Buying online blurs the lines between suppliers and distributors

Buying online can pit suppliers against distributors, but expert help still catalyzes most projects.

By Jim Montague, executive editor

Life used to be so much simpler. Suppliers manufactured process control and automation products, and local distributors delivered and helped users install and configure them.

Then everyone got on the Internet, set up their own websites, digital resources and online communities that don't respect geographic or organizational boundaries—and everybody got mad at each other. This upheaval, combined with galloping technological advances driving more frequent component and software updates, as well as shrinking in-house engineering departments due to layoffs and retirements, further fueled the chaos. If they didn't fly out the window, many traditional supplier/distributor relationships and their organizational channels experienced severe friction as they coped with the Internet's surging omnipresence, and sought ways it could benefit their clients and themselves.       

"Nowadays, we use the Internet for everything from communication to supply to information. Cost is always an issue for supplies," says Robert Cool, maintenance coordinator at All-American Hose in Erie, Pa., which extrudes and weaves polyurethane, rubber, polyester, nylon, cotton, Kevlar and other materials to make fire and industrial hoses. "Much of what we purchase comes from either the web or distributors, and oftentimes we're forced by production needs to find the fastest route from warehouse to shop. That's the key and then cost.

"The Internet opened up my supply lines internationally, which helps because we have to do whatever it takes to keep running—though local distributors are still our main source. Our proprietary manufacturing technologies use drives and PLCs, and we're just now looking into cloud-based systems. I have local control specialists, electrical engineers and vendors, who help me with system upgrades, but I also have an IT manager who I work with closely in areas I may be weak in. Relationships from past professional lives, friends and work associates are the key to resolving problems quickly, but research also plays a part."

Way past order taking

Over the years, manufacturer/suppliers and their distributor/sales representative networks have increasingly bumped elbows online as they jockeyed for awareness and access to the customers, end users, system integrators and other clients they're both trying to serve. Lessons were learned to varying degrees, and the scrappiest distributors and suppliers found ways to survive—typically by adapting and offering value-added services with their products. This is good news because technical changes and departing know-how seem like they're only going to increase in the future.

"In the 20 years we've been on the Internet, we've seen it change the ways distributors must work to stay in business and succeed by delivering value-added distribution, system integration and field-site support, and getting more involved with designing, engineering and installing projects, as well as supporting their hardware and software," says Vikram Kumar, president of EZAutomation, which is part of the AVG group of companies, and operates simultaneously as a manufacturer, supplier and online sales distributor, integrator and application support provider.

"Historically, it's been 30-50% less costly to buy many products and services online, and so distributors have to find ways to add value, otherwise they go out of business. So, we can't be just a distributor. We also integrate systems and provide application suggestions, and that's what seals the deal on many projects."

Kumar adds this primary goal of adding technical value to its products means its sales and technical support staff must possess not only deep knowledge of EZAutomation's products, but also have answers for application-specific questions, so individual customers can implement their solutions most effectively. "All of our guys serve as sales/engineering consultants to each customer, as opposed to the traditional 'salesman,' so they can solve application queries, and provide the best suggestions based on their individual technical and environmental requirements. And, if a product isn't suitable for a particular application, we'll advise against it because we don't want to just make a quick buck, and risk having it come back and bite the user and us later.

"However, achieving this means we must understand our clients' operations and sites much better, so we can deliver feasible, cost-effective and suitable solutions. First, this means having a good team like ours at EZAutomation, which can answer questions from customers, usually on the telephone or online, and help them sort through their options, which can be overwhelming because there's so much information (Figure 1). Second, it's important to have instructional videos on YouTube and other websites, which can provide education on implementing and programming devices in specific applications."            

Diversifying tools for changing roles

Because online access and the Internet put everyone in or close to each other's business all the time, users can access far more and better information for increased and more efficient commerce. However, this situation also creates data overloads, confusion and unsatisfied customers. Luckily, new and better online tools are popping up all the time.

"The longtime supplier/distributor dilemma has been that a local distributor with 20-25 product lines can't afford to do as much online as users would like to see, but suppliers that can do more online still can't publish pricing due to the fact that their distributors set market prices," says Gary Marchuk, business development director at 25-year-old AutomationDirect. "This is where true e-commerce comes in, which is our entire go-to-market strategy. We give process control and other customers everything they need upfront—including same-day shipping—which make us more similar to mainstream, online retailers."

