Rethinking The Relationship

It’s time to identify, define and reveal each other’s sense of purpose.

“Suppliers are in a better inventory position. Unfortunately, supplier salespeople are not as available to work with our salespeople who do not have the training and expertise that the suppliers’ salespeople have. The distributor is handling more of the technical aspects of the interaction that the supplier performed in the past, and if they are less available to help in the field, then training is very important and is currently lacking.”
Lloyd Robinson, President
AWISCO (Maspeth, NY)

“If there is no trust, there is no relationship. In some cases, direct sales on the part of the supplier have impacted the relationship with the distributor. Suppliers are bringing more innovative products to the market that we can sell. I wish they would help us with distressed inventory that we can’t sell by taking it back with an offsetting order to avoid restocking fees. We need product training on the products they want us to sell and a plan to go to market with those products. It would be nice to have exclusives on products , although it will probably never happen. Once we promote a new product and are successful, setting up my competitor just erodes my margin.”
Greg Walmsley, President
OXARC, Inc. (Spokane, WA)

“Suppliers are putting more energy into the service they provide to us. They’re calling on us to better understand the status of our relationship, and they seem to care about our partnership. I do see a need for better management of order filling. Multiple shipments come in from various warehouses, as opposed to combining them. While the manufacturers are doing a good job, I wish the wholesalers and resellers had more product knowledge. They could use more training.”
Cad Beale, President
Welders Supply & Equipment Co. (Montgomery, AL)

“Some suppliers are doing an extremely poor job with accurate sales forecasting and cutting inventories way too close. There is no such thing as “just in time” inventory, as we all must factor in raw material shortages, shipping delays and customs delays. They must be willing to be more aggressive with sales forecasts, inventory stocking levels or both. Some suppliers are increasingly competing directly with distributors. Many major manufacturers have direct retail relationships on Amazon, while others sell directly to end-users from their own websites. Some suppliers are also directly soliciting end-users through email campaigns and social media. What I would change in the supplier-distributor relationship would be to require that more supplier personnel, from top to bottom, spend a few months in welding shops, job sites or at distributor locations.”
Bob Goodliffe, President
J.W. Goodliffe & Son, Inc. dba Cyberweld (Linden, NJ)

“We have a great deal of trust in our suppliers. I feel they have our best interests at heart. This has to do with the people we have relationships with, and as long as those people are in place, we will continue to grow together. I hope that when our current representatives move on, their replacements will be as well-trained. Suppliers have many more resources available to them and are using those resources to help us provide information and product support to maximize benefits to our customers.”
Shane Miles, President
O2 Plus (Carrollton, GA)

“Suppliers are taking advantage of technology to confirm orders, upgrade their websites, communicate with us electronically. Unfortunately, the relationship is getting less personal as everyone wants to communicate via email, text message and voice mail. Sometimes I think it’s to avoid having personal contact. Many manufacturers have reduced their sales force. We still need to know what’s new, and we need training. I’d like to see suppliers adopt the philosophy that any decision they make has to be profitable for them, for us, and for our customers.”
John Hill, President
Willard C. Starcher (Spencer, WV)

“The major hardgoods manufacturers have signed up too many smaller distributors and internet sellers that do not have the needed technical expertise required to sell the product. While the manufacturer should offer training, their sales representatives should not have to be available to make cooperative end-user calls every time a sales opportunity arises. There must be a middle area of service between ‘train yourself’ and ‘call-us-24/7 and we’ll send someone to you.’”
Scott Griskavich, President
Badger Welding Supplies (Madison, WI)

“There are some pretty intriguing products in the market, but the information about them doesn’t always get to the distributor sales team as quickly as it should. It would be great to see field reps empowered to make decisions in the field. If suppliers want us to sell more of their product, it is their responsibility to ensure the distributor is professionally trained on their product offering. Many suppliers have distribution agreements with multiple distributors, including competitors. Some are going more direct and forcing the program down the throats of the distributor to get on board or our competitors will. This is less of a partnership. If suppliers want or feel the need to go direct to large end-user customers, they need to understand that it can cause a strain in the relationship. The supplier needs to be more accountable to the distributor and our customers, not just to the shareholder.”
Glenn Bliss, President
General Distributing Company (Great Falls, MT)

