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The Changing Landscape in the Lab Supply Distribution Business

The laboratory supply distribution business is undergoing dramatic changes due to a variety of market forces. How will this impact your laboratory? This article will provide you with information in how you can deal with these dramatic market shifts and make them work to your advantage.

Let's first look at some survey data that was published in Lab Manager Magazine's November 2013 issue . The opening paragraph illustrates how dramatically the landscape has changed just this year:


"The laboratory products market has proved challenging in 2013 with several sectors posting deflated sales. It is no secret that sequestration measures continue to restrain budgets in U.S. academic and government institutions, with full-year 2013 lab products market growth rates expected to near -3.5% and -5.5%, respectively. European markets for lab products are also experiencing deflated growth of less than 1%. In total, the global market for lab products is taking a hit in 2013 with growth of 1.2% expected, down a considerable 0.8% from a 2012 rate of 2.0%. Moving forward, the market is expected to improve slightly, nearing 2012 growth levels in 2014."

Lab purchasing trends

"In the era of e-commerce, many suppliers are seeing shifts in how researchers acquire products. To get a sense of the most widely used distribution methods, the following table presents purchasing channel preferences by organization type.

Overall, purchasing products online from the distributor or manufacturer is the preferred acquisition method. However, patient care labs most often prefer to purchase products directly through sales professionals in person, with almost a third of respondents preferring this method. This is a significant difference compared with academic, industrial, and government labs, with less than 10% of each preferring in-person sales. Meanwhile, phone orders may be a dying purchasing channel, with only 9% of the total sample preferring this method via distributor or manufacturer. These trends may cause suppliers to shift sales force priorities to accommodate greater online activity and declining popularity of direct sales and phone orders.

To understand the drivers behind purchasing decisions, respondents [to this Frost and Sullivan survey] were asked their opinions of lab product categories based on various characteristics. A matrix that plots perceived needs based on derived importance (statistically determined by correlating feature ratings) and stated importance (explicitly stated top reasons for selection) is found below."

The 80/20 Rule

The 80/20 rule holds true. That is 80% of Fisher and VWR's revenue comes from just 20% of its customers. In Fisher's case, there is no need to call on the smaller customers as in days past. With the cost of a sales call topping $250, and non-clinical accounts preferring to make purchasing decisions online, it is no longer a good investment. So what is Fisher's motivation to go after the smaller lab business?

In VWR's case, it is now a resource issue. With Fisher dominating the University market (which is in decline) the only way they are going to move the needle is to have their sales reps calling on those who spend a lot of money. With the contraction of their telesales group, many customers no longer see or hear from VWR unless they initiate the contact.

Back to the Future

Fisher and VWR continue to look to grow market share through acquisitions. Most notably Fisher's acquisition of Life Technologies (2012) and most recently Doe & Ingalls, a regional player with a number of customers in the semi-conductor chemical business located in North Carolina and Florida.

With the two giants attention focused on the big spenders and reducing the number of competitors through acquisitions, this opens the door for regional players who serve smaller customers. New major competitors have sprung up: Sigma Aldrich, Grainger (formerly Lab Safety), Spectrum Chemicals and even Amazon.com. Thomas Scientific who has played in the shadows for years has transformed itself into a major player.

Manufacturers have spotted this trend and have changed their strategies accordingly. No longer are Fisher and VWR the only place to go if you wanted something from stock. The era of the mega regional warehouse no longer ensures Fisher and VWR an advantage. The science of logistics is better understood by Amazon than just about anyone else and lab supplies (with the possible exception of chemicals) can be stored and shipped from an Amazon warehouse far more economically than in a Fisher or VWR warehouse.

Many manufacturers see no reason for distribution in the digital age and choose to deal directly with the end users either directly or through resellers who now function in the way the Fisher or VWR sales rep did for smaller clients before the recession.

How do you take advantage of the changing landscape?

Understand what the changes are:

  1. If you aren't a big player, you most likely won't get the attention from VWR or Fisher unless you have some long-standing relationship with a local rep that gets you in under the corporate "radar." In other words, if you don't have a relationship established, you have little power to negotiate and they no longer have incentive to do so.
  2. With manufactures and smaller distributors now being interested in gaining market share by serving the smaller customers who no longer are on Fisher/VWR radar, if you want competitive pricing, these are the companies you should be talking to.
  3. Purchase orders still cost $75 - $125 meaning that vendor consolidation remains a goal. However if you continue to rely on Fisher and/or VWR to provide this, you had better be prepared for the "Wal-Mart treatment." That is, you find it yourself and if there is a problem, solve it yourself.

Lab Procurement Services model is to allow our clients to take advantage of the new players in the lab supply game while achieving even greater vendor consolidation than ever. To do this, you first need an advocate. You need someone who understands what you do and the highly complex technical details of virtually everything used in a lab. And you need someone who will take ownership of the entire ordering process. And finally, you need someone with the capability, skill and time to do the shopping for you. To locate the right vendor at the right product and best price from among the many new choices the new market has made available to you.

That's what we do at LPS, every day for every client.

Max E. Tyrrell
CEO

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