Savvy Spending

There is no doubt that the purchasing landscape is changing. Building service contractors are welcome to attend large trade shows once open only to distributors. The Internet is allowing greater access to product information and making buying those products even easier. But along with new opportunities and innovations comes questions of who to make the orders with. Is it worthwhile to remain faithful to a distributor relationship, or are there gains to be made by buying direct from a manufacturer?

Direct vs. distribution
When it comes to purchasing products consumers want a guarantee. That’s why by 2008, distributors will respond to “strategic sourcing” trends and earn up to 50 percent of their revenues from contracts that lock in service or price levels, says Mark Dancer, vice president and principal for Pembroke Consulting, Philadelphia. And, if distributors resist, aggressive customers will likely go to manufacturers to get these guarantees, he adds.

Guarantees or not, buying direct from manufacturers has its pros and cons. The biggest (and some BSCs say the only) pro is pricing. Generally, buying directly from the manufacturer will result in a lower price. What BSCs need to look out for, however, is the overall cost of the product.

Equipment is one area where there can be benefits to buying direct. Not all distributors demonstrate, service or repair machinery. Without these value-added services, there’s no reason to pay more than direct cost, says Jim Peduto, president, Matrix Integrated Facility Management, Johnson City, N.Y. However, the reverse also is true.

The higher costs associated with buying through distributors are balanced out by value-added services. Machinery demonstrations, repair and training are big pluses to most BSCs. Also, distributors are willing to fill small orders and ship to multiple locations, something most manufacturers can’t accommodate.

“You can save money buying direct, but that only gets it to your warehouse. Getting it to you job site can be a costly process. That’s where the distributor comes in,” says Peduto.

There also is a difference between price and cost that a lot of BSCs fail to consider. Costs go past purchasing products, says Peduto. With large items like towels and soap, it takes trucks, drivers, storage and a lot of other “hidden” logistic costs — all items a distributor can handle more economically. Manufacturers may offer the better price, but a distributor will give you the better overall cost, he adds.

“In the last two years, I’ve been buying less direct because you save money with services,” says Steve Altman, owner and president of All-Pro Cleaning Services Inc. in Cleveland. “If I save 20 to 30 percent, I’ll do my own training. But to save four to five percent, it’s not worth it.”

But, if contractors buy through distributors, manufacturers don’t have to be left in the background. According to the Pembroke Consulting and the National Association of Wholesaler-Distributors study, Facing the Forces of Change, contact between contractors and manufacturers can increase brand awareness and “customer intimacy.” Typically, when contractors purchase items through a distributor, they are able to buy them in bundles, sometimes with products from other manufacturers.

Manufacturers, however, worry that customers “may not separately and uniquely distinguish between the manufacturers included in the bundle,” states Facing the Forces of Change. For example, a BSC may buy products for restroom cleaning, but the chemicals, towels and hand tools may all be from different manufacturers. And, the more competitive the product market becomes, the more direct contact with the consumer is needed to reestablish brand identity. The increased customer intimacy will lead to new product development, the report continues.

“Manufacturers have gotten more involved in purchasing and merchandising,” says Mitch Murch Jr., vice president of corporate accounts for Mitch Murch’s Maintenance Management Co., St. Louis. “If you have a company with purchasing power, manufacturers recognize that. They’re listening to the customer and recognizing their needs.”

“A good manufacturer is going to understand what consumers want,” adds Jeff Buysse, general manager for national accounts for Tennant Co., Minneapolis; Buysse also served as the 2004 Building Service Contractor Association International Convention Co-Chairman.

BSC customers need local support, training and other “high-tech points.” Manufacturers still need distributors to handle these types of services, Buysse adds.

Emerging trends
Contractors, too, recognize the importance of distributors. According to a 2003 Contracting Profits survey, 84 percent of BSCs buy through distributors. And from 1990 to 2002, the percentage of purchases made through distributors did not change, based on data compiled from Sanitary Maintenance Magazine, the International Sanitary Supply Association (ISSA) and Kline & Co. The distributor’s role did not diminish even after BSCs were invited to the ISSA trade show, formerly a supplier-only event, points out Anthony Trombetta, director of services for ISSA, Lincolnwood, Ill.

But, purchasing may not stay this way for very long. Instead of a choice between distributors or manufacturers, BSCs might find themselves purchasing from both parties as a joint venture.

“I believe all things are a pendulum. We have already reached that peak where manufacturers try to reach customers directly and cut out the distributor. Now we’re going back to needing the distributor,” says Buysse.

Facing the Forces of Change forecasts that by 2008, only four in 10 manufacturers will have open, nonexclusive policies. However, this doesn’t mean fewer distributors will be selling a manufacturer’s product. Rather, certain distributors will have an increased role with the manufacturer to help build brand awareness, improve the product and give overall better service to the customer, says Dancer.

“It gives the customer an extra person calling on them,” says David Renard, president, Renard Paper, St. Louis. “If they have a problem…we can send the manufacturer down there and give them first-hand information on how to solve their problem.”

Even though 2008 is less than four years away, the transition to this team-up will be sluggish.

“In an ideal world, [a team-up] is what you’d like to see. Where’s it’s happening, it works great, but there still is a fear out there about how much information to share between manufacturers, distributors and contractors,” says Trombetta.

But it will eventually need to happen, he adds.

“Customers are going to force it. BSCs…are more educated, they know what they want and where to get it,” says Trombetta.

As contractors acquire and become more responsible for more square footage, their buying power will increase as they expand and become more sophisticated, says Peduto. Manufacturers and distributors will need to become more sophisticated along with them, he adds.

Editors note: Jim Peduto will be speaking at the ISSA/Interclean show in New Orleans on Nov. 17. His presentation titled “Justifying Your Staff Levels” is part of the Facility Service Provider Track sponsored by Contracting Profits.