Today’s business landscape is dotted with mergers and acquisitions. This consolidation has drastically reduced the number of jan/san distributors and the remaining players are always searching for ways to get a leg up on the competition. One solution that many distributors find appealing is joining a buying group.

Also called marketing groups, these organizations allow distributors to band together and secure access to better pricing. Many groups also offer their members an extensive menu of services, from private labels to advanced technology.

“There is strength in numbers,” says Tom Haines, executive director of Distributor Partners of America (DPA). “If a small distributor wants to buy better, think better, organize himself better and have more opportunities for national accounts, then he should join a group that offers those advantages. These are programs he would never see as an independent in the marketplace without being a member of a group.”

Cash Back
The most basic — and for many distributors, the most desirable — benefit of joining a buying group is access to deep discounts. Groups leverage the collective buying power of their members to negotiate better product pricing.

A $1,000 order may be small potatoes to a manufacturer. When 50 distributors collaborate to create a $50,000 order, that manufacturer is more likely to take notice and offer such incentives as volume discounts and freight allowances.

“Combining the volumes of independent distributors helps to level the playing field for the smaller regional distributor and gives the larger metro distributor an even stronger position,” says Mark Bozich, vice president of business development for NISSCO, a maintenance and sanitary supply distribution group purchasing organization in Dulles, Va.

Name Brand
Discounts may lure distributors to join a buying group, but it’s the other perks that typically keep them around. One popular extra is buying groups’ private-label programs.

Some buying groups create their own name brand, giving member distributors a product line different than what the competition offers. These programs are particularly attractive to smaller distributors that don’t have their own brand identity.

Private labels are just one way buying groups help distributors land national accounts. A distributor can use the private label as a selling point when bidding a national account and can meet the client’s coast-to-coast needs by working with other members of the buying group across the country.

The pricing benefits offered by buying groups are also helpful when bidding national accounts. “Manufacturers are increasing minimums every year,” Haines says. “If a distributor lands a national account in his marketplace, he can go to other members for help to expand the program.”

High-tech Help
Buying groups sometimes offer other benefits that aren’t necessarily reflected on the bottom line. Many buying groups invest in technology systems that benefit their member businesses.

AFFLINK, Tuscaloosa, Ala., offers its members online training and an online ordering and tracking system. The group also developed an online project management system that allows distributors to track their work and quantify its value to customers.

DPA offers an electronic overstock program and a central invoicing system. Its members can also go online to discuss pricing trends. And NISSCO offers a complete e-commerce platform to its distributors and also hosts many of its members’ Web sites.

“We can take a distributor from non-existent to state-of-the-art in a very short time,” Bozich says.

A buying group’s Web site can act as an online community, where distributors can connect virtually to discuss hot topics in the industry.

DPA’s members use the Web as a “think tank,” Haines says, to discuss such topics as leasing versus buying or how to run a sales force. “It keeps the members a close-knit group,” he says.

DPA also offers educational programs at its buying conferences. Likewise, NISSCO hosts an annual conference for its members as well as a networking event during the ISSA conference.

“By offering national and local opportunities outside of standard trade show sales events, we have created a very open environment where distributors freely exchange ideas,” Bozich says.

A Perfect Match
 Distributors often bounce from one buying group to another before finally finding the best fit. Avoid this hassle by choosing right the first time. To do this, you must first prioritize your needs based on your company’s short- and long-term goals.

“You have to start with a clear understanding of what you would like to accomplish in the next three to five years,” says Dick McGann, executive vice president of AFFLINK.

Do your research. Talk with your peers about their experiences with different groups. Spend some time on contenders’ Web sites. Make a few calls to interview the groups you are most interested in.

Clearly, the benefits of a buying group are the biggest deciding factor. Discounts and rebates — the core reason these groups exist — are a given. For some distributors, that’s enough. If you want more extensive benefits, however, be sure to find out what potential groups offer.

“Explore the depth and breadth of what a group can deliver to you,” McGann says. “You can have a richer experience in a group than just rebates.”

To ensure involvement in a buying group that is best for your business, consider the following issues:

  • Structure
    Buying groups are typically either privately owned or member owned. In the former, all members are on equal footing because no one owns more of the company than another. With the latter, excess cash typically goes back to the owners in the form of profit sharing.

    At NISSCO, a privately owned group, ‘there is no greater shareholder that could steer the company in their own best interests,” Bozich says. At member-owned DPA, however, there is little turnover because members are committed to the group. “It’s like a bond of matrimony versus common law,” Haines says.

    Also ask potential groups about their membership. Some serve only jan/san distributors while others also represent suppliers and have separate divisions.

    Each has benefits. The first truly understands your needs and focuses its attention on you. The second can capitalize on its members’ diverse interests to land national accounts.
  • Fees
    Every buying group has a different way of funding itself — some have annual or monthly membership fees while others require a lump-sum stock purchase — so be sure you are comfortable with the costs involved.

    Ask about waiting periods for receiving services and penalties for leaving the group. Also, ask what happens to the group’s income (re-invested in business tools and other services, refunded to members, etc.)
  • Exclusivity
    When interviewing buying groups, ask how many member distributors are allowed in any given market. DPA typically has only one distributor in a given market (there are some exceptions in large cities.)

    Haines says if there is already a distributor in the group representing a certain market and another distributor in that segment were to inquire about membership, he will call the current member about allowing one of their competitors to join.

    On the other hand, AFFLINK has more than 500 distributor members and while it does try to reduce competition, it can’t always eliminate it. McGann says this can be a benefit. “Limiting the options in any given geography can limit our ability to serve national account customers in a specialized, dependable manner,” he reasons.

There are several buying groups and each is different. Any distributor interested in joining one should be able to find a good fit.

“I think any distributor is a foolish distributor for not joining a group,” Haines says. “There’s a group for everyone, it’s just matter of what you want.”

Becky Mollenkamp is a Des Moines, Iowa-based freelance writer and a frequent contributor to SM.




POSTED ON: 8/1/2005