Dealing with distributors

It's Monday morning, and you have been working on bids all weekend. It's now time to price a job. Your first instinct is to call Fred and ask him about the order; he has been with Acme Roof Mart for years. He knows your business; provides great service; gets product to jobs on time; and supplies products when you need them, where you need them and how you need them. But the market is ultracompetitive. New distributors have come to town. There are more options than ever. Buying roofing materials is becoming increasingly similar to buying groceries—the price does not change monthly or even weekly. It changes daily.

The new distributors are promising you great pricing and service and begging for a try. Manufacturers are offering bigger discounts on drop shipments, and though you know this cuts the distributor margin in the short-term, it increases your margin.

In the current business environment, you need every edge you can get as your margins come under greater pressure. Your customers are having a "Pillsbury bake-off" on pricing, and you are bidding against some flaky competitors. You fired a project manager for incompetence, and now he owns a roofing business and bids against you on almost every job. You aren't even sure he has proper insurance.

What do you do? Go with the best price, or stay loyal to Fred? You wonder whether the industry has any more room for loyalty.

Experienced contractors know the answers to such questions are much more complicated than who has the best price. In the roofing industry, a distributor often is the best product source because of the bundle of services he offers. But this is true only if you understand your distributor's business, work to align interests and see the relationship as a long-term economic relationship, not just a short-term price auction.

The benefits of working with a distributor are many. A good distributor can save you time. One telephone call, and an order is placed; the product staged; and, in most cases, delivered to a rooftop where you want it, when you want it and at a competitive price. Each of these benefits would make you want to do business with a distributor. The issue is where do project demands stop and a business relationship start? Is it always about price, or are there other issues? Let's take a deeper look at the relationship. Following are some ways to make working with a distributor better for both of you.

You're the pull

Remember, manufacturers and distributors want your business, but they view you in different ways. Manufacturers have plants, inventories and stockholders to satisfy. They want to push as much product out the door as possible. Distributors want to create product pull. They know you can and do influence brand choice, but they also know certain brands are more profitable—for both of you. Listen carefully to distributors' recommendations. Sure, distributors deal with inventory and goals, but the smart ones want you as a long-term customer. Distributors want to find out what product is being "pulled" by you, the brand decision maker, and have plenty of that product available to meet your needs.

Your customers often care little about brand, and they want to look to you to solve problems. In many cases, this means you have high leverage in brand selection. Being able to align your brand preferences with those of a favored distributor can give both of you larger profit opportunities.

Don't whine

Don't chase price. Material costs not only have gotten less expensive, prices have contracted. Margins are paper-thin for manufacturers, distributors and contractors.

Remember, a distributor has to make a profit that is large enough to offer the services that draw you to him in the first place. The difference between the highest- and lowest-quality product has narrowed, and a low-cost provider has to cut corners somewhere. It may be in inventory selection; it may be in service; it may be in terms; but rest assured, there will be corners cut.

A distributor is going to give better service to the contractors who work with him. And a salesperson who sees his commission or bonus cut every time he works with you won't give you the service you may reasonably deserve or need. So what is the solution? One good way to look at it is to "align instead of whine." If you are seen as the type of contractor who tries to get every penny out of a distributor, you will be seen as a "demon customer."

In their book, Angel Customers & Demon Customers, Larry Selden and Geoffrey Colvin point out unprofitable customers translate to "failure to earn the cost of capital." A whining customer who demands extra service at the lowest price is, by definition, unprofitable. In contrast, angel customers work with a distributor to align their needs. They plan (as well as possible) with the distributor.

The real issue is when there are more emergency deliveries required than there are trucks or there are more orders for product than a distributor has on the shelf. Distributors make decisions about who gets taken care of and who doesn't. As George Orwell states in Animal Farm, "All animals are equal, but some are more equal than others." What do you want distributors to say about you when they are making these real-world decisions?

Distributors are looking, more than ever, at a customer-centric strategy. That used to mean painting trucks with slogans like "We love our customers" and having staff refer to a client as a "guest." Now, it means "let's find out where we make our money and center our business around that customer classification or cluster." We talked to a distributor for this article, and he mentioned he lost a bid for a nickel a roll, or $180, for a major commercial project. The next time that contractor is looking for special service, what will the distributor remember?

If you chase price and have the reputation of a whiner, you may find yourself picking up product at the local lumber yard or finding your deliveries are on the distributor's timetable, not yours.

Make reasonable demands

At the same time, you are the customer—and the distributor needs reliable contractors who provide a steady stream of business. Remind distributors your loyalty has a price in terms of service, selection, ease of ordering, terms of payment and so on, but remember to align, not whine.

You know enough to seek distributors with other services, such as a dedicated and owned fleet of boom trucks that can deliver your loads; however, do not make unreasonable demands. Would you take a thin-margin job that requires you to go to a remote site and replace 20 squares (186 m²) of roofing material for a customer with a slow pay history? Of course not. So think about the costs you add to a distributor's business by requesting $800 worth of shingles delivered to a distant job site "right now" on a $180,000 piece of equipment.

