An electrical distributor who wants to break into the OEM market will have an
experience much like that of first-time visitors to England. The people you meet
won't speak your language the way you're used to hearing it, and the wheels of
commerce will seem to be rolling along on the wrong side of the road.
"How can this guy be my competitor? He doesn't have any trucks and he
doesn't have a counter!" One of the first things a new distributor in the
OEM market will discover is that many of his competitors are a completely different
group from those with whom he bumps heads at contractors and industrial accounts.
A distributor who sells only to OEM's doesn't look anything like a traditional
NAED distributor. Some of the most successful OEM-only distributors:
* Have virtually no pick-up business, so they don't have a counter.
* Sell primarily small component parts, so they don't have trucks.
* Don't even attempt to compete in commodity markets like wire, so they have
little or no wire inventory.
* Sell to customers who don't even buy conduit, so they don't have any conduit
on the shelf.
Another common characteristic of many OEM-only distributors is that they spend
at least as much time calling on engineers as calling on purchasing agents.
The first contact most OEM's have with an OEM-only distributor is when the
engineering department hears from the distributor's salesman, who offers to
bring in a "better mousetrap." These salesmen secure an appointment
by offering components that solve engineering problems by reducing panel size,
combining multiple components into one to reduce parts count, generating less
heat or carrying new approval marks like CE.
After creating demand for new products at the engineering level, these salesmen
work to be sure purchasing knows that they provided the samples and technical
support, and deserve the order.
Because this type of business starts with an engineering design-in, a one-year
cycle is not unusual for this type of sale.
Offsetting the long sales cycle is the long buying cycle. Once a distributor
designs a part into an OEM's product, he may enjoy the business as long as the
OEM makes that machine, which may be five to ten years.
Long OEM sales cycles mean that NAED distributors may have to re-evaluate how
they deal with their own salesmen who are charged with breaking into the OEM
market. A distributorship where salesmen last only a year or two never will
succeed in a market with one-year sales cycles. If your salesmen's paychecks
are based strictly on how much material shipped this week, they are going to
focus on whatever gets product out the door in the next few weeks.
To succeed in OEM programs, a distributor must have salesmen who feel they
will be employed long enough to enjoy the benefits of a long term sale, and
they have to get enough salary to feed their families while they pursue a program
with a yearlong sales cycle.
Another new experience for distributors making their first attempts to sell
to OEM's is the manufacturers' requirements for Point Of Sale (POS) information.
POS is an outgrowth of servicing OEM customers who have different net prices
for the same products through distribution.
For example, an OEM who buys 20 contactors a month may pay his distributor
$80 for each contactor. The same distributor sells the same contactor to a different
OEM who buys 200 pieces a month for $40 each. The price difference is not a
difference in the distributor's margin, it is an additional price concession
made by the manufacturer to secure the larger customer.
The manufacturer, who only wants the lower priced units to go to the high volume
OEM, may insist on a monthly listing from the distributor showing which customers
purchased the manufacturer's products, and at what price.
Before soliciting new OEM manufacturers as potential vendors, a distributor
should be aware that these reports are mandatory with some manufacturers. A
distributor contemplating a new relationship with a manufacturer of parts sold
to OEM's should at least know whether or not his system could supply this kind
of reporting.
A distributor who can address those points and is ready to start working on
OEM's has two more areas to review -- selecting target prospects and deciding
what products to sell to them. Choosing target accounts may be as simple as
comparing your existing customer list with the SIC codes in figure one. Because
the OEM-only distributors usually don't sell wire, you may already have a good
mix of OEM's as wire customers.
Picking a product to sell them may be as easy as revisiting your own line card.
Do the transformer companies you use for distribution transformers also have
machine tool transformers? Does the safety switch line you sell have switch
components that OEM's can mount in their control panels? Does the company that
supplies you with Nema 1 and 3R enclosures offer Nema 12, 4 and 4X?
Another way to look for OEM products on your existing line card is to look
for components that mount on DIN rail. Most DIN rail compatible products are
targeted at the OEM market. Checking your line card for products that carry
the CE mark also is a good way to get an indication that a product has OEM potential.
Those could be starting points, but they also could be dead ends. If your franchise
for a line does not cover the OEM products, you may find that securing that
franchise could be as difficult as starting up with a whole new manufacturer.