“It doesn’t take wining and dining to create a relationship. It’s fun, but I don’t want that. I only care that the price is right and the quality is good. Trust is proven when we send the supplier a purchase order and the product is shipped on time, with no surprises. Dinner means nothing.”
Dave Stein, President
Advanced Specialty Gases (Reno, NV)

“When a supplier’s business is acquired, the relationship can change, which is always a concern. Some suppliers are doing well with delivery, pricing and advancing product technology. Others have issues with paperwork. Freight costs are still a fight for us. I’d like to see more trust between suppliers and distributors. We earn trust as we penetrate the market, which means they don’t have to come into our market to sell their product.”
John Dunfee, President
Weld Specialty Supply Corp. (Milwaukee, WI)

“The main thing distributors and suppliers have in common is the desire to move product and make money. It’s a no-win for the distributor and the supplier/manufacturer in a lowest price internet-driven market. Most suppliers feel the need to be everywhere now, selling to all outlets. Sales territories no longer exist. Distributors feel the pressure to have everything and stock many competing lines. We need to work together to restore value to the relationship. Minimum advertised price policies would be effective in restoring margins and bringing the customer toward the distributor, where he can give technical help, do demo’s and demonstrate other customer services. Distributors should show more loyalty to suppliers who bring value to the relationship, especially those who sell through distributors only. Suppliers need to remember the importance of the local distributor to the end-user. No Amazon drone will ever be delivering cylinders or electrodes to a jobsite.”
Robert Thornton, Chairman
South Jersey Welding Supply

“I do trust my gas vendors. I know what to expect from them. They bill us fairly and as long as I don’t ask for anything out of the box, they do a good job. Their assets are at an adequate level to provide what we need, their logistics expertise is up to speed, and if we have to ramp up, there’s enough capacity in their systems to handle peaks and demands. They become very customer-unfriendly when it comes to procedures and policies. As long as safety rules are being followed, I believe some procedures can be changed, which will help us run our business better. My gas supplier has become a commodity provider. I no longer look to them for their expertise and certainly not for service.”
Anonymous in Minnesota

“For many years, business was taken for granted and suppliers became “fat and sassy.” Since 2008, many key suppliers have returned to the basics of business partnership. They started listening again. They started visiting us. But the downturn also had a negative effect: Many experienced customer service people were furloughed. Suppliers need to expend more resources to train these new people. Many of them lack the sense of urgency that we have in order to meet the end-users’ requirements. Proper training can correct that dynamic.”
Alex Emerson, President
Industrial Welding Supply Company (Chattanooga, TN)

“More suppliers are streamlining pricing and eliminating special deals, which is leveling the playing field. As some suppliers reduce their headcount, we are losing sight of whom to call with questions. To build trust, a supplier should eliminate direct sales to my customers. You either sell through a distributor, or you sell direct. As an example, after taking a rep to visit one of my large customers, I learned that the rep went back to the customer three days later by himself. Trust is gained through experience.”
Tom Cunningham, Vice President & Sales Manager
Wyandotte Welding Supply (Wyandotte, MI)

“Fuel surcharges should be based on tangible justification and should never be considered a profit-grab. The temptation of imports has caused many “great” suppliers to become “good” me-too commodity providers. Industrial customers still value products made in the USA and are willing to pay more for them—if suppliers will produce, wisely distribute and properly market the benefits of buying their USA- Made products on a national scale. In this age of supplier consolidation, it is easy for memory to fade. I’d like to improve their sense of recall so as not to forget or undervalue long-term forged partnerships with their distributors.”
Bob Stoody, President
Stoody Industrial and Welding Supply (San Diego, CA)

“Good help is hard to find, so having people on the back side supporting us and getting product to us is important. We want to work with people who care enough to push us forward. Most independents are pretty self-sufficient but when something goes wrong, we need our suppliers to respond quickly. If we have an emergency, they should consider it their emergency too.”
Cliff Brewer, President
Advanced Gases & Equipment (West Sacramento, CA)

“Sending out a flyer now and then doesn’t do it. The personal relationship within the supplier’s organization is very important to us. If we were limited to just the interaction we have with the rep who calls on us, the relationship would not be as productive. Suppliers should routinely provide us with quarterly reports which summarize how they think we are doing. Suppliers’ reps should spend more time with our salespeople in the field as opposed to stopping into our office and drinking a cup of coffee with whoever is around. If our salespeople are sold on a product, it will be sold.”
Guy Marlin, President
Lampton Welding Supply Co. (Wichita, KS)

