IT’S A GREAT TIME OF THE YEAR

This is a very busy time for everyone.  Those working for larger companies are finishing up the budgets and business planning for 2012.  And, outside of work everyone is doing a lot of Christmas and holiday shopping.  It’s great to hear that the stores have been very busy since Black Friday and that on-line shopping has been booming as well.  It bodes well for the economy going into the next year.

 NetPlus is Planning for Next Year

NetPlus Alliance is having a fabulous 2011.  Looking at our reports through the third quarter our member purchases are up over 50% from the same period last year.

We have also been doing a lot of planning for this year and beyond.  2012 will be the tenth anniversary of NetPlus Alliance and we will be celebrating that in a variety of ways.  A major event to commemorate the anniversary will be a celebration dinner at our usual get together during the ISA Conference in San Antonio, TX on April 23, 2012.

The New Guy

I am very happy to announce that NetPlus has hired Todd Washburn to be our Vice President of Supplier Development.  Todd comes to us from NetPlus member distributor DXP Enterprises where he was Vice President of the Industrial Supplies Division.  He will be responsible for working with all of our current product suppliers to grow their sales to their existing distributors in NetPlus, as well as helping them locate potentially new distributors.  In addition, Todd will be evaluating prospective suppliers that want to become part of NetPlus Alliance. He will work closely with Jennifer Murphy, VP of Marketing and COO, to develop strong and unique programs for our suppliers.  Todd and Paul Haber, our VP of Distributor Relations will also work jointly on distributor/supplier issues and initiatives.

Todd will be a great addition to our team and we look forward to his industry knowledge and insightful input.

 And, How Did we Find Todd?

For the first time in my long business career I engaged an executive search firm to manage the process to fill our VP of Supplier Development. It’s one of the best decisions I have ever made.  We used DeVilling and Associates to do the search for us.  I have known Skip DeVilling for over 30 years in the various business roles that we each have had over that time.  He started his recruiting and consulting business about ten years ago.

Skip posted our opening on various LinkedIn sites as well as with the trade press.  He screened over 80 resumes and selected about ten for us to look at.  Jennifer and I, along with Skip, cut the list to four, for telephone and personal interviews at our office in Lockport, NY.  In addition, he guided us in the interview process because we haven’t done that type of an in-depth interview for quite some time.  The four candidates we had for the job were excellent.  In the end, Todd rose to the top and will start January 2^nd.

We completed our search in less than 2 months.  If you would like to know more about DeVilling and Associates, go to www.devilling.com.

I wish you all a Merry Christmas, a Happy Holiday Season and a Happy, Healthy & Prosperous New Year!!!

No Workers to Fill 600,000 Jobs?

This week while scrolling the various RSS feeds I look at each day, a headline from Buffalo Business First grabbed my attention:

 “600,000 Manufacturing Jobs Unfilled in the U.S.”

The story was based on a survey done by Deloitte and the Manufacturing Institute. What!,  I said to myself.  We have a reported unemployment rate of over 9%, with many more not working but unreported.  How can we have this many jobs looking for workers?

As the story points out, “5% of current manufacturing jobs are unfilled due to lack of qualified candidates”.  The unfilled jobs are primarily in the skilled trades’ area, such as machinists, craft workers and technicians.  The article went on to point out “that the surveyed executives are concerned that these skills deficiencies are having a major impact on their ability to expand their operations or improve productivity”.

I have been involved with industrial distribution my entire life.  To read that manufacturing production is being impeded by a lack of skilled talent appalls me.  I grew up in the Buffalo, NY area and watched, just as people in Pittsburgh, Cleveland and Detroit, tens of thousands of manufacturing jobs disappear as companies moved first south, then offshore or just closed down.  As a result we’ve lost the ability to train apprentices to become skilled tradesmen.  Our schools have also lost their way and do not do a very good job of training our young people for careers that do not require a college education – such as plumbers, electricians, carpenters, machinists, etc.

