All posts by Brandon Valek

Should You Join an Industrial Buying Group?

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By Bridget McCrea

Around for decades, industrial buying groups focus on pairing up independent distributors with suppliers – and with one another – to gain economies of scale, leverage collective buying power, compete more effectively against the “big guys,” and improve financial margins and bottom lines, among other things. And while many distributors join these groups to gain access to better pricing and terms from participating suppliers, members also gain from shared access to information, networking, technology, and other types of business support.

In this article we’ll help you decide whether membership is right for your company by looking at how two different electrical distributors approached the issue. We’ll hear how they selected the right group, how they leverage their memberships, any challenges they’ve had to work through, and their advice on selecting the right organization for your own company.

Strength in Numbers
It’s been over 20 years since BJ Electric Supply, Inc., decided to align itself with Affiliated Distributors. The distributor made the move after a “friendly” competitor suggested to give the buying group a try. “You’ll never regret it. You’ll be viewed differently by manufacturers,” the competitor said. “Because you’re coming together as a group, you’ll be able to participate in supporting volume buys, securing other terms and practices with manufacturers, and doing business [alongside] ‘like’ distributors across the U.S. and further out.”

Intrigued by this comment, the distributorship’s leadership team decided to reach out to AD and find out what membership would entail and what the group had to offer. “We had a conversation with them and learned why it would be our best pick,” says Maureen “Mo” Barsema, vice president and CFO. “At the time, the vendors that were represented under AD were very much represented by our company. It felt like a good match.”

And with that, BJ Electric entered the world of the buying group – a choice that would find the company “raising the bar,” says Barsema, and begin to form alliances that would endure over the next two decades (and now beyond). “One of the most valuable things to come out of ‘belonging’ is the lifelong friends we’ve made and networking opportunities we’ve leveraged in the non-compete environment where you can really open up, express concerns, and look to those who have already worked through a certain situation.”

When BJ Electric was struggling with the task of effectively handling this type of inventory, it turned to the other members of its buying group for help and advice. “We were able to gather a lot of great information on the efficient handling and processing of tangible assets,” says Barsema. “We also learned some new best practices that we were able to put into action at our own company.”

Being a member of a buying group has also helped the distributor form long-lasting relationships with suppliers, start “open” conversations with those manufacturer-partners, and then develop plans to drive market value. That, in turn, has helped both distributor and supplier increase market penetration. “We’re able to be very strategic as a result of what AD brought to the table for us,” says Barsema. Finally, she says the group serves as a good starting point for potential business deals, mergers, and other types of alliances and partnerships.

“When we were considering a sale of our company, we went in search of an AD affiliate to sell to (Revere Electric Supply in 2013),” she says, “because we truly believe in the [group’s] strength and numbers.”

In it for the Long Haul
As a small electrical distributor navigating the competitive business climate of the 1990s, K/E Electric Supply Co., in Mt. Clemens, Mich., knew it would benefit from more buying power, but it wasn’t able to attain that goal on its own. After looking around at their options, the company’s leadership team decided to join IMARK Group, Inc.

Rock Kuchenmeister, general manager, says the benefits of that decision came to light pretty quickly. “IMARK and its members taught us how to be a better distributor overall,” he says, noting that some of the programs offered by the group “forced” the distributor to do a better job of negotiating and partnering with suppliers. “In the long run, those early lessons have really paid off for us.”

Kuchenmeister says the value of joining a buying group extends past just lessons in negotiating. As a small, independent distributor, for example, K/E Electric would not have had access to many of the incentive programs offered up by the group. “Manufacturers would have never approached us directly with these types of programs,” says Kuchenmeister, “but because of the entire buying group conglomerate, we’ve been able to take advantage of them.”

Addressing the Challenges
As with any business alliance or partnership, there are both early and ongoing challenges that come with being a member of a buying group. For the completely independent distributor that’s used to keeping information close to the vest and doing things its own way, for example, suddenly being thrown into a pool of companies that have to follow certain protocols and procedures in order to transact business could be daunting.

