The debate over disintermediation in the lighting sector rages on. Ask any distributor if they’re fearful that manufacturers will make an end run around them and they’ll say, “No, but…”
Therein lies the qualifier. The market is constantly changing and at a very fast clip, so it’s incumbent upon distributors to defend their position in the supply chain. While the current extent and eventual impact of disintermediation remains unknown, some of the reasons for the growing encroachment on the distributive model are quite clear.
Brian Bytnar, Chief Development Officer of Sales for Van Meter, Inc. said the market is changing because of millennials.
“From just what you see in how people are procuring or buying goods for their day-to-day lives, the online, direct-to-consumer is something that’s very viable. In one way, shape or form, it impacts the majority of the households in the United States.”
If some buyers are more comfortable with procuring materials off the internet, so are plenty of start-up manufacturers, who might be reticent to make room for a middleman.
“[Manufacturers] throw out a low price and they amplify that pricing as their go-to-market strategy, added Bytnar. “And quite honestly, we compete against that every day with a company that’s been around for almost 90 years as Van Meter, with manufacturers and suppliers that have been around for a long time. The flooding of different low cost options in the LED world, with companies that haven’t been around for even two or three years, is something the consumer needs be educated on.”
Mergers and acquisitions on the customer side also put pressure on manufacturers who normally wouldn’t violate their distributor relationships. “We have one large customer, who was just purchased in the last 18 months by a manufacturer and their negotiating and purchasing power skyrocketed,” said Sam Sparks, Purchasing Agent for Cincinnati Belting & Transmission Co. or CBT. “They have a lot more buying power now.”
Big sales create their own set of problems for manufacturers. If they’re going to be in the direct sales business, they need to train and staff for it. Then come questions around credit, financing, technical support, staging, delivery, consulting and service after the sale—all the things which historically have been the exclusive purview of distributors. There’s also considerable financial risk in deciding to engage in direct sales.
“Because the only way they can make that decision is if they think they can keep capturing the same amount of sales they have today with a distributor, without using a distributor,” said Brian Rooney, Branch Manager for Crescent Electric Supply Company. “I offer them reach to a larger amount of customers and potential sales. I offer to partner with them and that’s a very attractive option. That’s something that a lot of national distributors leverage, because they have a reach. But also regional distributors can offer manufacturers opportunities in parts of the country where maybe they haven’t worked in the past.”
If manufacturers choose to sell direct in cases where the customer is so big they can dictate their own terms of doing business, or if the manufacturer simply chooses a “dual channel” of direct to consumer or through a distributor, this can put distributors in a quandary as to whether they should continue to promote that manufacturer’s products. Cutting ties can be precarious.
“You can’t just decide to play hardball right off the bat and and say ‘we’re not going to do business with you,’ because who knows what the ramifications are going to be?” said Sparks. “Let’s just say you decide to go from XYZ Bearings Company to ABC Bearings Company because XYZ made you angry. Then XYZ acquires ABC. All of a sudden you’re up a creek without a paddle because you don’t have a supplier.”
Adequate inventory is critical, but the long-term answer lies in solutions. Distributors have been fending off the threat of being cut out of the supply chain going all the way back to when Grainger was a glorified catalogue, long before the Amazons and Home Depots of the world.
“If someone’s looking to replace a light bulb or a lamp, they can go online, find attributed data, find what they’re needing, and replace it. If it’s a transactional sale, and it’s small dollars, typical one-for-one replacement, I think that’s where our channel is most vulnerable.” said Bytnar. “LED technology and controls are changing so rapidly, we just want to continue to invest in competencies in those areas so that we can bring value. Whether it’s a commercial building, a contractor, an industrial facility – we want to go in, explain to them, educate them, put a proposal in front of them that they can feel comfortable with that they’ll know we’re going to stand behind. The solution versus the component is definitely one of the dividing lines.”
Being a consultant, rather than just a salesperson, is a strong play for distributors. “Let’s say I’m doing energy audits,” said Rooney. “I can tell my customer exactly how much they’re going save and what type of payback they can expect on replacing lighting fixtures. I can counsel them on what their return on investment will be by installing this type of fixture versus this type. That’s expertise that I can offer that’s going to provide a little something extra they might not find anywhere else.”
Sometimes that consultancy might involve partnering with a manufacturer up front.
“Van Meter has been involved in the connected enterprise for many years, as partners with Rockwell, in lighting, controls, and automation,” said Bytnar. “Now it’s all about data and information. When you’re able to go in with a manufacturer and provide that kind of solution, in a hospital or an airport, and then you can say, ‘oh, by the way, you’re going to get a better lighting product and you’re going to be able to control all these things,’ I don’t see an Amazon or a Grainger ever being able to do that.”
In the realm of manufacturer vs. distributor roles in the sales channel, when push comes to shove, Sparks said sometimes it comes down to both sides leveling with each other to preserve the business relationship and keep mutual customers.
“I think that’s the conversation that needs to happen if you’re at a breaking point. I believe that manufacturers really do respect the distribution channel. They respect the role and value that distributors play. So, ultimately, if that channel can be maintained, it’s better for everyone.”
Tagged with CBT, Crescent Electric, disintermediation, Van Meter