Creating lemonade at Institutions

What do market segments such as government, universities / higher education, life sciences, government / municipalities, sports teams, hospitals, agriculture have in common? While most are considered “institutions”, they all are significant users of eProcurement / punchouts as part of their electrical buying process.

They use companies such as Ariba, Coupa, Jaggaer, Unimarket, Oracle iProcurement and Paramount Workplace according to Greenwing Technology.

Why is this important? Because it could represent an opportunity, courtesy of COVID, if you’re a distributor looking to diversify or seek an additional revenue stream.

Typically considered the “institutional” space and the province of MRO distributors such as Grainger, Fastenal, HD Facilities Maintenance, Home Depot Pro (formerly Interline Brands) or Amazon Business could represent an opportunity.

Most of these “MRO” distributors are known for being product aggregators with high gross margins (except Amazon Business) and sell their value based upon the total cost of doing business. They embed their software either into the account or integrate to the customer’s system. Theoretically they reduce the overall cost of doing business by making the business electronic (and the ordering process seamless.)

Further, they tell the customer they will negotiate a discount because of the customer’s spend … but that discount is from a high price.

This is how Grainger sells. And they are successful to the tune of over $10 billion with about $1 billion in electrical material! Here’s how to compete for Grainger’s business.

Electrical distributors over the years have called on these accounts, learned that they were much lower but could not win the business because they did not have the technical ability to process the order (they didn’t have what the customer considered the right value proposition.)

So, enter COVID.

Why COVID? Many of these organizations are suffering financially this year and may be looking to reduce their MRO costs. Perhaps an electrical distributor could:

• Have an eCatalog
• Have a source that can do punchouts / eProcurement with a number of systems
• Have a salesperson or two dedicated to the institutional space, who may be on a different compensation model than the contractor salespeople, who could call on these customers
• Be “electrical distributor price competitive”
• And maybe offer some electrical distributor value-added (faster delivery, localized training, periodically call on the customer to introduce new products, etc)

And then, what if the distributor, once the system is up and running, then sought other like-minded distributor in other product categories and could upload their catalogs and handle through the same punchout system and then parse the orders to the other local distributor? Perhaps evolve to a local mini-MRO distributor?

Perhaps offer a local donation to reinforce being a local business … local businesses helping local business and keeping the community employed (or use funds to support local causes?)

And could the effort, once the institutional segment has a base, then expand into property management and other similar segments?

Many distributors are already serving some of these customers, albeit poorly. You may support construction projects for the same facility but dismiss the MRO business because it is “too small.” But in some business, that “small” business is big business, just lots of small, perhaps profitable, orders. It’s just a somewhat different business model.

The first step is identifying the accounts. Then have sales, or someone, ask if the account uses a purchasing system and ask which one it is. Greenwing estimates that there are over 100 platforms.

Developing an online catalog that isn’t integrated into your ERP system can be done and relatively quickly. Perhaps the hardest part is 1) considering if you want to pursue this business (and DISC could help in estimating potential in your market, ask for Market Track) and 2) having a salesperson (existing or new) as the eProcurement system question.  After that it becomes sales 101 once you have the strategy.

As the saying goes, “when life gives you lemons, make lemonade.” In this year of COVID, perhaps we need to say “when life gets interrupted by COVID, either disrupt or interrupt to find new opportunities.”

It may not be “huge” business, but it can be very profitable and an add-on that leverages your existing business infrastructure as well as existing inventory.

With many starting their 2021 planning, perhaps it’s time to think differently?

And, if you’re an industrial distributor, you should be proactively seeking to establish eProcurement relationships with your accounts to pursue increased electrical MRO opportunities. Most accounts already have a Grainger or Fastenal relationship where they are purchasing some electrical material. Grainger considers eProcurement as part of a “moat” that they build around a customer. Could you benefit similarly? The first step is your salespeople asking the question “Does your company use an eProcurement system like Ariba, Coupa, etc?”