“There are a number of innovative products being introduced to the market right now. If I could change one thing, I’d like to see the number of distributors in various markets limited. Big box stores, big catalog stores and internet stores reduce margins and waste distributor personnel’s time providing product and process knowledge to the people who “got it cheaper.” The only winner in these multiple outlets is the supplier, as they get their margins. All the distributor gets is an apologetic “We have no control over that.”
Rick Frame, Vice President
Delille Oxygen Company (Columbus, OH)

You do not have to have a PhD in supply chain economics to see that there is a lot of change happening in wholesale distribution and that the rate of change is accelerating due mostly to the internet. Just get online and Google “MIG welder.”

We can always learn from our history. Our past is not a predictor of our future, but it is the foundation upon which we build our future. If we had a time machine and went back just 50 years ago, we’d find that…

  • There were over 1,300 distributors in our arena of gases and welding supplies.
  • Distributors represented both the lowest cost path and the highest service provider to the end-user. Distributors had knowledge of the end-user’s needs that could only be obtained on a local level. Distributors knew where the smokestacks were and who was creditworthy.
  • Distributors had exclusive product offerings. If you sold Lincoln, you sold only Lincoln. You did not sell Miller, Westinghouse, Hobart or Linde. The distributor presented the manufacturer’s message to the end-user. You learned your products inside and out because if you did not educate your customer that your product was the best, he purchased a different brand from a competitor who was able to convincingly present their case. You did not get a second chance to offer another brand, perhaps at a discounted price, when the customer rejected your brand.
  • It was a rare occurrence, but sometimes you would switch from one brand to another. In the mid-1960s our company switched from Lincoln to Hobart and the existing Hobart dealer did just the opposite.
  • At one time distributors did not pump their own gases. When they did, they didn’t own the cylinders. Cylinders were owned by the gas producers. The majors had their own lines of equipment and would cancel your contract if you were caught selling competitive products. Distributors stayed loyal to their respective brands forming a clique and were always waving the manufacturer’s flag with great vigor. You can still feel the remnant of that era in our industry today.
  • The majors had salespeople who would work with distributors at developing new customers. You were comfortable knowing that you were not in competition with your molecule supplier.

Things started to change in the late sixties. Manufacturers started to sign up distributors that were handling competitive lines. This process started slowly like it was a dirty secret that no one would acknowledge. I can remember when we picked up the Miller line in addition to Hobart. Every time the Hobart guy paid us a visit, we would move the Miller machines to the back of the warehouse and cover them with a tarp. Of course we’d do just the opposite when the Miller guy came in. Funny to think about that now. Who did we think we were fooling and was that how to develop a solid relationship with our vendors?

This process accelerated over time and now everyone sells everything. Distributors got more comfortable with the manufacturer presenting the message to the end-user. Distributors lost their religion to learn their products in great detail. After all, if your customer did not want to buy red, you always had the backup plan to sell him blue or green or orange. The distributor was no longer committed to selling a particular brand—they now let the customer decide.

In 1982, the merger and acquisition era began when Airgas was formed. Airgas now has some 450 acquisitions behind them. Others joined in, and then smaller distributors joined in by buying other distributors. Are mergers the next wave? Recently two of the strongest houses on the East Coast, Arcet and Machine & Welding, merged. (See story beginning on page 20.)

Manufacturers thought they could gain market share by moving their products through alternate channels. Now you can find products that were once exclusive to distributors on the shelves of big box stores like The Home Depot, Lowes and Tractor Supply. Manufacturers also found new ways to move their products through large MRO distributors such as Grainger, Fastenal and MSC.
Fastenal started selling products in vending machines.

Distributors started offering their products on the internet. No longer is the lack of store in a territory a barrier to selling a product.

Manufacturers are currently trying to figure out the next step. Some are restricting the lowest advertised price, others are setting the selling price, while some are selling on their own website and using the distributor’s brick and mortar facility as the pickup point.

Gas expertise within the distributor’s organization is growing. We no longer look to the major for support. However, equipment expertise is getting hard to find at the distributor level. It may be even harder to find in the future. The distributor’s sales force is aging and retirement is within view for many. When those seasoned veterans exit our industry, who will take their place? If it is the internet, then why does the manufacturer or the end-user need the distributor?