While I don’t usually use this blog to express my political views, it does seem to me that any “jobs bill” at the federal level should focus on creating jobs in manufacturing and construction rather than filling more public employee union positions.

I learned a long time ago, in Economics 101, that manufacturing and construction jobs create more jobs and create wealth.  That is what we need in this country, not more government employees – at all levels.

How Profitable is Your Distributorship?

Association Profit Planning Reports

Each year the Profit Planning Group of Boulder, CO works with many trade associations to create annual “Profit Reports” for the members of those associations. Distributors that participate by submitting their financial data to the Profit Planning Group receive individualized reports.  As a by-product, the associations receive and distribute a compilation of the data submitted along with analysis provided by the Profit Planning Group.

If your trade association offers this service I heartily recommend that you spend the money necessary to participate.  I did when I ran our family business and learned a great deal about our company and the steps we could take to make it more profitable.

Each year I receive three of the trade association Profit Reports: ISA, STAFDA & MHEDA.

The ISA (Industrial Supply Association) and MHEDA (Material Handling Equipment Distributors Association) reports provide the most data and have an exceptional discussion of what it takes to be a “High Profit” distributor.  The difference can be staggering — an ISA “typical” member has a net profit before taxes of 1.7% and a pre-tax Return On Assets of 5.4%; while the high profit folks have a net profit of 4.7% and ROA of 17.4%.  For MHEDA the difference is even greater:  profit of 2.1% for typical and 7.6% for high profit distributors; and ROA of 6.9% and 20.5% respectively.

Key Profit Variables

The Profit Planning Group keys on five critical profit variables to highlight why the high profit distributors are able to distinguish themselves.  These variables are:

• Sales Per Employee
• Gross Margin Percentage
• Operating Expense Ratio
• Inventory Turnover
• Average Collection Period

Work on improving these 5 elements and you will have a much more profitable business.  It figures that if you sell more per employee you should be a better company.  ISA high profits had $390,000 per, while MHEDA’s was $430,000, an improvement of 17% over the typical distributors.  Improving your gross margin is another “no-brainer”, but easier said than done.  It takes a lot of discipline to raise your GM% by a point or two, but that’s what the high performers have done.

In the case of the operating expense ratio the best distributors in both groups had operating expenses of a little over 20%, 2-½ percentage points less than the typical members.  An element of the operating expense ratio is GMROI (Gross Margin Return on Inventory) – for ISA high performers this was 270% compared to 147% for typical distributors.

And lastly, Inventory Turns were 6.4 for the highs versus 4.7 for the typical member, while the Average Collection Period was 41.7 days for the high performers and 47.6 days for a typical ISA distributor.

Both reports have much more data to review that point towards improving these critical variables.  But there is no doubt that spending some significant time with your company financials and these industry benchmarks can go a very long way to making your company much more profitable.

Good hunting!!

STAYING IN THE GAME

Back To Work

Well, summer is on the way out; the kids are going back to school and the work pace intensifies as we all look to closing out 2011 on the upswing.

At NetPlus Alliance business still looks great – our numbers are up significantly over last year.  Our new technology projects are moving along nicely.  We have built a new database management system to track all of our purchase and rebate data as well as key business information about our suppliers and distributors.  The key elements are all working great and providing timely information.  With this system in a “cloud” environment I have access to the data anywhere; including my iPhone.

An important step in this technology project is to now update the profile data we have in the system for our members and suppliers.  Our technology department has built an on-line function to gather this data from our distributors.  We will start that initiative this month.  As we work on that, we have also started the process of redesigning and rebuilding our website www.netplusalliance.com.  The current public site has served us well, but it is 9 years old.   A major upgrade to the website our suppliers and distributors log in to is scheduled for next year.  This will give our constituents greater access to important information about their status in NetPlus.

Staying Connected

All of us that manage a business, especially one that we own, need to stay up to date on a lot of stuff; stuff within our company and, as importantly, what is going on around us and in our industry.  I have always found that going to industry trade shows has had a tremendous impact on my professional development.  I still go the two conventions a year, the ISA show in May and STAFDA in November.