Paradoxically, finding out what brand of OEM parts your customers buy and securing
that line also can be a dead-end. Many OEM programs are secured at off-book
pricing, and manufacturers and reps usually work hard to assist their distribution
network to retain existing customers. Manufacturers and reps will need a very
good reason to justify moving the special pricing that supports existing business
to a different distributor.
You may find that it is easier to work with the OEM to design in a new, more
cooperative manufacturer's or rep's product than it is to break an existing
distributor's hold on special pricing for that account. As an additional benefit,
the margins on products from a new manufacturer probably will be better, because
manufacturers tend to quote new opportunities very aggressively.
An excellent resource to locate OEM lines that are distributor friendly is
from the line card of your local National Electrical Manufacturers' Representatives
Association (NEMRA) chapter. A call to NEMRA headquarters at (914) 524-8650
will get you contact information for your local chapter. Most local chapters
print a chapter line card that lists chapter members and the lines they represent.
For an example, visit the Illinois chapter's web site at www.nemraillinois.com.
Depending on the product you target, you also may find yourself working with
a different group of reps. For example, relays and relay sockets traditionally
are sold by electronic reps rather than electrical reps. For more information
about electronic reps, visit the Electronic Representatives Association (ERA)
web site at www.era.org.
Once you have put a plan in motion to serve OEM's effectively, you need partners
who are just as good as you are.For instance, if you get a new salesman from
a manufacturer or their rep every year, that manufacturer is not a candidate
to be your partner for a sale that takes a year to get started.
Another way to size up a potential partner is to find out who he regards as
his customer. Run, do not walk, from any manufacturers or reps who think you
are the customer. They will cheerfully load your shelves with stock and think
their job is done. It's your job to sell the product, they believe, and they
are not equipped to help you with that job.
An OEM distributor is not a manufacturer's customer, he is a channel partner,
or a conduit through which the product flows to the real customer, the OEM.
A distributor's partner should know that a product is not "sold" when
it lands on a distributor's shelf, it is "sold" when it gets to the
OEM!
Some manufacturers or reps may know that this is what you want to hear, so
a little additional investigation is required. If you want to know who walks
the walk as well as he talks the talk, find out where he spends his time.
Another paradox of the OEM business is that the best partners are going to
be the ones who call on you the least. You want a partner who is making calls
on OEM engineers to create demand for the products you want to sell. If the
manufacturer's or rep's sales force spends 80% of its time hopping from distributor
to distributor, they are selling TO distribution, not THROUGH distribution.
Do all of these potential pitfalls paint a bleak picture for distributors who
choose to take on the OEM market? Probably not. One of the major trends with
OEM customers is vendor consolidation. OEM-only distributors, who can't supply
wire and can't supply the MRO products OEM's need to keep their own plants going,
face their own set of challenges in competing with NAED distributors.
Just as in any other market, OEM's will place their trust and their business
with distributors who stand out as centers of excellence. Distributors who are
willing to make the investment needed to participate in that market will enjoy
a steady revenue stream that does not go out for bid on every purchase.
Figure 1
SIC Codes of Good Prospects for Electrical Distributors
3511 Turbines & Turbine Generator Sets
3523 Farm Machinery & Equipment
3531 Construction Machinery
3532 Mining Machinery
3533 Oil & Gas Field Machinery
3534 Elevators & Moving Stairways
3535 Conveyors & Conveying Equipment
3536 Hoists, Cranes & Monorails
3541 Machine Tools, Metal Cutting Types
3542 Machine Tools, Metal Forming Types
3547 Rolling Mill Machinery
3548 Welding Apparatus
3549 Metalworking Machinery
3552 Textile Machinery
3553 Woodworking Machinery
3554 Paper Industries Machinery
3555 Printing Trades Machinery
3556 Food Products Machinery
3559 Machinery-Special Industry
3561 Pumps & Pumping Equipment
3563 Compressors-Air & Gas
3565 Packaging Machinery
3567 Furnaces & Ovens-Industrial
3569 Machinery-General Industrial
3581 Vending Machines-Automatic
3582 Laundry Equipment-Commercial
3585 Refrigeration & Heating Equipment
3586 Measuring & Dispensing Pumps
3589 Service Industry Machinery
3594 Fluid Power Pumps & Motors
3596 Scales & Balances, Except Laboratory
3599 Industrial Machinery
3613 Switchgear & Switchboard Apparatus
3621 Motors & Generators
3625 Relays & Industrial Controls
3629 Electrical Industrial Apparatus
3663 Radio & TV Communications Equipment
3669 Communications Equipment
