Canadian Electrical Wholesaler

 

Mar 27, 2018

Frank HurtteBy Frank Hurtte

Viewed from outer space the Earth looks smoother than a billiard ball. What’s more according to the experts at Discovery Magazine, the looks are not deceiving. Lumps on billiard balls (diameter 2.25 inches) can be no more than 0.005 inches in height. Applying this theory to our little outpost in the universe, the maximum “bump” cannot exceed 17 miles in size. With Mount Everest at 5.5 miles high and the Marianas Trench (the deepest spot in the ocean) at nearly 7 miles deep, Earth is actually twice as smooth as that slick black 8-ball we sometimes shoot for the corner pocket.

What has this to do with year-over-year growth plans? Plenty. Allow me to explain.

Everyone likes strong dynamic growth. Setting and achieving aggressive goals is a thing of beauty. Applying this philosophy, manufacturers sometimes decide to build incentives into their channel plans. Here’s how it generally works. It’s a pay for performance thing. Grow your business by 20% and you receive enhanced gross margin, an end of year rebate or some combination of the two.

On paper the whole thing makes sense. The supplier has done a great deal of market research, product deployment and plans to grow the business by this number, so why not simply push the goal down to their channel. This is where the breakdown occurs.

Remember our comment about the earth being smoother than a billiard ball? From a macro standpoint the statement is true, but try to explain this to the guy standing at the foot of Mount Everest. From that local vantage point, it doesn’t make sense.

Returning to the topic of channel growth and motivation, the supplier has developed a plan designed to move the channel forward, encourage investment (in inventory, people, training demos), drive aggressive activities, and perhaps even displace a competitor who shares shelf space at the distributor. When facing this type of situation, the best distributors respond and in the early stages the program works. They are rewarded and further increase their efforts. Everyone wins. Eventually, however, the time plan breaks down. Let’s look at a few reasons why this happens.

Market share increases

As market share increases, gaining new growth becomes increasingly difficult. The distributor has targeted and attacked all of their existing accounts. New applications are found, competitive products are converted, and the cost of acquiring more business becomes increasingly expensive. In the best of cases, the manufacturer and the distributor work together to find and open new customers. This involves lead programs, additional prospecting, new levels of missionary work and lots of expensive stuff for both the manufacturer/supplier and distributor. New customers are found. New gains are made, but ultimately the territory microcosm has a breakdown.

Large customers hit a dry spell

For some distributor territories the world revolves around a single super user or very large OEM. For instance, most people in the U.S. Midwest have heard the stories of how the entire Peoria, Illinois market follows the shirttails of Caterpillar. When heavy equipment sales slip into a global slump, sales of everything drop off significantly in the market. No matter how hot the automotive business is, regardless of the shape of the Semi-con industry and in spite of good times in the food processing world, growth in Peoria falls somewhere between super-tough and impossible.

Similarly, for some distributors OEM sales are the brass ring at the end of the rainbow. These accounts use mass quantities of specific product groups, and their usage of that subset of the distributor’s business often eclipses the purchases of the next four or five customers on the list. However, OEM business can be cyclical, and during the down it becomes exceedingly difficult to maintain the growth rates for products used in large quantities by that OEM. Replacing the loss business is like explaining to the guy at the bottom of the Marianas Trench the Earth is smoother than a billiard ball. It just doesn’t look that way from his deep perspective.

The local economy fails of your product

Never mind recessions or even the Great Recession. Sometimes the local economy fails for your product. Here are a couple of examples. Houston was hit with a massive hurricane last year. The flooding and water damage, while good for the construction industry, put a halt to the sale of lawn irrigation products. The dry spell created by the very wet spell lasted 3-6 months. Distributors selling those products struggled to keep their sales flat for the year, much less drive growth.

Sticking with the tales of Mother Nature, allow me to talk about the Twin Cities of Minnesota during the summer of 2016. The weather only approached 80°F twice during the entire summer. It was great for outdoor activities, but anyone in the heating and air conditioner business will tell the same story. Sales of air conditioners went swirling down the drain. Any distributor tied to growth that year failed in a big way.

These downturns are good times to maintain selling pressure. In my experience, distributor growth programs that break down during these times of localized turmoil actually work against the manufacturer. Having ramped up efforts funded with the extra margin, distributors find themselves challenged during the down times. Profitability can be deeply impacted.