Another way I stay connected is by reading a variety of blogs – industry news, sports, financial news and blogs about technology and personal development.  One of my favorites is a New York Times blog called “You’re the Boss, the Art of Running a Small Business”.  This blog is written by a dozen small business owners in a variety of trades that really open up about all types of issues that they have to deal with.  Check it out; I think you will find it interesting.

SUMMER IN THE INDUSTRIAL DISTRIBUTION MARKETPLACE

Summer is an interesting time in the industrial distribution marketplace.  Everyone takes advantage of the great weather to go on vacation, take extra days for golf, boating or fishing, and generally take time to relax and recharge.  For the most part our key supplier contacts have less travel since the conventions, conferences, and group meetings pretty much shut down for the summer.  Having said that, I’m very pleased at the number of manufacturers that have come to visit us in the past few months.  This gives us an excellent opportunity to do some in-depth market development planning for the fall, winter and into 2012.

And, I don’t think I have to tell anyone that this has been a very hot summer – even here in the Buffalo, NY area.

The value of the buying group rebate

As a core part of their business, distributor buying groups, like NetPlus Alliance, collect rebates or marketing allowances from their suppliers for purchases made by their member distributors.  The rebates get allocated by the ratio of purchases by the member from each supplier.

At least once a year these rebates are distributed and the members typically take them into their business as “other income”.  For some distributors the rebate might be their entire net income, and for others it is a nice addition to their profit sharing plans.

What some distributors fail to realize is that to create the same amount of net income as the rebate, they would have to generate a significant volume of business.  As you may know the typical industrial distribution business earns a net profit of 1% to 2%.  A distributor who earns a $10,000 rebate from his (or her) buying group would have had to sell between $500,000 and $1,000,000 in product and services to get that same $10,000 to the bottom line.  Likewise, a larger distributor who receives a $50,000 rebate would have had to generate up to $5,000,000 in sales to earn that $50,000.  Of course, to generate sales of an additional $5 million means more people, more inventory and maybe more warehouse and office space.

Buying group rebates have become very important to the distributors that receive them.  One way to look at this is to note that the net profit of the product lines the group manages increases 100% to 300% or more because of the rebates.

Those distributors that are not part of a buying group should check out NetPlus Alliance.

Washington, DC

As I am writing this, Washington has just wrapped up the debt ceiling debate; and only last week the NFL and their players agreed to a new 10 year contract.  I’m sure that certain elements of the population were much more interested in the latter rather than the former.  I certainly hope, but don’t have much hope, that the leadership in Washington takes whatever steps are necessary to simplify the tax structure, reduce the burden of government regulation and provide the leadership that will get the economy on track so that significant numbers of new jobs can be created.

GAIN – A MAJOR SUCCESS FOR NETPLUS ALLIANCE

In 2008 NetPlus Alliance experimented with a program to encourage our members to convert their purchases to NetPlus suppliers.   With selective promotion of the program, called GrowthPlus, and little publicity, Nine distributors received $500 each for adding a new NetPlus manufacturer.  The most amazing statistic was that each distributor averaged over $40,000 in purchases from the suppliers that they added that year.

That encouraged us to develop a more permanent program that would launch in 2010.  The acronym GAIN (Get Additional Income Now) was created to identify this new business conversion platform.  The basics were pretty simple:

• Any distributor that purchased less than $1,000 per year from a supplier was eligible.
• All suppliers were eligible
• NetPlus Alliance would pay these GAIN bonuses:

• $250 for $5,000 in new business
• $500 for $15,000
• $1,000 for $25,000
• Suppliers, at their option, could match the NetPlus bonuses.  About 65 suppliers did match, ranging from 25% to 100%.

The results are in, and the GAIN bonus checks have been mailed.  In total the GAIN 2010 program earned our member distributors $50,250.  Of that, $33,500 was an investment by NetPlus Alliance to create new business for our manufacturers and wholesalers.  The balance was supplier bonus payments.

There is no question that GAIN had a positive impact on NetPlus Alliance in 2010 – our organic growth in distributor purchases was 26%.

