-commerce solutions sits at the opposite pole.

Indeed, Amazon continues to dabble in the electrical products space, offering a limited assortment of high-volume products much like big-box merchants. Theirs is an anti-service model focused more on unit price, which holds strong appeal for many contractors. For those, the ability to buy core products online and seize the chance to score a good volume deal represents the bright future of product sourcing, as much as the ultra-service and support model is the vision of the future for others.

 Ultimately, though, neither may prevail. The more likely outcome in an era of intense competition and technology-fueled efficiency is that contractors will demand (and suppliers will furnish) a solution that doesn’t compromise on either. Low product prices and high service levels will constitute the winning package.    

 Zind is a freelance writer based in Lees Summit, Mo. He can be reached at [email protected].

About the Author

Tom Zind | Freelance Writer

Zind is a freelance writer based in Lee’s Summit, Mo. He can be reached at [email protected].

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