Distributors no longer have a unique knowledge of what is going on in their region. You give me a set of NAICS codes and I’ll identify all of your customers, their points of contact and annual revenue within a few hours of research on the internet.

Distributors are minimizing their transactional costs and risks by drop shipping the products that they sell.

Corporate Quandaries

Don’t think that the universe is picking just on our segment of wholesale distribution. Remember what JOHN DEERE did to its dealers in the early part of the last decade? They didn’t do what Chrysler did in 2009 when they terminated 789 dealership via UPS notification. Deere achieved the same results as Chrysler, but took a completely different approach.

Deere had a problem—they had too many dealers. Deere believed in their small dealers. They believed that their small dealers knew the local turf and were able to market more effectively than a big corporation, but Deere also believed that if the dealers were too small-scale, their inefficiencies could outweigh the advantages. Deere was concerned that small dealers couldn’t track part inventories properly, and that inability was conflicting with Deere’s efforts to wean itself from overproduction at its factories. Deere saw inventory as a team effort between its dealers and itself. Deere was also concerned that small dealers didn’t have the wherewithal to hire enough skilled staff members. Deere was also motivated to consolidate its distribution as it would need fewer managers to oversee distribution and would spend less time chasing bad debts from marginal operations. The benefit to dealers was that by giving them larger territories, there was less chance that they would engage in price wars.

Robert Lane, Deere’s CEO, stated that “for years we talked about Deere as a family. The fact is, we are not a family. What we are is a high-performance team. If someone is not pulling their weight, you’re not on the high performance team.”

In the summer of 2002, Deere’s brass told dealers that they should plan on a future in which they would either be a buyer or a seller. Deere pushed them to consolidate or face being terminated. No one was happy, but all understood the theory and they merged or sold their businesses.

Deere also began to engage a new pricing policy. Have you ever noticed that a Deere lawn tractor is EXACTLY the same price at The Home Depot, Lowes or an independent dealer? Ever notice that an Apple product is exactly the same price wherever you shop? How is that possible? Resale Price Maintenance (RPM) is one method they may be employing to set a specific selling price. RPM pricing is a legal practice that has been tested multiple times in the Supreme Court. It allows for a vertical price restriction imposed by an upstream manufacturer on a downstream distributor. It does not involve a horizontal agreement between competitors which would be deemed price fixing and would be illegal.

All of this seems to have worked out well for Deere and its dealers. Deere’s stock was trading around $20 in 2002 and currently is closer to $90. Its dealers are well stocked and healthy.

STAPLES is really feeling the pinch from online retail. According to its chairman, Ronald Sargent, online retail is the main reason that Staples will close nearly 225 stores by the end of 2014. To offset that loss, Staples is ramping up its online efforts. Currently, online orders accord for nearly one half of Staples’ business, and they are planning on doing much more. In the past year alone, their online offerings have increased from 100,000 items to 500,000 items.

According to BEST BUY’s CEO, Best Buy is now “an online first retailer” as opposed to being a showroom where shoppers would browse Best Buy first and then actually buy their electronics online from another vendor. Best Buy has launched a big-data mining project called Athena to get customer information for a more focused experience. They are also experimenting with methods to get products faster to the consumer. All of this is an effort to double their online sales and hopefully compete in a market that may have already deemed Best Buy irrelevant.

NORDSTROM’s business model has been the darling of retail for years. They are known for their customer service and their ability to retain top salespeople, but their brick and mortar stores are under attack by the internet. Their response is counterintuitive to me. They have launched a series of their own internet stores:, and They are not trying to hide the fact that they are Nordstrom companies. What is interesting is that they use the customer list of their brick and mortar stores to mine new customers for their internet companies. Nordstrom’s internet companies are poaching their brick and mortar customers. This is causing some of their top store salespeople to leave. Nordstrom no longer has continuity of sales staff, which was one of their hallmarks. And yet, while Nordstrom is growing their internet business, they are also investing in brick and mortar. They recently announced a new seven-floor flagship Manhattan store that will be housed in a building that is just starting construction and when it is done it will be one of the tallest buildings in the world. Cost? About $102 million. I think the important observation of Nordstrom’s efforts is that they are not stagnant, they are willing to spend money to figure out what their future will be. Are you doing the same?