Another obstacle rears its head when there’s a disconnect between one of the group’s suppliers and the manufacturer’s rep that the distributor is working with. “Not all of the suppliers line up well with local representation,” says Kuchenmeister. “This makes it challenging to partner with a firm that doesn’t do well in [our] marketplace, and it forces us to go outside the buying group.”

Barsema sees missed opportunities as another area for distributors to be aware of when operating within buying groups. “Buying groups go out and negotiate programs on their members’ behalves, and those programs are there for distributors to take advantage of,” Barsema says.

“You can get very strategic with these programs in regards to your earnings, and how you place yourself with the [associated] manufacturer-partners,” says Barsema. “If you don’t take advantage of those opportunities, then they are yours to lose.

Finding the Right Match
Buying groups exist in nearly every corner of the business world. This can make it difficult to distinguish among them and select the right one for your company. After all, each group has its pros and cons based on what it’s trying to accomplish on behalf of its collective membership. The best approach is to do your homework upfront, investigate your options, talk to members about their experiences, and seek out the group that best aligns with your company’s mission and values.

“Alignment is the name of the game when it comes to buying groups,” Barsema says. “As you’re looking at your options and having discussions about them, be sure to pick the one that blends well with your own strategic mission and vision.” Also consider the various programs being offered by the group’s supplier members, says Barsema, “and find a place where you think you’ll be able to be more progressive and successful in the long run.”

Finally, Kuchenmeister says distributors looking to join their first – or next – buying group should take the time to research the available options before committing. “There are several different choices out there, so find the one that best fits your business model,” he says, “and then leverage that selection to help you become an even better distributor than you are today.”

Impacting Copper – G20 Meeting, More Cuts in China and US Manufacturing Survey

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By Jim Williams

 

Like most rides at amusement parks, the roller coaster ride that is the price of copper started out of the gate slowly this week, thanks mostly to a wait and see approach after the G20 meeting in Shanghai over the weekend.

The Group of Twenty, also known as G20, consists of financial leaders from the following 20 major economies:
Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Republic of Korea, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States and the European Union (EU).

G20 was created in 1999 with the goal of studying, reviewing and promoting high-level discussion of policy issues pertaining to the promotion of international financial stability.

After this weekend’s meeting, the G20 issued a statement on the global economy saying, “The global recovery continues, but it remains uneven and falls short of our ambition for strong, sustainable and balanced growth. Monetary policies will continue to support economic activity and ensure price stability, consistent with central banks’ mandates, but monetary policy alone cannot lead to balanced growth.

“We are taking actions to foster confidence and preserve and strengthen the recovery. We will use all policy tools – monetary, fiscal and structural – individually and collectively to achieve these goals.”

Copper investors must have missed the memo, as prices dropped in early trading Monday. The price for the red metal recovered later in the day after an announcement by the People’s Bank of China that fell in line with what the members of G20 said. The Bank said it will cut the amount of cash that banks must hold as reserves, freeing up an estimated $100 billion for new lending. The following chart shows the drastic uptick after the announcement.

Despite the surge, the gains remained limited on Monday. The price increase continued on Tuesday as investors expected more moves by China to boost its economy.

The price of copper opened this morning at $2.14 a pound.

Another factor impacting copper was a survey of U.S. manufacturing by the Institute for Supply Management. The results showed manufacturing in the states shrank in February, but at a slower pace than in January. The index rose to 49.5 from 48.2 in January, compared to a consensus of 48.5.

“The number was better than expected, if it breaks above 50 soon it could mean people revisit the idea of U.S. rate rises,” a trader said, adding that a monthly U.S. jobs report on Friday could shed light on potential moves by the U.S. Federal Reserve.

Expectations of a U.S. rate freeze could depress the U.S. currency, which when it falls makes dollar-denominated commodities cheaper for holders of other currencies.