Marchuk reports that AutomationDirect has witnessed the Internet's evolution since it introduced its market-disrupting online catalog with 200-300 part numbers close to 20 years ago. Over the years, it's grown rapidly and steadily, and now offers more than 20,000 part numbers from about 100 vendors. However, providing everything via the Internet requires at least weekly updates of AutomationDirect.com's main website, seven product-specific micro-websites, and all of their various content, resources, services and user experiences.

"We start with product photos, specifications and manuals, but then we add regulatory agency checklists, photos of what will be delivered in each box, customer review tabs, application stories, videos including in-depth product evaluations, complete software downloads for free, and other detailed documentation. This is just the pre-sales piece," explains Marchuk. "After customers buy products, we have more than 1,000 training and productivity videos, which are produced by our longtime training partner, Interconnecting Automation. They're available over our streaming service for a minimal, monthly fee. And, if users need personal support, we have free phone support during business hours, where we can simulate what users are doing to help them better. This is crucial because users are coming to expect doing everything online and getting instant information anytime." (Figure 2)

Despite the influence of e-commerce worldwide, Marchuk states that some big suppliers maintain strict territories and rules, while others allow multiple distributors to operate in the same areas. Besides geography, these arrangements can be defined by specific technologies, customer application types and other parameters.

"Distribution can be a can of worms because each vendor may be going to market differently than the others," says Marchuk. "Previously, suppliers and distributors putting together bids to sell a motor, for example, could end up competing with their own distributors and online channels, and create a price war. Even though the Internet has added to this friction, many major suppliers still don't have a true e-commerce channel, and they're not going to change their 100-year-old sales model, even though people want it."

Marchuk explains that the ongoing emergence of Amazon and other mainstream e-commerce retailer is spurring industrial buyers to expect and demand more online sourcing options. "More customers are choosing us, but many others still don't know what capabilities they can get online," adds Marchuk. "We did a study of first-time PLC buyers last year, and found that many are viewing videos, and most are downloading free software to try."

To improve access to its process safety products and services, Exloc Instruments Inc. was started 22 years ago to specialize in hazardous-area equipment and intrinsic safety (IS) systems that its users weren't able to get as easily from regular distributors.

"We design hazardous-area electrical and instrumentation systems as a value-added service, but then we also regularly assemble certified solutions, so our users don't have to do it," says Ed Beardshaw, sales and marketing VP at Exloc. "We assemble components into ATEX, IECEx and NEC enclosures, and we do it every day, so we're more expert at it. We're a responsible source for the right safety products, but we also try to take headaches out of projects."

However, because of Exloc's dealing with safety systems and potentially explosive environments, Beardshaw reports that it must do a lot more upfront consulting than regular distributors. "We begin with more phone calls, emails, discussions and visits, go over the design the customer has in mind, apply it to the resident hazardous areas, and specify the right explosion protections, enclosures, signal inputs and outputs, etc. The Internet has made us all more connected, but process safety still requires a lot of individual back and forth. Everyone online wants all available information right away, but many information sources may not be qualified, and so our industry has to be careful that what we say on our websites is accurate. Simply selling safety products without evaluating an application can be dangerous, and so we do consultative selling, especially with new clients or more complex projects. The Internet is a great way to get information and education on available products and solutions, but human interaction is still crucial to process safety, and maintaining the safety net and reassurance that the right safety solutions, standards compliance and certificates have been implemented."

Today, we must be able to sit in front of a client, and really understand their industries, the challenges they face, and the technology behind what they're doing.

– Will Aja, customer operations VP at Panacea Technologies Inc.

However, proper caution doesn't mean that Exloc is sitting on its hands. In fact, Beardshaw reports that Exloc just began offering 24/7 online chat on its website, and just introduced the world's first Class I, Division 1-certified tablet PC from Aegex, running Microsoft Windows 10 software. "Users can take this tablet PC into any plant with gas-hazardous areas," he adds. "It also has video and a front-facing camera, which is really helping maintenance guys with troubleshooting because they no longer need to print drawing and manuals. They can also use this tablet to communicate via Skype or similar video collaboration software from the field, and reach colleagues or Exloc to learn what they need to do."

