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The Value-Added Distributor Series: Upping Its Competitive Advantage

By Bridget McCrea

For Standard Electric Supply Co., providing a range of value-added services to customers is about much more than just keeping them happy. In fact, this approach translates into key competitive advantages for the distributor, which works primarily with OEM and industrial clients. Over the years, this electrical distributor has put some muscle into generating revenue and/or creating services that its customers value beyond just selling product.

“We see value-added as a way to differentiate ourselves from our competitors,” says Larry Stern, president of the 15-location company, which is headquartered in Milwaukee. “It goes beyond just selling products and ensuring that they get to their destinations on time and in a quality manner. It’s about really knowing your customers, determining their needs, and coming up with value-added offerings that help them solve their key pain points.”

The Value-Added Lineup
Founded in 1919 as a manufacturer of lighting fixtures, Standard Electric’s focus on industrial and commercial lighting supplies started in the 1970s and has grown steadily since then. Today, the firm sells, services, and supports a wide variety of electrical and automation products and solutions. When developing its menu of value-added services, Standard Electric looks first at what its OEMs will value and what will help them do their jobs smarter, better, and more efficiently.

After doing some research into customer needs years ago, for example, the company began modifying enclosures for its OEM clients. As part of that initiative, the distributor set up a location where customers can go to circumvent the long lead times that crop up when manufacturers have to do this type of work.

“In many cases, the enclosure manufacturers can’t meet our industrial customers’ tight deadlines for getting knockouts and drillings completed on the enclosures,” says Stern. “We’re able to handle those projects in a more timely manner through this value-added offering.” In some cases the distributorship charges additional fees for the enclosure modification services and in other instances it builds the costs into the product margin.

Vendor Managed Inventory (VMI) is another value-added service that the electrical distributor offers its clients. “We go out to their facility and – depending on what we’re selling to them – we’ll help the customers manage it at their own site(s),” says Stern.

The program involves stocking products in bins that users can quickly access and utilize in the manufacture of their companies’ own products. A Standard Electric employee monitors inventory levels, ensures that the right number of products are in each bin, and creates orders to refill or restock the items. In some situations the distributor charges a direct fee for the service and in others it incorporates the cost into the overall price of its products.

For its customers, Standard Electric also runs an engineered products division that’s staffed by engineers who help those clients solve application problems, improve plant processes, gain efficiencies, and specify new products. “Their role is to go out and develop business for us,” says Stern, “in a way that’s different from the traditional sales rep who approaches the purchasing department to talk to buyers and develop relationships.”

In some cases, the engineered products division uncovers other areas where Standard Electric can provide related services, such as training on new products, new product startups and programming, and making changes to engineered drawings. “We’re able to generate some revenue from these value-added services,” says Stern. “Whether we generate direct revenue or build it into the customer’s gross margin depends on who the client is and what its specific needs are.”

Staying Power
When adding to its lineup of value-added services, Standard Electric relies on a mix of its own market/customer research and a barometer that keeps the distributorship in tune with client wants and needs. “Once we determine that there is enough need to begin to develop the capabilities and resources, and then promote them in the marketplace, we roll them out,” says Stern. “It’s a matter of knowing who your customers are and asking the right questions to determine where you can help out.”

And while Standard Electric has over time developed a revenue stream around its value-added offerings, Stern says the issue of payment remains an ongoing challenge for the company. “Sometimes you are able to generate revenue from these offerings and other times they may just be a way to distinguish yourself from your competitors,” Stern admits. “Hopefully, in the end you’ve retained some return on those additional services through gross margin, although in some cases the returns may be buried and not so obvious.”

Despite the challenge, Stern says the revenue that Standard Electric has been able to generate through valued-added have grown steadily over the years. “I wouldn’t call it huge material earnings on our income statement,” says Stern, “but it does bring in meaningful income.”

In the value-added realm, the distributorship has also encountered a “stretching of resources” that can crop up when customers have extremely specific, customized needs. Take VMI, for example. “Due to the nature of our OEM customers’ workflows, they may have very individualized VMI requirements,” says Stern. “In these cases, we have to be very careful not to over-commit in terms of personnel and resources.”

In return for going the extra mile for its customers and getting out in front of their needs, Stern says his company has been able to effectively differentiate itself from its competitors. In fact, he says value-added has helped Standard Electric grow steadily even through the recession and other challenging times. And, he says, as the distributor becomes even more important to its clients, the odds that those customers will keep coming back increase exponentially.

“Value-added makes it more difficult for other distributors to displace you in the customer’s mind,” says Stern. “For example, if you offer VMI to a customer you’re going way beyond just providing product and embedding yourself deeply into an account that has staying power. That’s invaluable.”

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