$1,200,000 in New Business!!

The real bottom line to the GAIN program was that it generated $1.2 million in new business for NetPlus suppliers.  63 member distributors added 90 new product lines with 51 suppliers.  On average, the suppliers picked up almost $24,000 in new business per distributor acquired.  One of our key manufacturers commented to me that their $1,000 matching bonus, to a new customer that purchased over $45,000 the first year, was one of the best marketing investments he has ever championed.  And, of course, he expects to build on that growth over time.

Some Major Winners

While some distributors had big GAIN paydays (one for $4,750; another for $4,000; three for more than $2,500 and a bunch at $1,000) the real winners were the manufacturers and wholesalers that added multiple distributors.  For example:

• Alfa Tools signed up six new distributors.
• Metabo added five
• Jet/Wilton has four new distributors through GAIN
• ORS Nasco added four also
• And, Universal Tool div. Florida Pneumatic, Protective Industrial Products, Quantum Storage Systems and Werner/Greenbull all added three new distributors as well.

Suppliers and distributors have both commented to me that the NetPlus GAIN program was an outstanding vehicle to create interest and activity to generate new business.  And that is precisely why we created GAIN and why the program is continuing as GAIN 2011!!

NetPlus Alliance had a Great ISA Conferance & Annual Meeting

ISA Product Show & Conference

I returned from an excellent Industrial Supply Association Product Show & Conference a week ago.  This year the conference was at The Hyatt Regency O’Hare and the Rosemont Convention Center outside of Chicago.  This is an outstanding location – easy to get to and convenient to the airport.  Attendance was up this year for the association and for NetPlus Alliance.  During the convention NetPlus had three great events:

• On Sunday, May 15^th we held our distributor only Annual Luncheon Meeting sponsored by Activant.  As usual I used this opportunity to give my annual report to our membership.  The high points of that report were that our member purchases in 2010 were 38% higher than those in 2009.More importantly, our organic growth, when we strip out new members and new suppliers, was up 26%.  This compares very favorably with the industry statistics of +22% for industrial supplies and 8% for contractor’s supplies.  I also gave GAIN bonus checks to the distributor winners that were at the conference.
• Our second event on Monday, May 16^th was a 7:00 AM Meet & Greet breakfast.  17 of our suppliers sponsored that event.  Each of them had up to 5 minutes to give an introductory talk about their product line.  In addition, they all supplied presentation pages which were bound and distributed to all of the member attendees.  This session was very well received and led to some great leads for our suppliers.
• As usual, our closing event was our “Happy Hour” on Monday night.  This hospitality event was sponsored by Alfa Tools and was a great opportunity to relax and network after two days at the product show.

How’s Business?

Everyone at the conference wanted to know how “your” business is this year compared to 2010.  Everything I heard indicated “business” was very good so far this year.  Many manufacturers that I talked to reported double-digit growth for 2011 over the
same period last year.  All segments of the industrial MRO business seem to be doing extremely well.  In fact, one supplier told me that business is so good that it is “outrageous”.

A few manufacturers thought business was a little “soft” in May but did not express any concern that this signaled anything significant.  Not surprisingly, many manufacturers had price increases early this year.  And some indicated there could be another price increase later this year.

M&A

As you may have read in the trade press, merger activity is picking up.  The buyers range from national distributors to local and regional partners.  The prime reason for most businesses being sold is the desire of an owner with no heirs in the business to leave the business in good, strong hands for the long term benefit of their employees and their customers.  I’m sure we will continue to see more M&A activity through the balance of this year and into 2012.

Next Up

In my next blog I will give an update on our GAIN program results for 2010.  As you may recall GAIN was developed to reward NetPlus distributors for converting their product lines to our suppliers.  As I begin to wrap up that program for next year, it’s apparent the program was a huge success.  GAIN 2010 created over $1.1 million in new business for NetPlus manufacturers and distributors.