All about face time

Even though the Internet makes buyers better informed, accelerates purchasing processes, and causes organizational upheaval, users and their distributors and suppliers all report that there still comes a point when clients jump back from their Internet sources, and seek the in-person consulting, design, implementation, configuration, troubleshooting and maintenance assistance they need to apply new technologies in their particular applications and settings. This essential know-how and crucial value still comes from experts with the knowledge to help clients with specific applications and problems.

"As buying patterns increasingly lean toward online research and purchasing, it's hard for local distributors to sell against Amazon-type models. Many customers are running so lean that their purchasing departments don't have time to nickel-and-dime on price, and so whoever ships faster wins," says Anthony Sebastian, business development manager at Frakes Engineering, a member of the Control System Integrators Association (CSIA) in Indianapolis.  "However, we continue rely greatly on our distributor partners, and I think they rely on us to help us fill gaps in each other's delivery of solutions. This is an old but still very valuable model. When we need to understand a new technology and how it works, we look to our distribution channel to learn about it before we go to a client's application." 

Scott Newsom, business development manager for pharmaceuticals, food and beverage, and specialty chemicals at Frakes, adds that personal relationships are the best way for distributors to differentiate themselves from online organizations, and that improving relationships means having experts on staff that clients can consult about designing, supporting and maintaining their applications. "Many system integrators depend on distributors for better approaches to technical issues, instruction and training."

David Riojas, territory sales manager for George E. Booth Co., an authorized distributor for Endress+Hauser and Samson Controls, adds that today's process applications, control system projects and parts are becoming increasingly complex, so users can't just go to a website to get the data they need. "The big shift in recent years is that many users don't have as much time or in-house expertise to design their control systems, and that's where we can help do a lot of upfront engineering to make their lives a little easier," says Riojas.

"We consider everything they require, such as power needed, environmental characteristics, possible hazardous area classifications, and weather protections. We add value in phone and in-person evaluation and consulting. More knowledgeable clients may know what component they need, but some of these part numbers are 20 characters long, and so it helps to talk to a real person and confirm them. For example, we had a client buy 20 flowmeters recently for a sister facility, and so they thought they could use the same magmeters they used before. However, they didn't work in the second application because what they really needed were mass meters for measuring density. This is why it's so important to have a check and review process.    

"I also recently worked with a steel mill client on a project that required a different valve, but the quote from their purchasing department didn't match the actual design criteria for a high-temperature specification because this valve needed to handle purge gas through a line to the mill's furnace. Our bid was undercut by another supplier that didn't know about the high-temperature specification, so the wrong valve might have been purchased. We eventually won the quote, but it was our relationship with the plant-floor technician that allowed us to find and correct this error. This is why it's crucial to know as much about a user's application as possible."

Customers fuel third-party sourcing

Because anyone can get on the Internet and create an online presence, many end users have created their own websites for sourcing and specifying process control products. Many of these sort-of reverse catalogs are aided by third-party software and services like Ariba and others.

Will Aja, customer operations VP at Panacea Technologies Inc., a CSIA-member system integrator in Montgomeryville, Pa., confirms that many users are moving to third-party buying portals like Ariba, but he adds they can be frustrating for system integrators, who suddenly learn they have to fill out service agreement and other documentation for multiple purchasing services, and pay them for the privilege. "We use six different systems like this, and so it can be difficult and time consuming to create invoices for them, as well as keep them and all our profiles all updated," explains Aja. "The benefit is that all this documentation helps demonstrate that we're a more legitimate business."

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AutomationDirect's Marchuk reports that it participates in Ariba by allowing customers to set up parts and price lists, and then issue purchase orders and fulfill them through the third-party portal. However, AutomationDirect doesn't go as far as uploading its catalog to the purchasing portal. "Ariba is good for buying commodities and less technical items, but it's limited because it's not as effective for technical equipment like PLCs and DCSs that are all have technical differences and aren't interchangeable. E-commerce is certainly getting more acceptable and growing, but even we aren't exclusively online. We still take tens of thousands of calls per month from customers buying over the phone and faxing in orders."