Look for suppliers and distributors who help you find the best materials for a job, not those who want to sell you their dead inventory. First-rate distributors know how to negotiate with suppliers; they do it all the time. They can counsel you in choosing the right material for the job. On the flip side, be willing to help your distributor by using material that may be sitting in his warehouse—but only when it doesn't hurt your customer or your bottom line.

And try to skip the trips. It's fun to go to the Bahamas on a manufacturer's or distributor's checkbook, but what is the real cost? Look for distributors who provide training and bring in key manufacturer representatives and technical professionals who know the business and can help your business improve.

Protect your reps

Good salespeople focus on finding solutions to your problems, not selling you product. One way to find out how your distributor salesperson works is to find out how the distributor's sales compensation plan works. Pay plans have considerable range. If a salesperson is on a straight commission, chances are the highest payout for him will guide his decision. Look for companies that compensate salespeople on the long-term growth of your business with the company, not just short-term sales results. When you find a salesperson who fits your criteria, reward him with loyalty. Regardless of the pay plan, salespeople need your business to survive.

It also is important you help manage the sales process and let the distributor and sales representative know your expectations.

Some contractors know what they need and require little salesperson contact. By letting the distributor know your requirements, he can manage his sales costs and be more competitive. Organize a system that helps you order ongoing supplies quickly and easily. Use the salesperson when he can add value to your company.

Work with the distributor to line up factory representatives who can bring you business. Good sales representatives are hard to find; good factory representatives are even harder to find. A good factory representative can help you build relationships with big commercial reroofing accounts by speaking to facility managers. Do not underestimate factory representatives' value. If you want representatives to bring you business, show loyalty to their distributors.

Also, don't waste a salesperson's time. If you are asking for a bid, make sure there is a reasonable chance you will get the job and will give the distributor the work.

In salesperson parlance, they are looking for customers who give them a "last look" at business. Everybody knows at the buy stage you will be back for a better price. Be reasonable, and give the best chance to win to the guy who offers the most consistent bidding, not the lowest bid every now and then.

Some salespeople are simply highly paid apologists for poorly run distributors who promise much and are consistently inconsistent. If you have a great sales representative working for a second-string distributor, suggest he move to a distributor who has its act squared away.

Look for support

Look for distributors that have data-processing and information-technology support that can help you win bids, track bidding trends, manage your profitability and help you design the proper roof system for a job. You will find better distributors have a lot of tools to help you.

Learn to use a computer and order online. Cell phones and other communication links have made it easier to "call the order desk on a moment's notice." However, if you can check inventory, create a quote, check an old quote and order online, you help the distributor save money. This can lower the distributors' cost of doing business and, in the end, lower your cost.

Distributors using a bid-management software package can let you be in control of the quote process, submit orders online and even see your account. These emerging services can provide a powerful tool that will help you ensure a bid's accuracy and timeliness. Don't be the last in your competitive market to learn these tools.

Best practices

The better a distributor understands what makes him successful, the better chance he can make you more successful. Look for distributors who commit to ongoing training, manage their businesses by customer segment and think of you as an asset to their business.

Pay on time

Seems obvious, doesn't it? Well, the truth is the roofing industry has a high delinquency in accounts payable. The cost of money is an important factor in a low-margin, high-cost business. Don't play games or play one distributor against another—pay the bills when they are due. This will help you establish a relationship with a distributor that can transcend lots of other issues.

If you always pay on time, the distributor will be willing to work with you when you need help.

Reverse the golden rule

Finally, find a way to align your needs with the distributor's needs. When you find a distributor who understands your needs, service improves. When service improves, your business improves. Stay loyal; communicate; and watch your business grow right along with your distributor's business.

A good distributor realizes he is more than just a "warehouse of products," and he can help you become more successful by saving time, inventory dollars and capital equipment dollars.

When developing a relationship with a distributor, it does not hurt to reverse "the golden rule" and "do unto others as they would have you do unto them." The two of you (the distributor and customer) have different needs. The sooner you see what the distributor needs from you, the sooner the distributor will see what you need from him.

As margins erode and the cost of doing business increases, smart distributors are going to understand the difference between "angel" customers and "demon" customers, and to survive, they will eliminate their demon customers. You will do yourself a favor by becoming an "angel" customer to your distributor.

Long-term success in the roofing industry requires contractors build reputations of dependability and trust with their customers. Such reputations are what really create long-term competitive advantages. The same lesson works for the distributor who effectively partners with its good customers. Perhaps contractors who effectively are aligned with a partnering distributor could be more dependable and predictable to their own customers.

So should you just phone Fred at Acme Roof Mart?

Tim Horan is president of Tralee Consulting, Plymouth, Minn. Mike Marks is principal and managing partner of Indian River Consulting Group LLC, Melbourne, Fla.