Canadian Electrical Wholesaler

 Best PracticesBy Frank Hurtte


The distribution business has a beast looming in the back of the closet. It lurks in your inside sales group, thrives in your sales department, and sucks the life blood from your bottom line. What is this savage? It’s the practice of cost-plus pricing. Every industry has one. For the electrical wholesaler, it’s cost plus 20. For others, it’s cost plus 10, 20, 25 or 30%.
As an industry we have talked about cost-plus pricing for decades, yet it manages to survive. If your organization doesn’t have a clear-cut process for pricing, it’s still hiding in the deep recesses of your company. And, it needs to be killed before it kills you.


Here’s how it works. A customer calls in and asks one of your employees for price and availability on a product. Somehow, someway they believe the “system price” shown on the computer is too high, inaccurate, not supported, or non-stock. The employee quickly looks up your cost and then the monster appears. Instead of measuring the cost of ordering, freight, logistics and all the other value we provide as distributors, the employee just goes cost plus 20.


In our own research, many of these cost plus 20 orders actually turn into cost plus nothing. This is especially true when we think about non-stock items where freight or special handling is required. In our work, we see literally hundreds of occurrences of profit potential being given away. And, worse yet, often negative revenue is produced. We’ll cover this phenomenon some other time, but for now let’s just look at profit potential.


Candid conversations with our manufacturing partners indicate there’s a problem with giving distributors “really hot” into stock pricing. Why? Because some untrained inside sales guy can screw up a whole market by using their favourite cost-up number. The option for really meaningful margin gains flies out the door, because the distributor’s own people allow the monster to dominate their thinking. Still not convinced? What if I told you last week we spoke to a company president who “bribes” her IT person to add 15% to the cost of a line where she had negotiated a really great price level. It’s been nearly two years and not a single salesperson has complained — and her business is growing.


I know what many of you are thinking: it doesn’t happen here. Put your own organization to the test. Sort the last week’s customer invoices and look for common gross margin percentages. I would be willing to bet a shiny new “loonie” that you will discover a whole string of orders with margins of 10, 15 or 20%. In many instances it will be the same guy in the quotes department or inside sales group who has gotten in the habit of assigning 20% to far too many orders. The question you need to begin asking is, why?


We already said, sometimes this type of pricing is applied because the computer price isn’t accurate. Other times the product is a non-stock and your people are too busy to find the right price. Regardless of why, the real question is how much money are you willing to toss because it happens? We recommend a process. Measuring the process gives you an opportunity to review and re-educate your people. Ask, why 20% instead of 21.3, 23.25 or 24.75%. Customers don’t think about cost-plus for products. The market didn’t somehow form around this cost-plus monster. We created it. The only people with access to our costs work inside our own business.


Build a process


A process gives an opportunity to uncover some of the issues lying a below the surface. When employees know management cares, they go a little further to determine the right price. The right price equates to more bottom line profits.


Here are some steps to driving a wooden stake squarely into the monster that devours profits:


1)    Inspect your current situation. Look for instances of even digit cost-plus pricing. Sort them by customer, by salesperson, by customer service rep, by product line. Nothing beats data for understanding your real situation


2)    Reeducate your staff. Cost-plus pricing is a decades old practice. Talk about the importance of understanding value with your whole team. Coach individuals when you see even digit cost-plus margin percentages


3)    Fix computer issues. Has your computer pricing gone to purgatory? Identify lines with issues and fix them


4)    Tighten up pricing authority. If everyone has the ability to reset price levels, evaluate their skill sets. I believe one person per branch should be the “go-to” for all pricing authority


5)    Establish a procedure for price adjustment. The term czar seems to be in vogue. Why not jump on the bandwagon and name your own “pricing czar”? Establish a plan for everyone to bring their pricing issues to a single person


Tools for building pricing strategies have blossomed in the past few years. For instance, Strategic Pricing Associates of Cleveland, OH has developed tools for pulling data from your system and scientifically evaluating your pricing direction. Their product “bolts” onto your business system and provides real live direction to your process.
Is all of this worth the effort?


David Bauders, who leads the Strategic Pricing organization, has gone on record stating the process developed by his organization can add 2-4 margin points to your business in 90 days, and he has a number of distributors who back up his claims. Let’s calculate the payback. If you are a $100 million organization and you get just a 2-point improvement, this works out to a cool couple of million bucks.
If you have questions about how any of this works, get in touch. We have seen the monster. We can help.


Frank Hurtte, Founding Partner of River Heights Consulting, packs straight talk and 28 years of experience in the electrical wholesaling industry into his work. He speaks, writes and consults with distributors and their supply partners. He can be reached at This email address is being protected from spambots. You need JavaScript enabled to view it.

 

Taylor GerrieBy Taylor Gerrie

Technology is our greatest ally and accomplishment, but do the costs outweigh the benefits? In my opinion, they absolutely do! As consumers we use technology in almost everything we do. We use it for entertainment when we watch television, we use it to control the temperature in our homes, we use it when driving to destinations we have never been to. Technology has made our lives so much more convenient and efficient. Technology has brought out these benefits in the workplace as well. This technological phenomenon has also had a huge impact in the electrical industry. 

Read More

 

 

 

CybersecurityDuring a recent Industrial Control Systems Joint Working Group meeting, representatives from the National Electrical Manufacturers Association (NEMA), U.S. Department of Defense (DOD) and International Society of Automation (ISA) outlined a new program to address the growing risk of unprotected and under-protected building control systems in the U.S. and abroad.