Educating the experts

One of the Internet's many ironies is that, as clients and users get better informed, suppliers and distributors must get much better educated to be useful to their customers.

"We do every kind of control system for mostly pharmaceutical and specialty batch applications, but our focus lately is on virtualization, and redeploying asset management and PLC functions onto virtual servers running VMWare software. However, virtualization, networking and the Internet aren't just changing automation and operations, they're changing the supply, distribution and sales sides as well," says Aja. "Because clients can access so much more information about what they need, they're 50-70% further along on their way to making a purchase before integrators, distributors and suppliers can meet them. This means we need to get involved in their buying cycles sooner.

"There's also a big need for us to be more informed and better educated, so we can continue to provide value-added information that they don't already know. As a result, our lunch-and-learns with distributors and suppliers are a lot more educational now, and focus on hands-on instruction and new standards and practices. We tell presenters that if they just focus on selling, then they won't be invited back."

Frakes' Sebastian adds, "Distributors understand how certain devices they're representing interact with each other, and understand what challenges can occur when using them. The key differentiator for distributors in today's market is knowing their products. Knowing the features of their technologies, and how they'll address problems in particular applications, can help an SI implement them pain-free. Some distributors are recognizing this as valuable to their customers, and instead of having so many generalists, they're developing six or seven predefined roles in focused technical areas.

"We're also trying to develop stronger relationships with our distributors over time and projects, so they'll know our business well enough to know what technology to show us. It's also on us to be more open with our distributors, and tell them what our goals, objectives and challenges are. When someone understands our past and current challenges, they're more likely to know what technology and solutions could help us. They can be another set of eyes and ears for us, which is especially important when technology is changing so fast. So, I would say relationships are more important than ever, but the key piece now is adding value. In the past, 'a coke, a smoke and joke' formed relationships, but now it's understanding our business, knowing where our challenges lie, and helping us walk through doors instead of walls."  

Going nationwide and beyond

Because more and more end users have national and international presences and facilities, many distributors and suppliers are expanding their jurisdictions where they can, and seeking help where they couldn't go before.

For instance, 80-year-old Allied Electronics was started in Illinois as a radio parts distributor, added consumer electronics after World War II, was purchased by Tandy Corp. in the 1970s, and has been part of U.K.-based Electrocomponents for 17 years. Though it's offered industrial products for many years, Allied decided to establish an automation and controls group about seven years ago to handle products and suppliers that might be well-represented by regional distributors, but weren't as available nationally, especially to smaller buyers and their projects. Allied offers products from more than 300 suppliers.

"We took a lot of different brands, and combined them on one line card for a better one-stop shopping experience," says Joe Reed, product director of Allied's Automation and Controls Group. "Most of these suppliers have their own distributor networks, but they're often regional and focused on larger customers. We give them the ability to go national, and reach more small- to medium-sized customers."

Reed reports that Allied's one-stop strategy lets users consolidate source lists, shipping orders, invoices and other documentation to reduce expenses. All orders are fulfilled at its Fort Worth headquarters, which carries more than $100 million in inventory, and saves customers the cost of keeping too many products on their own shelves.

Also read: Buying direct vs. distributors — survey shows how controls are purchased

"Allied focuses on providing solutions to industrial customers, and we have 43 local sales offices and dedicated people, who can go and help users implement their products. Last year, we also added field-application engineers. who will be trained by suppliers to assist customers with advanced PLCs, HMIs, drives and networking challenges," says Reed. "We partner closely with our suppliers to develop marketing strategies. We help with their initiatives and messaging they want to get to customers. We also assist product launches by getting prior notifications of new products, and we put them into systems, provide supplier videos and other support, and train our staff on them before they go on the shelf, so we're ready when the supplier goes live with them."

Allied services all sizes of customers, and provides extra services that add value and aren't typical of the standard distributor. "We don't aim to disrupt existing distribution channels, and typically we find customers that others don't know exist," says Reed. "A lot of our business is in planned demand for smaller-design opportunities and projects, such as equipment builders constructing new control cabinets. For example, engineers building a new industrial mixer can come to us; download and use 3D CAD design software for free from our DesignSpark website; drop in needed components; collaborate with other engineers; and get all their controls, sensors and cabling in one place."