To the manufacturer, who definitely sees the impact of major recessions, the local issues look like the Earth from the rear view mirror of Elon Musk’s late model used car in outer space: as smooth as a billiard ball, profits intact. According to unbiased benchmarking provided by a number of distributor associations, the profit margin (not gross margin) for the typical distributor stands somewhere between 2-3%. Because profits are closely tied to gross margin, a drop of just a few points in gross margin (and other incentives) moves the distributor into shaky ground profit-wise. Struggling to keep profits flowing, distributor either divest themselves of people (70% of the distributor budget) or refocus sales efforts onto higher gross margin lines.

These localized downturns are precisely the right time to take the opposite approach and ramp up sales activities. Why? The distributor has unused resources and, based on gross margin, advantages will continue to push out into the uncharted territory of new customers and new applications. This effort pushes market share. When things change on the local scene, business will ramp to new and greater heights.

If not growth based programs, what?

Like my thoughts on commission as a model for sales compensation, the only thing good about them is they are easy to manage. Again mirroring commission, growth based plans outwardly appear to tie the needs of both parties together; manufacturers need growth and distributors need enhanced profitability. The similarities continue. A mediocre seller in an expanding market receives a fatter commission check regardless of his skills, drive or activities. Conversely, a highly skilled and motivated guy in the wrong territory receives a skinny commission report. Understanding the entire situation requires extra management attention and thus commissions continue.

Each of these quick suggestions involve more effort and expert subjectivity than a vanilla growth plan. However, I believe they will push behaviour, open the door for communications, and enhance the manufacturer’s overall position. We will call them action-based programs:

1. Creating and reporting on targeted customers and opportunities. Companies working together to tag team specific customers drive results. These require follow-up and effort on both sides, but research indicates organizations who target are 47% more effective in reaching their goals.

2. Providing detailed reports of sales calls and other activities at selected accounts. Not only does this help put a metric on the work done on the manufacturer’s behalf, it allows the local sales team to proactively assist in account conversation and in providing the right backup support.

3. Moving competitive products to non-stock status. I am not fond of manufacturers using their clout to “carte blanche” forbid distributors from selling competitive products. There are times when having a competitive line keeps the doors open for future conversions. I might be on shaky ground when I say this, but I believe transparency might be important so both manufacturer and distributor understand the situation.

4. Providing timely and meaningful follow-up reports on leads provided. Leads are important to distributors and expensive for manufacturers. Most don’t realize the real cost of a lead, which often reaches the $150 level. When they turn into business, everyone wins. Over the years, however, many folks have missed the opportunity by not getting the leads into the right hands and not following up with the prospective customer fast enough. Distributors need to provide feedback as to the quality so the manufacturer can measure the payback of their process for generating leads.

5. Number of accounts for the manufacturer’s product. Growing the user base is important. Each time the distributor sells a supplier’s product to a new customer, they are creating an annuity for the future. In this metric, it’s not about dollars sold but number of customers buying. Grow the customer list and eventually the dollars will flow.

The list provided above is in no way a complete list. Think of it as a starter point. Much depends on the product, market served and other points tied to the relationship. No matter how you slice and dice things, in my mind, growth-based programs need to be revisited.

As always, I am open to questions, discussion and occasionally good old fashioned disagreement. Drop me a line with your thoughts.

Frank Hurtte is the Founding Partner of River Heights Consulting. The Distributor Channel is a service of River Heights Consulting. Find out more: www.RiverHeightsConsulting.com.

 

OlsonBy Katrina Olson

A recent CEW article by David Gordon caught my eye. The headline was, Are Your Sales and Marketing Teams Inhibiting Growth?

As a marketing consultant, writer, and trainer, I recognized the challenges and barriers that David was writing about. We agree on many issues (and their causes) facing electrical distributors and marketers. But I also hear from marketing people all the time that the C-Suite is hindering their efforts which, in turn, hinders the company’s growth.  

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2018 Electrical North American MeetingOn October 29-31, 2018, the AD Electrical North American Meeting drew over 1,000 attendees. This event attracted 151 first time attendees and representatives from over 362 companies in the United States, Canada and Mexico.

