Border States Electric creates a new VP of vendor relations position and fills it with an industry professional who has experience on both sides of the fence. Here’s what’s on his agenda for 2019 (and beyond).
A couple of years ago, NAED paired up with UnleashWD’s Dirk Beveridge to find out how well electrical distributors and their suppliers were working together and where the gaps were. Through that exercise, they learned that 91% of distributors and suppliers believe there is a need to “reimagine” how they work together and how they collaborate in today’s business environment. Specifically, 87% of distributors and 94% of manufacturers felt it was time to work harder to solidify those bonds and start working from the same playbook.
This year, Border States Electric (BSE) of Fargo, N.D., is walking the walk on its own commitment to reimagine the relationships that it has with suppliers. In February, it hired Geoff Murphy to fill the newly-created position of VP of vendor relations. Charged with leading strategic vendor relationships and ensuring that “growth and profitability initiatives are executed consistently” across the distributor’s three core markets (construction, industrial, and utility), Murphy is also managing BSE’s Affiliated Distributor (AD) relationship and related strategies.
A View from Both Sides of the Fence
With over 20 years of senior-level experience in the electrical, lighting, and data-com industry—and having worked for both Philips Lighting and Auburn Armature Incorporated (AAI)—Murphy has been on “both sides of the fence,” so to speak, and has experience on both the distributor’s and the manufacturer’s side of the electronics supply chain. While some other, larger distributors have dedicated vendor relation managers, Border States did not.
“As a result of what’s been really accelerated growth for Border States over the last five or six years—both through acquisition and organic growth,” says Murphy, “the company felt it was necessary to develop some structure around its vendor portfolio.” One reason for doing that is the growing importance of supply chain relationships in a world where distributors are going the extra mile to help their customers overcome a wide range of challenges and problems.
Murphy says the sheer volume of vendors, programs, and products also played a role in BSE’s decision to create the new position. “This array of options makes it a little overwhelming for any distributor to try to ascertain which products fit into which markets, which relationships are best, which alliances should be nurtured,” Murphy says, “and right down to how you go about approving, rating, and onboarding new vendors.”
Pointing to NAED’s vendor scorecard initiative, for example, he says distributors are putting more emphasis on delivery ratios, fill rates, and other metrics. “It was time for a company of Border States’ size to put some additional resources into a more formal vendor management approach.”
Meeting in the Middle
Having been both the CEO of a distribution firm and the head of distribution for a manufacturer, Murphy brings a unique, two-sided perspective to his new position. During his tenure at Philips, he served on the NAED CAP Council. “I understand both sides of the table in trying to create a true, mutual benefit,” says Murphy. “It doesn’t work when there’s a bias, or when one side feels that it’s been exploited or that it’s at a disadvantage.”
“My experience tells me is that if you can meet in the middle and if everyone can get what they want or at least as much as they want,” says Murphy, “that usually creates the best possible outcome.”
Pointing to margin pressure and the “financial implications of the spend,” as two areas that electrical distributors like BSE are focused on right now, Murphy says market changes (i.e., the growth of B2B e-commerce) have increased companies’ emphasis on selling margins out in the field. The distributor that can craft a purchasing and/or vendor strategy that allows it to maximize rebates, programs, and growth quotas, he says, “can really provide a huge impact to the business’ overall bottom line.”
Put simply, a distributor can make “at least a couple of points on the net income side of the bottom line” when it uses a strategic, coordinated procurement strategy, Murphy points out. Asked why these types of procurement strategies are becoming more important for distributors like BSE, Murphy says at least some of the pressure is coming from the end customer who now has more choices and readily-available options at his or her fingertips.
“The likelihood that you’re just going to ‘get the business because you’ve always had the business,’ has been compromised,” Murphy points out. “As distributors, we’re spending a lot more time and effort really selling—job in and job out. So, when we do have an opportunity to utilize our vendor mix, we want to make sure we’re utilizing the correct, most financially-beneficial vendor mix.”
Stronger Vendor Relationships=Better Customer Experiences
According to Murphy, solidifying manufacturer-distributor relationships directly impacts customers, whose needs and expectations are evolving at an alarming rate right now. It starts with creating a consistent experience that extends from the point of manufacture right to the final delivery. That supply chain runs best when both distributor and supplier are on the same page in understanding customer demands.
“Whether we’re talking about an MRO customer, an OEM, a utility, or a contractor,” Murphy explains, “it’s about figuring out what the key decision elements are that will allow someone to write you the order, versus writing it to someone else. Is it familiarity with your company or product? Is it the product quality? Is it delivery dates or price? There are numerous considerations that go into that decision.”
Manufacturers rely on their distribution partners to flush that information out, Murphy says, to ensure that the vendor’s products and services align with what the ultimate customer is looking for. “The questions are, what is the customer ultimately asking for?” Murphy says, “and who transfers that information into a product choice or a specification? These are the critical points that have to be addressed.”
Asked what he thinks about Amazon Business’ push into the industrial market and how it’s impacting the distributor-manufacturer relationship, Murphy says the technical support requirements and product features/functions in the electrical field are “best delivered by electrical distribution partners and the electrical channel.” He says distributors that are panicking over the e-tailer’s growth in industrial markets and whether it will put them out of business should focus on what they do best.
“If a contractor is out in the field and runs into a challenge on how to pipe or wire something, do you really think he’s going to call Amazon? No, he’s not,” Murphy points out. “And if he does, then he’s really fractured a local relationship that may have been in place for 10 or 20 years.” In fact, he adds, that’s exactly why distributors still have branches—to support those local relationships, provide application expertise, and solve customer problems on the spot.
“If there’s perceived value [in the relationship], it will continue to be reciprocated. If there’s no perceived value, then it won’t,” says Murphy. “I think the electrical channel—Border States included—nationwide does a pretty good job of delivering elements of value that are unique to the electrical distribution world, as opposed to a mega-online retailer like Amazon.”
The Road Ahead for BSE
As he hones BSE’s ongoing commitment to creating and maintaining strong supplier relationships, Murphy plans to put an emphasis on the long-standing, multi-year obligations that it signs with preferred vendors. Those long-term alliances help drive the messaging down through BSE’s various locations, says Murphy, and make it easier to plan and forecast. “When you have that level of consistency,” he says, “it limits the disruption that can [occur] when you have a lot of different vendors and so many different products applications that you’re being asked to solve.”
It’s also easier and more manageable. “Changing products and vendors isn’t easy, and takes a long time to pull off,” says Murphy, who uses a proprietary, internal vendor rating system to measure the success of BSE’s supplier relationships. The system factors in many different metrics, including terms and conditions; on-time deliveries; multi-shipment orders; defective product allowance; to consistency of representation.
“There’s a wide-ranging scoring mechanism we use to determine the position of a certain manufacturer,” says Murphy, “and that’s a process that we’ve put more emphasis on over the last few years thanks to the mergers and acquisitions activity; imported products; and the fact that traditional manufacturers have expanded their portfolios into non-traditional product categories.”
To electrical distributors that are working on their own vendor relation strategies this year, Murphy says to remember that such efforts should be complementary support functions for the entire business. “It’s not an individual crusade here,” he points out. “My job is to help and to provide information to allow our go-to-market sales teams to make the most informed decisions. It’s not a singular decision.”Tagged with best practices