TED Magazine - May 2017

SPECIAL PRICING AUTHORIZATIONS (SPAS) ARE both powerful and perplexing. On the one hand, they are unmatched as a technique that allows manufacturer/distributor channel part- ners to compete on price for desirable business while holding overall pricing at targeted levels. On the other hand, they are nearly unmatched in their abil- ity to cause frustration and annoyances. A lot of money and effort has been spent to eliminate the unfortunate aspects of the process, but the job is far from finished. First, according to John Maltby, president and CEO of San Francisco-headquartered Maltby Electrical Supply, the SPA process is still characterized by delays and inefficien- cies despite modern electronic systems and data exchange capabilities. Maltby supports the SPA concept as the best way to competitively differentiate pricing on many items. However, frustrations are still high. Despite much work, resulting in what Maltby sees as good recommendations, in his view, “nothing has changed.… The whole problem is in communication among manufacturers, reps, and distributors.” To put it bluntly, he said, “Distributors don’t get notified.” Maltby gave as examples cases where SPAs expired and were renewed, yet the distributor was not told of the renewal. In such a case, a distributor may get the pric- ing wrong and be stuck with refunds and explanations—or the equally unpalatable prospect of performing manual verification of the status of each expired SPA. Also frustrating are SPAs that lack clear and specific start and end dates and descrip- tions of the products being covered. Still, Maltby indicated that there are signs of hope, noting that some manufactur- ers are doing a good job; he was happy to mention Square D as “one of the better ones” with a system that “works well.” Maltby’s comments reflect the findings of the NAED task force as stated in the introduction to the 2015 research paper, SPAs: The Path Forward, which says, “Simply put, a love-hate relationship exists within the channel toward SPAs.” The paragraph goes on to describe various costs and administrative frustrations, culminating in a quote from a distributor who said, “The biggest issue is that SPAs get between us and our customer.” That is a bad place to be. The SPA process just grew without planning, each man- ufacturer finding its own way to go. Today a uniform ap- proach is important to all parties. To accomplish this, a set of best practices has been developed by NAED’s teams, which includes white papers that are available for down- load at naed.org/spa. In brief, NAED found that for the SPA process to work well, broad standardization is needed —beginning with the very language that is used and the specifics of the information shared. Right now, a good analogy for the way some counterparties communicate with one another would be a cell phone conversation where both people are speaking clearly but the phone is cutting out 30% of the time. NAED’s work also recommends other kinds of standardization and process matching. So the question remains: With all of this available, why would a distributor perceive that nothing has changed? The answer is pretty simple: Manufacturers are big organi- zations of people with a lot of priorities. Change is always hard to accomplish, even when it is a top priority. Change is usually slow. There are a lot of distributors. They too have a lot of priorities. Things creep along. But what if the SPA is not the best approach to some of the situations in which it is now used? What if there are hidden costs and inefficiencies? These questions form an undercurrent in the industry. There is no question that actual cost accountability has been very elusive in all aspects of distributor management. In fact, many widely accepted averages actually hide real costs and lower the quality of decisions—so too does the misuse of certain popular and powerful comparative tools. During Maureen Barsema’s years as the CFO and co-owner of a distributor- ship (today she is a financial consultant and founder of Outside Looking In), she came to believe that important informa- tion was missing from the SPA planning and decision-making process. Getting at it, she recalled, was tough. “The work…was manually performed by myself….Quite painful and hugely time consuming, but oh so telling,” she said. “By no fault of their own, sales person- nel and buyers are generally non-financial, un-savvy nego- tiators…[who] innocently give away too much too fast.” Barsema is collaborating with distributors and IT pro- fessionals to develop a software system module she calls Contracted Performance Analytics. “This will expose asset utilization from a cash, people, and inventory perspective; uncover gross margin performance compared to overall profit-generating segments; and present a range of negoti- ated costs that will allow optimal cost positioning while reducing cash and process overhead,” she explained. The world of the SPA moves at a glacial pace, but it is moving. Change is coming. It is unlikely that SPAs will ever go away, but their use and execution will almost certainly be quite different in another decade than they are now. It will be a fascinating transition. ; Sullivan is president of JSA. He can be reached at joe@joseph- sullivan.com.
Simply put, a love-hate relationship exists within the channel toward SPAs…. The biggest issue is that SPAs get between us and our customers.
—FROM NAED’S REPORT,
SPAs: The Path Forward