Put a Dollar Sign Next to Your Service Value
Today’s distributor market for otating equipment compo- nents is rife with spreadsheet
bid and buy practices, calls to do
more with less, and strident demands for ever-lower pricing. The
result: reduced distributor margins,
deflated customer loyalty, and the
devaluation of many critical services.
But within this landscape, indus-
trial distributors have a largely unused tactical weapon
with which to fight back. It is called the dollar sign. Put
one next to the total value of your service offering, and
earn recognition as a trusted business partner rather than
just another source of supply. Here’s how:
Fully Understand Your Value Stream
Typically, distributors are adept at valuing the factors
they personally control, like their people, delivery practices, and direct business services. More difficult is putting together a value proposition that encompasses the
resources of supplier partners and the synergy that arises
with help from this extended team.
Consider a distributor’s supplier partner of rotating
equipment technology, for example. Premium suppliers will
offer a host of engineering, administrative and business
services at little or no cost to their authorized distributor
partners. These services can directly translate to major cost
savings for a distributor’s end user customer. When a distributor brings its premium supplier’s engineering resources
to bear on a customer’s troublesome equipment performance, your service can be calculated into a cash value.
A supplier’s root cause analysis of recurring premature
bearing failure in a motor or pump is a case in point. By
analyzing the bearing’s marks, wear patterns, heat discolorations, and other tell-tale indicators under laboratory conditions, rotating equipment technology experts
can often determine the root cause of failure. The cause
might be as simple as a soft foot under the machine or
as subtle as a slightly misaligned shaft. If the condition is
left untended, the premature bearing failure is virtually
certain to recur, costing the customer lost productivity,
unplanned maintenance, and downtime. Estimates for
machine downtime can reach $20,000+ per hour. Multiply
the number of hours it takes for repair by the number of
times the bearing failure would have recurred over, let’s
say, a year, and you will have a powerful cash value to
show your client during the next contract negotiation.
Understand Customers’ Challenges
Understanding customers’ costs and needs can provide
insights on how your products and services impact their
bottom line. Map out where your products and services are
used by targeted customers, then assign values to what that
equipment does for them. For example, what is the production cost impact for a particular piece of equipment?
Valuate Your Services
Mapping helps pinpoint areas where your value far exceeds
the price you charge for rotating equipment components.
Here are some ways that distributors can put a cash
value on inventory services, products, and talents:
• Review your client’s inventory usage, help them to
optimize it, and calculate the resulting reduction savings.
• Compare your on-staff talent and knowledge, along
with your supplier partners’ expert technical assistance, to
the relative cost of hiring outside consultants or suppliers,
including their time and travel.
Training sales personnel to apply cash values to your
offering can present a challenge since it is far more than
simply cost plus mark up. Ideally, your sales team should
know how to identify equipment operating costs and go
beyond superficial equipment relationships, such as costs to
operate and maintain. Call into play supplier partner benefits, such as collaborative sales planning, joint calls, and,
of course, those critical engineering services. Break out
specific inventory that is supporting a given customer and
define how that inventory was used (Examples: breakdown
support, fast response and shortened lead times). Train
your team to negotiate the value provided as part of their
Finally, take full advantage of your supplier partners’ capabilities to improve your value. Armed with documented
savings attributable to you and your supplier partners’
combined services package, you can trump many of today’s
“out-for-bid” component buying practices and avoid being
victimized by aggressive buyers.
Too often, distributors know this, but fail to invest the
time to calculate these critical metrics.
Bill Moore is Sr. Vice President, Special Projects for SKF
USA Inc. He can be reached at email@example.com.
BY BILL MOORE, SKF USA VP, SPECIAL PROJECTS