Building owners, users, and manufacturers of control systems continuously work to find practical ways to create safe and more secure environments.

 

Read More

 

Carol McGloganBy Carol McGlogan

No one likes to hear that they are behind. And that is exactly what the results are when it comes to diversity within Electro-Federation Canada’s membership. Most within our industry already know this, but does everyone understand what the impact could be on our businesses? There are many studies and reports that show that diversity improves competitiveness. A study by McKinsey shows that top quartile performance in diversity yields between 15% and 35% improvements in profit. 

 

Read More

Kim QuelchBy Kim Quelch

What a great conference that Electro-Federation Canada (EFC) has put on once again this year in beautiful Quebec City. We as YPNs (Young Professionals Network) had the opportunity to take part in the proceedings with a panel discussion centred on the future of the electrical industry. Three members from EFC’s Young Professionals Network (YPN) participated in this panel discussion a few weeks ago (Dave Branscombe, Independent Electric; Lori Bagazzoli, Viscor; and Jonathan Perlis, Standard-Stanpro and Chair of Quebec Region’s YPN committee).

Read More

 

AztecAztec Electrical Supply is one of the most dynamic, fastest growing electrical and automation distributors in Canada. The supplier has four Ontario locations, in Concord, Cambridge, Burlington and Mississauga.

They specialize in supplying quality automation and electrical products to electrical contractors, manufacturing plants, OEMs and custom machine builders. Their comprehensive inventory includes electrical and pneumatic products for breakdowns and emergencies, as well as everyday contractor and MRO requirements. They also work closely with their partners to source specialty products that may be required for major projects.

Read More

Changing Scene

  • Prev
Phoenix Contact Canada is pleased to announce that Roger Hallett has accepted the position of ...
As Group President, Mr. Connolly will lead all business units within the HPS Group. Mr. ...
Electric Elle brings together women of the electrical industry for a 9-hole round of ‘Best Ball’ ...
Located in Guelph, Ontario, the Green Energy and Technology (GRE&T) Centre will make energy ...
Richard Do joined Westburne’s Senior Leadership Team as the new Divisional Sales Manager for ...
The Great Canadian Data Centre Symposium was held on June 19-20 at McMaster Innovation Park, ...
At Electro-Federation Canada’s recent Annual General Meeting in Quebec City, the Nominating ...
Pilz Canada officially opened their Canadian Facility surrounded by Industry Partners, colleagues ...
Dr. Jayson Meyers, CEO of NGen — Next Generation Manufacturing Canada — will present on the topic ...
Last week, over 540 industry members and guests gathered at the EFC Conference in Quebec City, ...

MersenMersen Knowledge Center – Electrical Power is Mersen Electrical Power North America’s official online self-registering E-learning portal for electrical distributors, engineers, and end users. Our newest training module, “Application Basics: Photovoltaic Fuses in Solar Applications- M307E," will help you learn about the main components of a typical photovoltaic installation, understand the different segmentations of solar market, and identify Mersen fuses and fuses holders designed for use in photovoltaic installations.

 

Read More

 

 

Roger HalletPhoenix Contact Canada is pleased to announce that Roger Hallett has accepted the position of General Manager, taking on leadership for our Canadian operations.

Prior to joining Phoenix Contact, Roger held a series of senior management roles with Festo, Siemens and ABB. Originally from the UK, Roger’s international career has involved living and working in Germany, South East Asia, and Japan. After a 5-year posting in Japan, in 2002 Roger relocated to Canada and after some years decided to settle there. He became a Canadian citizen in 2007.

 

Read More

 

Jules MarchildonTechspan Industries is pleased to announce that Jules Marchildon has joined our Fusetek division in the position of Ontario Regional Sales Manager.

Jules comes to us with over 30 years of experience selling Power Electronic products, most recently as the Electrical Sales Manager at Mersen. He has also worked for a Distributor and for a Manufacturers Rep Agency, which has given him a broad understanding of the entire electrical channel. Jules brings with him proven leadership and technical sales.

 

 

Read More

 

 

Peers & Profiles

  • Prev
Canadian Electrical Wholesaler was able to catch up with Sonepar Canada’s Stacey Corley, which was ...
OmniCable was founded in 1977 by partners with deep experience in the US electrical marketplace. ...
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 ...

 

House of ElectricalHouse of Electrical Supplies is a distribution company that specializes in ‘service’. They go beyond what a standard supplier provides, not just with knowledgeable employees, but with a compliment of support services.

From small construction to sophisticated industrial projects, House of Electrical stocks electrical supplies for a wide range of applications. For over 30 years, they have been servicing clients in the industrial, OEM, entertainment and construction markets across the greater metropolitan Toronto area. Their product solutions range from electrical, automation, safety, lighting and portable power distribution.

Read More

 

 

 

Looking Back

  • Prev
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 ...

Copper $US Dollar price per pound

Kerrwil Publications

538 Elizabeth Street, Midland,Ontario, Canada L4R2A3 +1 705 527 7666
©2019 All rights reserved

Use of this Site constitutes acceptance of our Privacy Policy (effective 1.1.2016)
The material on this site may not be reproduced, distributed, transmitted, cached or otherwise used, except with the prior written permission of Kerrwil