Canadian Electrical Wholesaler

Mar 11, 2021

David GordonBy David Gordon

In an industry where profit is defined as pennies, adding pennies to the bottom line makes the difference between a net loss, an average year or being a top performer. Issues that may be caused by rising material cost prices, especially at the current pace, become critical for distributors.

This can be further exacerbated by supply chain issues that are affecting many manufacturers and, as Axios, labelled “the manufacturing boom’s bottleneck.”

And according to a report from Ocean Insights reported in Shipping and Freight Resource dated February 11, the transportation delays on imported products from China are expected to continue for some time due to Chinese quarantine measures grounding truckers as well as Chinese New Year. Ocean Insights cautions that “it may take several more months for supply chains to return to some semblance of normality.” Ocean Insights points to internal travel restrictions imposed by Chinese authorities, requiring domestic travelers to quarantine for 14 days after travelling, as a new bottleneck for global shipping and supply chains.*

The profit improvement opportunity (or conversely, profit and productivity leakage)

These issues are combining to create a profit improvement opportunity for distributors if well managed according to Greg Smith, VP Strategic Partnerships with SPARXiQ. Many may know Greg from his distributor days. He started a small distributorship in Vermont and, after selling his business, was EVP for Granite City Electric Supply, where he was responsible for pricing along with having responsibility for marketing, purchasing and other activities.

After my recent article on rising metal prices, Greg reached out for a conversation and then offered to share additional thoughts that can affect distributor profitability during times of rising prices. His input is based upon his 40+ years as an electrical distributor and having primary responsibility for profit and profit improvement.

Pricing process improvement areas, pricing opportunities and proactive profit-driven sales management

2021 starts with some of the highest numbers of manufacturing cost increase notifications that the industry has seen in a while, mostly due to metal increases. For many distributors, this can be problematic as they struggle to update thousands of price records within their ERP. Updating price records is just one of many financial, inventory, accounting, and analytical considerations that distributors will need to address. The volume and percentage increase of price changes this year is both a challenge and an opportunity. 

Distributors’ challenges (and areas for profit and productivity leaks)

• Updating thousands of COGS records 

• Updating thousand if not tens of thousands of price records (if your matrix and contracts are not tied to the replacement or average COGS)

• The need to review all contract pricing 

• Review/pull all quotes pre-price increase 

• The need to review all customer-specific pricing (mostly fixed pricing)

• Remove the ability for salespeople to use the last price paid

• Making sure your cost basis in order entry is equal to the new or replacement COGS

• Potential for customer DSO to grow, some customer contracts do not allow for commodity fluctuations.

• Cash flow could be a massive deal for a lot of contractor customers

• Customers are going to be squeezing your sales team to write orders at pre-increase levels 

• Accounting for increased sales, i.e., did you sell more units or fewer units? What contributed to expanded revenue? Don’t be lulled into thinking because you grew 10+% in 2021 that you took market share

• Reduced gross margins; from my experience, if a distributor does not react quickly, they could realize as much as a 200 bps drop in margins. 

• SPA/CPA claim submission (special pricing allowances / contract pricing agreements)

Capitalizing on the opportunity

• Clean up your sales processes

• Update all contracts and customer-specific pricing

• Increase gross margins by 200-400 bps (consider, if a manufacturer increases by 5%, you increase 5.5% or even 6.2% based on product group visibility, or at least a nominal percent more or on different velocity items) 

• Identify customers that are at high risk, reduce services and increase prices

• Identify low visibility products and add extra margins 

• If you have not already done so, segregate your customers by type and size, then make sure you have margin stratification between the tiny and huge, target 800-1000 bps 

• Increased inventory valuation, LOC (letter of credit)

• Put guard rails around some of the sales team that limits their ability to make changes to your pricing matrix without authorization

• Put processes in place that create revenue and profit accountability

• It’s a great time to adjust sales compensation plans include market share growth, new account penetration, growth in units, increase in GM, etc. 


• Re-invent your analytics approach, rethink your KPIs. The old days of just measuring gross sales and gross margin increases are no longer sufficient. If you have a 10% growth in revenue for any given period, you should quickly and easily identify the contributing factors. During periods of hyper price increases, it is easy for low-performing divisions, customers, products, and vendors to get lost in the shuffle. 

There is no better time than the present for distributors to increase margins (EBITDA) than today; with volatility comes margin growth opportunity for those who want to do the heavy lifting. To be clear, this is NOT about taking advantage; this is about your opportunity to improve profitability. A 3-4% EBIT, given all the risks involved, should be a 5-8% EBITDA; at a minimum. This year is a great time to start the process. 

Takeaway

Consider, if some, or all, of the opportunities Greg mentions are not capitalized upon, then the opportunities Greg mentions could become productivity and profit drains on your business.