Distribution Market Segments

In his presentation titled “Changing Channels: Rethinking Distribution in the 21st Century” at GAWDA’s 2014 Spring Management Conference, Dr. Aaron Buchko, professor of management at Bradley University, pointed out that knowledge is moving into the hands of customers. Our manufacturers are spending money developing their websites with not only information about their products, but also about how to decide which product to purchase, how to use it, and some even have a store where you can buy it. Have you noticed the trend of the customer checking in with you to verify what he has already learned on the internet?

Dr. Buchko advised distributors to find out who is delivering our message to the public. Is it our outside sales force, our inside sales force, our website, or do we just sit back and let the manufacturer do it for us? If it is the latter, then ask yourself what value you are bringing to the manufacturer, the supply chain and the customer. What do customers really want that we do not provide, and what are we providing that customers really do not want? There are two moments of truth: When the customer decides what to buy, and when the customer uses the product.

Dr. Buchko identified four market segments within which distributors work:

#1: Low cost provider: The customer has a problem and knows exactly what the solution is. For example, the customer needs a box of tungsten and doesn’t care where it comes from. Distributors in the past used to be effective competing in this market. Unfortunately for traditional distributors, the low cost customers are already finding their way to the alternate channels. Low cost distribution favors those that have a massive economy of scale with automated fulfillment centers. Distributors working this market segment will exist with the smallest of gross margins. There is a strong possibility that this segment will eventually eliminate the distributor’s involvement, as the manufacturers will take this segment on as a direct effort.

#2: Customers who know they have a problem and are aware of the solution, but are not exactly sure how to assemble the solution: An example is the customer who knows he needs a new MIG system, but he is not quite sure which feeder or gun should be on the system. The distributor that services this type of customer will be able to earn a slightly higher gross margin. Advances in internet technologies are making it easier for the end-user to educate himself on how to assemble the solution. This will enable that end-user to shift into the low cost segment.

#3: Customers who know they have a problem, but have no idea what the solution looks like: The distributor that can solve the customer’s problem has the potential of earning an even higher gross margin.

#4: Customers who do have a problem but don’t know it exists. This segment yields the greatest gross margin, but requires the greatest investment. It requires the distributor’s sales force to have an intimate knowledge of customers so they can identify and solve problems that the customer does not even know exist. An example is the customer currently using cylinders to produce 100 widgets per shift, but if they go to a manifold or bulk gas delivery system they can maximize their labor utilization and produce 120 widgets per day.

Not paranoid yet? What do you know about AmazonSupply? The public has yet to learn exactly what their plan is. (See story beginning on page 70.) Jeff Bezos has uttered only 28 words in public – ever – about AmazonSupply. If vending machines don’t scare you, just wait until you see what Amazon is planning to bring to our world. Forbes recently published an article titled “Amazon’s Wholesale Slaughter: Jeff Bezo’s $8 Trillion B2B Bet.” We all chuckled when we heard about the delivery drones. Our industry gets pretty smug when the concept of drones buzzing around with cylinders suspended under them is contemplated. Even Forbes is saying to forget the delivery drones, but they go on to say that Jeff Bezo’s stealthy foray into the unsexy world of B2B is likely his most disruptive move yet. Why would Amazon target wholesale distribution? Because we are small prey. Of the 35,000 distributors in the US, almost all are regional family-run companies pulling in annual revenues of $50 million or less. Only 160 have more than $1 billion in sales annually.

Amazon Supply launched in April 2012 with 500,000 items for sale. Now they have 2.25 million items for sale. They even sell Schedule 40 stainless steel pipe. Currently they are burning cash trying to figure out our business. Some estimate that burn to be around $455 million per quarter. How many of you are making that kind of investment in R&D for your next big thing? The article does ask the question if Amazon will want to handle industrial gases like carbon dioxide for bars and McDonald’s soda pumps? It acknowledges that it is much more expensive to deliver big, ugly tanks of acetylene. Business with products that are dangerous, exotic or require special handling will be slower to be vulnerable to Amazon. But I have to ask what a business would look like if everything gets stripped clean and all you have left is your gas business? Is that a good thing? If your business does not yet have a credible plan to survive and thrive in the new ecosystems, there may be less time than you think.