As for emerging third-party procurement services and software, Reed adds that, "Sometimes we use electronic data interchange (EDI) capabilities when partnering with suppliers, so Allied can order and get invoiced electronically," says Reed. "As a result, we and our suppliers exchange each other's live inventory feed. So, if a customer wants to know what's available, then we can tell them what's in our inventory and what's available at the supplier's factory. This really speeds up the who's-got-what process, and get products in the customer's door faster."

Similarly, established as a Chicago electrical parts distributor in 1934, Newark element14 has grown to represent hundreds of suppliers online, and distribute hundreds of thousands of electrical, industrial and control products covering the lifecycles of its customers' applications from prototype to end of life.

"The Internet has taught us a lot about our customer base over the years, so we use a multichannel model that let's us be there when they want online technology or a human," says Jeff Mills, head of regional marketing for North America at Newark, which is part of U.K.-based Premier Farnell. "Multiple channels are crucial because our users' circumstances span the gamut from replacing parts to using online procurement systems to needing expert technical help with complex, advanced projects. We also have an online community, like a Facebook for engineers, where members can ask questions, give advice, or write product reviews."

Besides providing value-added services including site visits to match and customize many products to users' individual applications and environments, Mills adds Newark can also help customers design new or revamped applications and systems with help from other Premier companies, such as Avid Technologies Inc.  

"We don't see the distributor/supplier relationship as us versus them," adds Mills. "To us, it's very collaborative. Our customers are seeking manufacturers, who are partners of ours that have the deepest product information, and help us make sure we're representing them properly. Meanwhile, users continue coming to us because they'll have the best odds of getting what they need, and can get many solutions in one place and get their jobs done in the fastest time. Certainly, products and technologies keep changing every decade and year, but that doesn't mean we have to change our model."

This doesn't mean Newark can't change when it's warranted. For example, it recently took a page from the third-party procurement playbook, and now allows customers to set up personalized version of its website. "A customer can layout their version to best suit their needs, and tell their staff which products they're authorized to buy on it," explains Mills. "We just want them to be able to buy in the way they want."

Collaborating on core services

Despite all the emerging challenges online, Aja maintains old-fashioned cooperation with distributors remains crucial to system integrators and their clients because they have stock on hand, and can provide in-person assistance on projects. "Distributors typically know their products inside and out, and so they can provide the education we need, and fill in many of the blanks for us," adds Panacea's Aja. "They can also help us build bills of materials, and even more importantly, help us negotiate payment terms and lines of credit. Many distributors act like small banks for system integrators, who don't have that $1 million credit card."

Aja concludes that system integrators and their distributors can also collaborate in securing the more advanced technical know-how they must have to serve Internet-age users. "Traditionally, trust was built on implementing new technologies, closing the trust gap, and becoming real partners," adds Aja. "Today, we must be able to sit in front of a client, and really understand their industries, the challenges they face, and the technology behind what they're doing. Because they've got much of the basic information they need and are already 50-70% along on making a decision, our real value is in truly understanding what they're doing now and what they need to be doing."

Because EZAutomation manufactures the products it distributes, Kumar adds it can collaborate faster and tailor some devices to specific customer applications when its customers are in a pinch. "In 2012, a high-end yacht builder asked for a physical dimmer switch to able to control the backlight brightness on the EZPanel HMI they got from us. They wanted a knob on the front of the panel, so we modified an EZPanel, and turned it around in just 10 days," explains Kumar. "We were only able to do this so quickly because we're not only an online automation supplier, but also the manufacturer and original designer of the product. Since then, a military customer has asked for the same dimmer pot for their HMIs to help protect their water-purification systems in combat areas."

Though it's difficult to predict how relations  between suppliers and distributors will evolve in the future, it's safe to assume that the Internet and other digital tools will continue to bring or push them closer together, along with everyone else. "I think suppliers will always be able to protect their distributors, and ultimately they'll combine more of their literature and videos, work even more cooperatively to help users gain efficiencies and eliminate downtime, and eventually merge into some kind of hybrid solution providers," says Kumar.