Here’s what electrical contractors think about those little “extras” that your distributorship provides on the job site.
When he breaks down the cost of labor in Illinois, Gary R. Misicka factors in salary plus benefits plus workers’ compensation to come up with the per-minute cost of $1.50. A forced-union state, Illinois allows unions to negotiate contracts with companies that require union dues and/or fees to be paid (versus a right-to-work state, which forbids workers from being fired for non-payment of union dues or fees).
“Depending on the owner’s workers’ comp rates, electricians cost between $90 and $100 an hour here,” says Misicka, president at Lyons & Pinner Electric Companies in LaGrange, Ill., “so you’re talking about roughly $1.50 per minute for that type of labor.” Operating in that labor environment, Misicka often leans on his electrical distributors for value-added services—offerings that help reduce the project owner’s dependency on expensive electricians.
“I always talk to our distributors about what kind of value-added services they can provide,” says Misicka, who also believes in creating true “partnerships” with those distributors, versus just shopping around to dozens of different companies in order to get the lowest possible prices. “We have strategic alliances with several distributors that we work with on a regular basis, and we try to find ways where we can both be successful.”
And if that means that Lyons & Pinner has to pay a little more for the value-added services, Misicka says he’ll entertain the opportunity. “If one of our distributor-partners says, ‘Hey Gary, we can offer you this value-added service for a slight premium,’ and if the premium is still less than what it would cost us to do the work on our own,” he says, “we’ll definitely consider it.”
Going back to the labor argument, Misicka says that in many situations those “extras” equate to a savings of literally $1.50 per minute. He sees any valued-added services that reduce those costs as a real win-win-win for the project owner, his firm, and the distributor that’s providing the kitting services, technical expertise, vendor-managed inventory (VMI), or other value-added services.
“I’m a big advocate of using value-added services, and of finding ways where we can all be successful on projects,” says Misicka, who points out that every new opportunity is different from the last, and that in some cases value-added doesn’t make economical sense for the electrical contractor. “Not every order that we write has a valued-added opportunity, but on some of our larger projects our distributors have definitely saved us money while also strengthening our relationships with them.”
Fewer Purchase Orders, Please
As an electrical contractor, Newport Industries, Inc., of Chicago shells out about $100-$125 every time it has to write a purchase order (PO). That means it’s in the company’s best interest to keep its number of POs to a minimum—a goal that’s not always easy to achieve in the electrical market. One way it can work toward that goal is by leveraging its distributors’ value-added capabilities like VMI, fixture-fitting services, technical support, and other add-ons.
“We’re not interested in going out there and shopping numbers for new materials on a daily basis from various vendors,” says Jeff Weir, vice president. “If we have to write multiple POs over the course of a job, we incur internal costs that have to be taken into consideration (namely, that $100-$125 per PO).” Put simply, buying pipe from one distributor, conduits from another, and then couplings from yet another supplier can translate into an additional $300-$375 in expenses for Newport Industries. It also means three different trucks showing up the job site to deliver those orders individually. In downtown Chicago, that could find the electrical contractor having to send an employee down a freight elevator to travel 35+ floors (up and down) three times during the course of a day.
“Do that three times just to save $50 and we’ve easily lost that savings four or five times over,” says Weir. In a business where time is definitely money, Newport Industries simply can’t afford to spread its labor force thin in return for saving a few dollars by shopping multiple vendors. To avoid these added costs and streamline its own supply chain, the contractor often taps into its distributors’ value-added offerings. “We see tremendous value in those services,” says Weir, who admits that there can be a fine line between what the contractor is and isn’t willing to pay for in the value-added realm.
“That can be difficult because as electrical contractors, we don’t always know how to build that extra cost into an estimate,” says Weir, “when our competitors may not be including those services and/or charging for them.” Speaking to distributors, he says one way to overcome this issue is by getting involved in the early stages of the bidding process.
“If we’re in the bidding stages of a large project that encompasses four floors of a building, I’d like to hear early in the game how our distributors can help us logistically and what value-added services they can provide,” says Weir. “To me, that’s a lot easier than having to ask a distributor at the 11th hour how they can help. Once you start a project, it’s really too late to work any of those add-ons and any associated costs into the project bid. It has to be done on the front end.”
Moving the Market
Asked whether electrical distributors are willing to get onboard early in the game and lend their expertise during the bidding process, Weir says some are and others aren’t. In at least one instance, a single, enterprising distributor is forcing its competitors to rethink how they position themselves in the value-added scheme of things.
“We have one distributor in our market that’s really pushed the envelope and done an exceptional job in this area, so we started using them for many of the services that we considered important,” says Weir. “When other distributors realized that they were losing business because of it, they started to follow suit.”Tagged with contractors, value-added