SPAs To Grow in Importance … Drive Profitability

Recently we conducted research on the state of SPAs in the electrical market for a client, from which we then wrote a white paper. The client, Datalliance, is offering the white paper on their website. They didn’t have any input into our methodology, the questions, who responded or the final results.

Some may recognize Datalliance as a VMI provider. They’ve been mentioned recently in relationship to VMI with Graybar, Siemon, Kirby Risk, Leviton, IDEAL Industries, and more (to see a partial client list, click here). Other clients of note include Rockwell, Philips, Schneider Electric, Eaton, Hubbell, and Allied Tube & Conduit

The findings were very revealing and validated two industry perceptions:

• SPAs are integral to the profitability of a distributor
• The cost of administering SPAs, including not claiming, is a significant impediment to distributor profitability (as well as distributor / manufacturer relationships), let alone lost productivity.

Other findings included:

• SPA’s are prevalent (with a number of distributors reporting more than 250 SPA agreements) and are expected to grow.
• Distributors and manufacturers see SPA’s as a competitive advantage and important to profitability.
• Most of the industry’s leading manufacturers and distributors utilize SPA’s
• The majority of distributors said 10-50% of their sales were driven by SPA’s and rate SPA’s as a very important issue for their future.

Distributors have a number of frustrations with the current SPA environment:

• Every manfuacturer has a unique process for handling SPAs, making it challenging and time-consuming to submit and track claims. A strong IT department, and processes, are necessary.
• Very few distributors have business systems that completely automate the SPA process – requiring an inordinate amount of paperwork and manual effort.
• Distributors feel that their profitability is negatively impacted (missing SPA claims) due to the complexity of agreements, internal data management processes, and varying manufacturer claim processes.
• Distributors feel the claim process is very slow and negatively impacts their cash flow.

While others have tried to establish industry guidelines, the bottom line is that SPA administration is between a manufacturer and a distributor. The tighter the relationship, the more profitable the relationship will be for both parties – in taking market share as well as ensuring mutual profitability (and reduced friction due to problem claims). Automation is the key. With the name of the game being market share and profitable cash flow, how you manage your SPA’s is important.

To download the white paper, click here.

What are your SPA frustrations (and if you dare, best practices)?