One more thing about Amazon. I recently purchased a book on The whole transaction took one minute and 35 seconds. As soon as I signed in, their system knew who I was, my credit card information, my ship to, and all I had to do was click a few boxes. Do you make it that easy for your customers to do business with you?

What’s Ahead for Our Industry

At first glance you’d think that only distributors are at risk. That is not correct. Even the manufactures are staring into the future and getting the shakes. Their concerns include the commoditization of filler metals and machines. Some end-users are experimenting with no name off-shore products, such as ER70S-6. And to make matters worse for our team, they are buying them through non-traditional channels. This is making manufacturers contemplate how to build their brand and if distributors are indeed the proper channel.

Manufacturers are also wondering if distributors are sustainable. It is not uncommon to hear a distributor complain that margins are being compressed due to internet pricing, alternate channel penetration or commoditization. This is a problem for manufacturers as they know that if the margins get too low, the distributor will react by no longer stocking the product, not presenting the manufacturer’s message and transferring the customer interface back to the manufacturer. It is not uncommon to hear stories about distributors, both internet and brick and mortar, asking the manufacturer’s field representative to help the end-user set up equipment – even something as basic as composite MIG machines. If that function is transferred back to the manufacturer, then why do manufacturers need a distributor? If the manufacturer fulfills that need, then it sends an interesting message to the distributor. It tells the distributor that the manufacturer is willing to support an internet sale or tolerate a technically weak distributor.

The manufacturers are not rushing to push distributors out of the supply chain. From what I see, they are truly concerned about our sustainability and want to help ensure our financial health. Why? Because it is in their best interest. B2B sales typically have a better margin than direct sales.

So what’s ahead for our industry? Here are some predictions…

  • Merger and Acquisition activity will increase, not only with distributors, but also with manufacturers. There are less U.S. manufacturers than there were 50 years ago. They are buying each other up. Victor was sold to ESAB, Lincoln has purchased Techalloy, Torchmate, Harris and Burny, while Miller was busy buying up Bernard, Tregaskiss, Jetline, Weldcraft and Hobart.
  • Independent distributors will most likely start looking at each other as allies rather than as competitors. My guess is that this industry will evolve into the Davids versus the Goliaths. Another guess is that there will be more mergers amongst the independents.
  • There will be more vending machines. Some are hoping that vending machines are just a flash in the pan, a temporary fad that will blow over. Maybe, but it is not a flash in the pan. Did you know that Fastenal was founded in 1967 by Bob Kierlin after he and four friends pulled together $30K to launch a new business. A business with a plan to supply nuts and bolts via vending machines. It didn’t work with the crude machines available at that time, but they never abandoned the concept.
  • Online sales of our products will increase. If you think that the fix for all of this is simply to open an online presence or expand your existing one, then think again. What do you think would be the market’s reaction to 600 distributors offering their wares online, even if each and every one of those online stores were as good as AmazonSupply? Do you think the market could support all of that? Of course not. The vast majority of those online stores would be deemed irrelevant.
  • More manufacturers will be selling direct.

The Hard Questions

Will distributors remain relevant to the end-user, or will we become irrelevant to them and become extinct? What should we be asking ourselves, our vendors and our customers? Here’s a start…

  1. Do we want RPM pricing?
  2. Should there be fewer distributors?
  3. Would assigned territories be an improvement?
  4. Should distributors have sales goals?
  5. Should manufacturers be more specific in what activities they want the distributor to provide?
  6. What does our customer need us to do that we are not already doing and who is going to provide it—the distributor, the manufacturer or the internet?
  7. Should the manufacturer’s discount to distributors be based on the functions that the distributors perform, such as demonstration capabilities, technical support, educational capabilities, repair facilities and inventory levels rather than how many boxes flow through the distributor’s store?

With enough conversation, we can figure out what the answers are to these questions. We may not always like the answer, but together we can figure out how to best meet our customers’ needs. Ultimately our customer has the only vote that matters.

So why are we here? To answer that question for yourself, you must identify, define and reveal that deeper sense of purpose. When you do, you can strengthen your brand and attract buyers who believe in what you believe.

Gases and Welding Distributors Association
Jim Earlbeck Meet the Author
James Earlbeck is president of Earlbeck Gases & Technologies in Baltimore, Maryland, and at He also serves as a vice president on GAWDA’s Board of Directors.