Attendees benefited from a variety of agenda topics, including: Network Meetings, Emerging Leaders Session, and Country-specific Business Meetings. New to this year’s agenda was a SPA Optimization Workshop led by industry veteran Mo Barsema. In addition, members and suppliers also attended a panel discussion on managing and measuring your digital success.

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CEW 6 HR 400People with low levels of coping skills are at higher risk for mental health issues and mental illness than those with high levels. Gaps in coping skills inhibit the ability to solve problems and to make healthy and effective decisions.

To examine how coping skills can predict health outcomes, Dr. Bill Howatt facilitated a doctoral research study that examined the question: “What role does an individual’s coping skills have in predicting psychological and physical health outcomes?” The study found that coping skills mattered and were, in fact, a moderator that partially explains why some individuals had better physical and psychological health outcomes than others. The study concluded that when combining a person’s coping skills with their perceived stress levels, coping skills were significant in predicting which employees were at more or less risk for health issues.

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Changing Scene

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Desdowd Inc. has been chosen to serve as Thermon’s manufacturer's agent for the province of Quebec ...
Gerrie Electric Wholesale Limited’s website has a fresh new look but continues to offer the same ...
Following a record 2018, Westburne continues its investment in its British Columbia team with two ...
Cree, Inc. has signed an agreement to sell its Lighting Products business unit, which includes the ...
On March 1 Eaton announced intentions to spin off its lighting business, creating an independent, ...
John Wade’s tenure of over 25 years working in the electrical industry in various capacities were ...
At least 17 privately-owned companies in Canada’s electrical industry continue to earn Canada’s ...
From February 25 to 27, 2019, AD welcomed more than 280 AD independent distributors and service ...
Liteline Corporation has named Eric Teacher as Liteline's newest Regional Sales Manager — ...
  The Canadian Electrical industry is at the forefront of innovation. Our products help ...

 

 EFC Announces 2018 Marketing Awards Winners

2018 Marketing Awards WinnersElectro-Federation Canada (EFC)’s Marketing Awards program recognizes member organizations that demonstrate marketing excellence and innovation within the Canadian electrical manufacturing and distribution industry. Winners of this year’s awards were recognized at EFC’s 8th Annual Future Forum, held earlier this month. (Shown in photo: EFC President and CEO Carole McGlogan with representatives from Bartle & Gibson, winners of the Integrated Marketing Award — distributor under $50 million.)Electro-Federation Canada (EFC)’s Marketing Awards program recognizes member organizations that demonstrate marketing excellence...

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CEW 6 ShowReport 400Leaders and innovators from business, government and the education sector gathered for this ABB premier collaboration event. More than 11,000 delegates attended the bi-annual ABB Customer World Houston 2019 from March 4 to 7 in Houston, Texas. ABB’s latest pioneering technologies were displayed over 150,000 sq ft of a colourful, buzzy display of futuristic conveyor belts and robots, an ABB Formula E Generation 2 car, and much more groundbreaking technology. ACW attendees also took part in keynote sessions and seminars focused on realizing the tremendous productivity and performance improvements that digitalization delivers for companies of any size and from any industry.

In his keynote address at the event, ABB CEO Ulrich Spiesshofer explained how ABB was shaping its business for leadership in digital industries to support its customers in a time of unprecedented technological change and digitalization. He was joined by Hewlett Packard Enterprise CEO Antonio Neri. 

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Changing Scene: 

Cree logo 2 400Cree, Inc. has signed an agreement to sell its Lighting Products business unit, which includes the LED lighting fixtures, lamps and corporate lighting solutions business for commercial, industrial and consumer applications, to Ideal Industries, Inc. for approximately US$310 million before tax impacts, including up-front and contingent consideration and the assumption of certain liabilities. Cree expects to receive an initial cash payment of US$225 million, subject to purchase price adjustments, and has the potential to receive a targeted earn-out payment of approximately US$85 million based on an adjusted EBITDA metric for Cree Lighting over a 12-month period beginning two years after the transaction closes.

The agreement continues Cree’s strategy, announced in February 2018, to create a more focused, powerhouse semiconductor company, providing growth capital for Wolfspeed, its core Power and RF business, and equips Cree with additional resources to expand its semiconductor operations. The deal also enables Cree Lighting to gain additional global focus, channel support and investment as it becomes a growth engine for the IDEAL team.