Greg’s point about the “risks involved” and the profitability improvement opportunity, especially doing this based on sales and margin improvement rather than leveraging suppliers via back-end rebates, is also an opportunity for distributors to generate incremental investment funds to support new initiatives that require continuous funding to meet growing customer expectations, such as more robust eCommerce / eBusiness services, new / enhanced value-added services, investing in specialists, and more. Let alone funding increased operating costs (wages, healthcare, taxes, utilities, etc.).

So, the question is, are you worth improving your profits to enable investment into your business?

David Gordon is President of Channel Marketing Group. Channel Marketing Group develops market share and growth strategies for manufacturers and distributors and develops market research. CMG’s specialty is the electrical industry. He also authors an electrical industry blog, www.electricaltrends.com. Channel Marketing Group does not engage with clients on detailed pricing strategies, however, given that pricing is a critical element of sales, marketing and growth planning, we do get asked about the topic and can share opinions and refer to those who focus on the area as well as share anecdotes. David Gordon can be reached at 919-488-8635 or This email address is being protected from spambots. You need JavaScript enabled to view it..

* “Ocean Insights’ Report Warns of More Supply Chain Delays,” Shipping and Freight Resource, www.shippingandfreightresource.com/ocean-insights-report-warns-of-more-supply-chain-delays/

Jean-Pascal TricoireBy Jean-Pascal Tricoire

The challenges facing industry at the moment are tough: supply chain disruptions, recurring lockdowns and lingering travel restrictions, to name just a few. We’re all trying to find the balance between overcoming these challenges while working to a future where we are more resilient, sustainable and efficient.

But today’s efforts are not enough. We’re being too conservative. More of our collective energy needs to be spent on the practical “how” — the “how can we get there with immediate actions.” 

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RittalIt is April 1, 1961, when an international success story begins in a small weaving mill in central Hesse — the standardization of enclosures. Rudolf Loh founds the Rittal company and changes the industry with one idea. The standard enclosure is used in millions of product solutions in over 90% of all industries worldwide. Rittal is the innovation and world market leader for enclosure technology and IT infrastructure.

10,000 employees worldwide work on new innovations, industry solutions and business models. A small steel manufacturing company has become a global digital enterprise. 

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David GordonBy David Gordon

Electrical distributors are at a unique moment in time where they have an opportunity to leverage technology to utilize the data it can unleash to accelerate profitability and sales cost-effectively.

Being in an information age is only beneficial if the information is utilized. Enhanced sales models, sales opportunities and servicing systems are combining to help differentiate distributors. Aside from a distribution divide being created by digital and supplier selection, analytics can either widen or tighten the divide.

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Both goods-producing (+1.5%) and services-producing (+0.4%) industries were up in January as the 20 industrial sectors were nearly evenly split between expansions and contractions.

 

 

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Swati Vora-PatelBy Swati Vora-Patel

April has been a flagship month for new milestones: it has been one full year since many of us began working from home; Zoom and other such virtual platforms have been in play for a year to keep us connected – and the reliance on digital systems has heightened over the past year to populate the influx of online catalogues and eCommerce sites.

April also marks one year since I took over the reins of EFC’s Supply Chain Network to support the electrical industry’s digital transformation journey. 

 

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Leviton

The Atlantic & Ontario YPN regions have joined forces to present YPNs with this professional development webinar. 

Date : May 5, 2021
Time : 2:00 pm to 3:30 pm EST
Location Zoom meeting
Cost : $20 (plus taxes)

More than ever, interpersonal relationships are a crucial factor in the success or the failure of an organization but also in the fulfillment of its individuals. Far away from being an easy competence to develop, soft skills might be the determining factor that will make the difference in your professional career. This webinar will give you tools to help boost your motivation and your performance in order to reach your goals, both professionally and personally.

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With his vast knowledge and experience from the PAC world and his engineering background, Bogdan will lead the ISG team in continuing to provide value-added services such as proof of concept design support, MCP design, training, and other technical services and support for our customers.

 

 

 

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Over the quarter, changes in market prices led to a $345.3 billion increase in Canada's net foreign asset position. Major foreign stock markets outperformed the Canadian stock market in the fourth quarter. 

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The process of selecting the correct fixture is easy. Select a housing and trim that include a few customized features to create the fixture Product Code. Orders can be placed at orders@verozza.com or by phone at 833.VEROZZA.

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Bridgeport Fittings’ center set screw feature provides the UL-required conduit stop while a convenient sight window allows for visual inspection of proper assembly. The steel slip couplings’ ability to back out the center screw allows the coupling to be temporarily placed on one conduit end while the other conduit is moved into position. The slip coupling can then be slid into place, joining both conduits.

 

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My first question to David was, what has happened in those six years? “Everything,” he said, and he started to laugh. “Obviously, we faced a lot of disruption from LED technology. 

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Copper $US Dollar price per pound

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