Show Me The Money

Members of buying groups and cooperatives understand the buying power inherent in cooperation.

Groups to Which GAWDA Members BelongIn an era of escalating industry consolidation, it can be tough for an independent compressed gases and welding equipment distributor to compete. For that reason, a number of distributors look to buying groups and cooperatives to increase their purchasing power.

Buying groups and cooperatives have a long history in the welding and gases distribution industry. They serve as a means of helping small to large distributors remain on a level playing field with national competitors who are more easily able to take advantage of volume discounts from vendors. In a traditional buying group, members cooperate to negotiate prices with vendors and access to rebates. A cooperative also does that, and offers additional services as well. But there is more to these buying groups than discounts and rebates.

Beyond Buying

AIWDA hallmark of buying groups and cooperatives is the ability of their members to take advantage of vendor pricing to which, as smaller independents, they ordinarily would not have access. However, a cooperative differs in a number of ways from a traditional buying group. The Independent Welding Distributors Cooperative (IWDC), for example, offers a private-label brand exclusively through its members, including a line of specialty gases, and maintains a warehouse in Indianapolis. One of IWDC’s most important differences is that members retain the profits from the cooperative. At the end of the year, the cooperative’s board of directors determines what percentage of the profits will remain within the cooperative to fund its operations, and the rest is disbursed to the members in the form of patronage dividend checks.

Described as a “purchasing team, members of The BIG Group also come together to share best practices.

Membership in these groups is not always exclusionary. IWDC and the Linde Distributors Association (LDA) do not permit members to participate in other groups. The Association of Independent Welding Distributors (AIWD) has no restrictions. For supplier/vendor participants, it’s a different story, and often suppliers will participate in as many groups as will have them.

A supplier who participates in IWDC, according to President & CEO Frank Kasnick, must offer quality, innovative products and have a well-trained sales organization. “We look for leading vendors who are doing business with a lot of our members,” says Kasnick. LDA has a ten-point measuring scale and looks at a supplier’s loyalty to distributors, pricing, rebates and levels of service. AIWD also has a vetting process. Last year, ten suppliers applied, four were voted in. AIWD Executive Director Ron Weldon says that since the suppliers are elected by AIWD members, there tends to be more loyalty to that supplier.

Frank Kasnick

Frank Kasnick

Ron Weldon

Ron Weldon

Terry Hall

Terry Hall

Is It Right for You?

LDA ChartThe industry’s various cooperatives and buying groups all offer differing services and have different bylaws and requirements, and what may be a good fit for one distributor is not necessarily the best fit for another. If you are considering membership in a cooperative or buying group, do your research to determine which type of organization would be the best fit for your company and whether the groups in question are seeking new members. Bear in mind that each type of group comes with both advantages and responsibilities for members. Participation in a buying group or cooperative can play an important role in the competitiveness of your business, but only if the fit is right on both sides.

Member Communication

Each group conducts an annual meeting for its stakeholders. Both AIWD and LDA use this forum for suppliers/vendors to show off their new products and to meet with distributors to discuss proposals, pricing and rebates. There is time for networking and sharing of best practices amongst distributors. At IWDC’s fall meeting, owners also provide feedback to the cooperative about what is going well and what could be done better.

LDA’s annual meeting includes a best practices presentation, usually by someone from Linde. Co-Chair Terry Hall indicates that about 80 percent of the meeting time is slotted for distributors to meet with suppliers/vendors.

AIWD has always held its annual meeting in November. In 2014, that meeting will be held during the first week of September. Ron Weldon explains, “Our members and vendors want it earlier, and since our rebate year ends on September 30, distributors have a few more weeks to maximize rebates after meeting with vendors. We also don’t want to conflict with GAWDA’s annual convention and Fabtech.”

All three groups respond to the needs of their members, whether it is AIWD’s changing the date of the annual meeting or IWDC’s developing a leadership training program. “It’s our job, says Frank Kasnick, “to look at what our members need and then develop programs to fit those needs. We’re putting building blocks in place to look for common needs across the membership that we can efficiently address, things like sourcing product internationally and programs that address succession planning and ownership transition.”

AIWD members have asked for regional meetings and some will be rolled out this year. Ron Weldon says, “Our members want to know about customer profitability analysis tools, contract negotiations, HR consulting, strategic planning and best ways to market their business. We will be providing presentations on those topics.”

GAWDA Membership

IWDC ChartGAWDA Distributors comprise a large portion of the membership of these groups. As of 2012, the last year data was collected, 68% of IWDC members were GAWDA distributors; 56% for LDA; 41% for AIWD. Kasnick estimates that currently 80% of IWDC members are also GAWDA members. LDA’s Hall estimates 90%; and AIWD’s Weldon estimates an increase anywhere from 50% to 65%. What is noticeable is that most of GAWDA’s Board of Directors over the past few years also have been members of these groups, several in leadership roles. Last year, GAWDA’s Membership Committee has attended their meetings to promote GAWDA membership. Ron Weldon says, “GAWDA offers so much, but there are some things AIWD members are asking for that GAWDA can’t give them, especially regarding purchasing.” LDA’s Terry Hall encourages its members to join GAWDA, and IWDC is a member of GAWDA.

State of Independence

IWDC’s Frank Kasnick thinks a lot about the graying of the industry. “The generational transition is one of the main challenges facing the independent distributor. This new generation is online all the time, not face to face. We’re trying to get more intelligent in that arena and make sure we put tools in place to allow young people to connect.” Kasnick uses the old-fashioned meet and greet in a bar as an example. “That doesn’t work anymore. Young people want to have a purpose to their meetings. They want more.” IWDC is developing a next-generation initiative and a young leadership training program.

Having promoted and focused on the independent distributor for so long, the executives have some advice for distributors working so hard to maintain their businesses. LDA’s Terry Hall says independents must have a platform for growth. “Pay attention to the people you bring into your business and hire people who are willing to work hard. Partner with a good gas supplier, as that’s the highest margin product you sell. Be loyal to your eight or nine major suppliers. Be good with your cash so you can pay your bills.”

AIWD’s Ron Weldon adds: “Know your customer base. Let the nationals fight over companies like General Motors and Ford, who don’t understand what the independent is about.” Weldon thinks that independents are getting good at figuring out what they are and what they are not. He points to their confidence in the future and thinks “it’s fantastic that independent distributors are buying other independents.”

Weldon echoes the words of both Terry Hall and Frank Kasnick when he adds, “Independents exist because they provide service and value the nationals can’t or won’t do. For independents to stay strong, they have to belong to a buying group.”

Gases and Welding Distributors Association