What’s Happening at NetPlus Alliance

NetPlus Alliance, a buying group for industrial and contractors supplies distributors, was launched on September 19, 2002 with a business plan and a press release – no distributor members and no supplier partners.  Thanks to the press release being posted on the Internet by ID Magazine and Modern Distribution Management (MDM), we immediately added some important manufacturers and gained the attention of many distributors. 

Along the way our growth was spurred by the acquisition of two buying groups, Equity’s Industrial Supplies Division, and Industrial Network.  NetPlus has now grown to 406 distributors with annual sales of $9 billion and over 2000 branch locations.  Our supplier roster includes 119 manufacturers, 4 wholesalers and 16 business services suppliers.  While our distributor list includes many small and mid-sized companies, I am very proud of the fact that four of our distributors are listed as 2010 MDM Market Leaders:  The Top 40 Industrial Distributors.  They are Motion Industries (#6), WinWholesale Inc. (#12), Kaman Industrial Technologies (#16) and DXP Enterprises (#18).

NetPlus Annual Meeting – At the ISA Product Show & Conference

The ISA  Product Show & Conference is coming up very soon.  As we have done in the past, NetPlus will be holding our annual meeting during that conference.  If you haven’t taken advantage of our special registration deals for the Conference, check them out at www.netplusalliance.com/ISA.  Remember, this is an unprecedented way to visit dozens of your major suppliers during the two day product show and to network with many NetPlus Alliance distributor members.

At this year’s conference we are going to have two meetings plus our usual conference Hospitality Party.  On Monday, May 16^th, a select group of our suppliers will host a breakfast meeting prior to the second day of the Trade Show.  The structure of this meeting will allow each of our sponsoring suppliers a unique opportunity to briefly address our distributors on their product line and any special promotional opportunities they will be offering during the Trade Fair.

For me, an exciting part of this breakfast meeting will be my opportunity to present the GAIN checks to those distributors who earned these bonuses for adding a new NetPlus Alliance supplier during 2010.  Of course, many of these checks will include the suppliers’ matching bonus.  Distributors who attend the meeting will be the first to get their bonus checks.  This should be a lot of fun!

I am very pleased to announce that Activant will be the exclusive sponsor of our Annual Luncheon Meeting that will be held on Sunday, May 15^th, and that Alfa Tools Division will be sponsoring our hospitality event on Monday, May 16^th.

Here’s the schedule of events for NetPlus Alliance at the ISA Product Show & Conference.  See you there!

SATURDAY, MAY 14, 2011

ISA Opening Party

SUNDAY, MAY 15, 2011

ISA Product Show

NetPlus Alliance, Booth  #1810

NetPlus Annual Luncheon Meeting, 12 – 2 pm

Exclusively sponsored by Activant Solutions

NetPlus Alliance Members Only

Donald E. Stephens Convention Center, South Ballroom

MONDAY, MAY 16, 2011

NetPlus Meet & Greet Breakfast, 7 – 8:30 AM

NetPlus Distributors & Sponsoring Suppliers

Hyatt Regency O’Hare, International Ballroom

ISA Product Show, NetPlus Booth #1810

NetPlus Hospitality Party, 5 – 7PM

Exclusively Sponsored by Alfa Tools

NetPlus Distributors & Suppliers

Hyatt Regency O’Hare, O’Hare Ballroom

TUESDAY, MAY 17, 2011

ISA Educational Sessions & Panel Discussions

Buying Groups — Communications are a Valuable Benefit

          As everyone in our industry knows, the buying groups (or marketing groups as some are called) for industrial and contractor supplies distributors and their suppliers have a number of key activities that benefit both of their business partners.  The common benefit, of course, are the rebate and pricing programs that the groups offer. Groups can then offer a variety of other activities including meetings, training, market planning, private label products, warehousing of supplier lines, incentive awards for new business and many more.