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Peers & Profiles

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On a regular basis, our publications profile members of our industry through their responses to a ...
First and foremost, sitting down with Susan Uthayakumar feels more like sitting down and conversing ...
Sales of electrical supplies from full-line electrical distributors capture the geographic ...
Laura Dempsey has been working as an outside sales representative for E.B. Horsman & Son for ...
Michael Gentile, President and CEO of Philips Lighting Canada, has had a long and distinguished ...

 

 Young Leaders: Taylor Gerrie

Taylor GerrieOn a regular basis, our publications profile members of our industry through their responses to a Q&A. It’s a way of recognizing industry movers and shakers, and helping our readers get to know them better. 

Recently we launched an initiative with Electro-Federation Canada's Young Professionals Network to include profiles of up-and-coming leaders. We provided the list of questions below to Taylor Gerrie, Automation Account Specialist at Gerrie Electric Wholesale Ltd. in Burlington, Ontario. Here are Taylor’s responses.

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Susan Uthayakumar, President of Schneider Electric Canada: Driving Success

Susan UthayakumarBy Owen Hurst

First and foremost, sitting down with Susan Uthayakumar feels more like sitting down and conversing with a friend than conducting an interview with the Canadian president of one of the world’s largest electrical manufacturers. Of course, she exudes the confidence and knowledge her position demands, but equally identifiable are an open and engaging nature.

In a recent sit-down, we learned a little about Susan’s history and what drives her to succeed.

To begin, Susan was born in Sri Lanka and immigrated to Canada at a young age. She went to high school in Canada and attended the University of Waterloo where she earned undergraduate and graduate degrees.

Upon completing university Susan began her working career with Deloitte, which she describes as a great starting point as she was surrounded by highly driven and intelligent individuals. She welcomed being in a position that was demanding and helped nurture a strong work ethic. Her work with Deloitte also instilled a great interest in acquisitions, which would serve her well as her career unfolded.

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CEW 3 Perspective 400

We often learn how to look forward by first looking back, or at the very least we realize that despite our best efforts we have not truly advanced quite so much as we had thought. Sure, technology is rapidly advancing. That’s beyond question. But what about our approach to selling it? Have we changed that much in the last 20, 40, 60 years? Inevitably there have been advances and changes in marketing, the Internet causing the biggest shift, but many of the concerns and directives that have driven the distribution and marketing of industrial electrical products remain, or at least planted the roots of the concerns of manufacturers and distributors today. 

To gain perspective of the perceptions and directions of electrical product distribution in 1960, we turn to Edwin H. Lewis. In 1960 Lewis published “The Distribution of Industrial Electrical Products” in the Journal of Marketing.

To fully define electrical product distribution in 1960, Lewis broke his study into several categories. We will follow his direction and provide his insights on the industry in each of the categories he identified.

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Looking Back

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The best memory I keep from CEDA is the way that they accepted me when I came into the business. ...
In the 1930s to 1940s, CEDA’s Western Canada membership was very stable with old line independent ...
Prior to the late 1950s there was little if any involvement in CEDA by the so-called “national ...
  As 2017 marks the 150th anniversary of Confederation, we take a look back at an aspect of ...

Looking BackThe best memory I keep from CEDA is the way that they accepted me when I came into the business. The welcome they gave to me, all of them men. (In those days there were not many women in business.) This welcome I will always remember. CEDA has played a very important role in my success.

One year our conference was in Hamilton, Ontario. Mr. Caouillette, our speaker, got lost and instead of going to Hamilton went to Toronto. I think that that was the longest cocktail hour that CEDA ever had… waiting for him to arrive. Certainly that night the head table and everyone were in good spirits.

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Looking BackLooking BackIn the 1930s to 1940s, CEDA’s Western Canada membership was very stable with old line independent companies like Horsman, Ashdowns, Brettell, Marshall Wells, Electrical Supplies Ltd., etc.

Small electrical distributors just were not acceptable for membership as they did not carry the main-line manufacturers’ goods, publish a wiring device catalogue, or employ four to five salesmen as CEDA requested.

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