          A key element of the business of our buying group, NetPlus Alliance, is COMMUNICATIONS.  We feel that direct and frequent communications with our distributors and suppliers is a major factor in the success of our group.  Much of that is regular and frequent, such as our monthly newsletter, The NetPlus Exchange, and our e-newsletter which is also distributed monthly.  Both newsletters are designed to educate our distributor members about supplier promotions, new products, product line advantages, and other supplier related news and events.  All with an eye on driving new business to our manufacturing and wholesaler partners.  Of course, we also send routine and special e-mails to our members on a variety of timely topics of interest. 

          But there is another element of communications that is key to the NetPlus Alliance model – that is to be a conduit between our members and our suppliers.  This comes about because of the “trusted advisor” role we have developed in our relationships with our members.  Many of these relationships are the result of years of business experience through conventions, industry association committees and supplier advisory boards.  And now new relationships are being developed through their membership in NetPlus.  

            Our position between our members and suppliers often allows us to have an intermediary role in solving significant problems before they become almost catastrophic.  In one case a supplier sales executive was contacting some of our members that we had targeted for his line.  The results of the calls were very revealing because many of the targets were former customers who had “fallen off the radar”.  In several cases a former rep was blamed for dropping the ball in some way and the distributor found another supplier.  Because of the work of that executive, and the fact that the supplier is now in NetPlus Alliance, the member is bringing his business back to our manufacturer.

           A recent incident shows the true impact that strong buying group relationships can have.  One of our members, a long time friend in the industry, e-mailed me that a major supplier was taking their business “direct” and that we should fire them.  Since I have known the manufacturer since my days at Ward Beals I decided to get our primary contact involved immediately because this incident seemed out of character for that company.  By the end of the day our primary, the VP of National Accounts, and the COO of the company had talked to our member.  As it turns out, all of this was started by a disgruntled former sales representative.  So everything was resolved before the sun set – the distributor did not drop a long time supplier and the manufacturer will stay as a key partner of NetPlus Alliance.

           This case shows the important role communications plays between NetPlus Alliance, our distributors and our suppliers.

Odds & Ends as 2010 Comes to a Close

Year End Stuff!!

As I’m writing this in mid-December, NetPlus Alliance is ready to begin the process of closing the purchase and rebate reporting process for 2010.  Since our suppliers report their distributor sales to us on a quarterly basis we have a lot of work to do in early 2011 before we can distribute our rebate checks.  Some suppliers stay on top of the reporting process and get their reports in right away.  Others seem to have more complicated processes and take months before we receive the final report and rebate checks.

While that is going on we ask our distributor members to report their 2010 purchases, by supplier,  using an on-line form.  This allows us to compare the supplier sales numbers to the distributor’s purchases report.  Despite advanced technology on both sides we find hundreds of major differences each year which must be reconciled one by one.  Karl Tschaepe, our “jack of all trades”, takes charge of this process.  Over the past couple of years, for example, we recovered close to $10 million in unreported sales.  The reasons vary, but usually involve confusion over a company name, a missed branch, or failing to report a new NetPlus Alliance member.

So, needless to say, it is extremely important that every member distributor report their annual purchases to us in early January.

ISA Conference

NetPlus Alliance has already started planning for our participation in the 2011 Industrial Supply Association (ISA) Product Show and Conference, May 14-17, 2011 in Chicago.  Several years ago NetPlus Alliance developed a strategic partnership with ISA for the annual conference.  Instead of having our own yearly conference we hold our annual meeting at the ISA Conference thus saving our suppliers and distributors the added expense of attending a separate meeting.

Watch our newsletter, The NetPlus Exchange, for exciting news that will make this year’s ISA Conference extremely cost effective for NetPlus Alliance member distributors that attend for the first time.

While trade shows and association conferences have reportedly lost some of their luster, there is no better way to network with distributors and to meet with the senior management of your MRO suppliers.  In addition, you get to see new products, search out new NetPlus Alliance suppliers and get some important industry education.  You will even have a chance to win some of the $15,000 that ISA is giving away to conference attendees.

So watch for the conference information coming from both ISA and NetPlus Alliance over the next few months.  See you there!!

I wish you all a Merry Christmas, a happy holiday season and a healthy and prosperous New Year!