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In Lab Supply Purchasing, Size Matters!

There is a lot of discussion today about how well the very wealthy have done over the last 15 years compared to the other 99% of the U.S. population.   A parallel evolution has happened in the lab supply distribution business where the ‘A’ customers of the big distributors have the red carpet rolled out while the B, C and D customers get the Wal-Mart treatment – but without the low prices.

So in this article, you will first get a glimpse of what it’s like to be an ‘A’ customer.  Then we will explore what’s going on with the B, C and D customers…the other 99% of labs.

How do you get to be an ‘A’ list customer?

If you spend more than $1,000,000 on lab supplies annually, you are an ‘A’ customer.  If you spend between $500,000 - $1,000,000 you are a ‘B’ customer and if you have multiple locations (it helps to be global) then you still might get some perks.  If you spend less than that you are on your own.

What are some of the perks an ‘A’ list customer may get?

Here is a partial list of the things the big spenders are offered in contracts from the big distributors:

  • Cash! – rebates for growth, rebates for loyalty, contract signing bonuses (known as “prebates[1]”) and more…
  • Free goods! – special offers and pricing (e.g., buy-one-get-one-free or BOGO) tailored just to you, loyalty points programs and more…
  • People! – You may have a dedicated sales rep[2] (if you are big enough, a full team!)  Dedicated customer service people (and if you want they will be located on your campus or elsewhere) and even people to wash your glassware and put up stock for you…all free if you are big enough, stimulate competition and are skilled at negotiation!
  • Free shipping! – Not just UPS or FedEx either.  You want a courier service to bring this to your door?  It’s yours for the asking.  Big heavy stuff like 55 gallon barrels and furniture?  No charge.  Inside delivery, can do!  Return goods – no questions asked.  Broken in shipment?  It’s not your problem!  Restocking fees?  Never.
  • Terms! – Now this one is reserved only for the best negotiators, but if you spend a lot, and you negotiate well, you can get at least Net 60 terms.  Or, go for the gusto – Net 90!  If they really want your business, they will do it.  Better yet, negotiate a 2% 30, Net 60 agreement if you pay in 30 days anyway.
  • Reserved inventory! – You say you really can’t have a backorder on an item?  No problem.  This gets stocked JUST FOR YOU!  Rather have that inventory on your shelf rather than theirs (consignment inventory) just ask for it!
  • No monkey business! – An iron-clad contract to ensure you get what they promised.

And what about the rest of us?

  • A sales rep? – If you are a ‘C’ moving towards the ‘B’ category and you live in a major metropolitan area, you just might see a sales rep[3] in the flesh once in a while!  Or you may have a live person you share with 400 or more little people who call you every now and then (“telesales” reps,) and if you are in the ‘D’ group, then you are relegated to internet ordering.
  • Pricing? – ‘C’ clients may be offered pre-packaged contracts which will get you access to a select few low/no cost items on the ‘A’ menu.  If you have a local rep, you can negotiate but realize that the companies place strict limits on their reps ability to discount so the deal you get will be scoffed at if you go to work at an ‘A’ list company and start to brag about your negotiation skills.
  • Pricing stability? – No contract?  Prices subject to change with little or no notice.  The only guarantee you have is if you have a written quote and only as long as it is valid.
  • Shipping? – The lure of “free shipping” is often dangled before the buyer.  Then they find out there are handling charges, fuel surcharges, hazmat fees, fees for no apparent reason tacked on to your order…but the shipping was free and you celebrate the win!
  • Terms? – Good credit?  Net 10 or Net 30.  New or not so good – get your credit card out.  Don’t pay in 30 days?  No orders shipped and the 1.5% per month clause is enforced.
  • Return / damaged goods? – You had better have filed a freight claim with the shipper!  Returning something?  You pay the shipping and the restocking fees too.

How did we get to this point?

The main driver of this dichotomy is cost.  The average cost of a sales call has escalated to more than $280.00 per visit.  So if you aren’t buying much, you are COSTING them money!  And if you are diligent about demanding competitive pricing, requiring quotes, phone calls, faxed or phone orders then you are COSTING them money!  In plain terms, they don’t want your business.   But it’s just bad manners to come out and say it.  You might end up working at an ‘A’ company at some point in your career!

The Sarbanes Oxley Act of 2002 (click here for a summary) was perhaps the biggest influence.  Simply put, this act says that if you put it in writing and you don’t do what you said you were going to do you may go to jail.  Prior to this act, big distributors were very skilled at manipulating prices using numerous tactics that would, post-Sarbanes Oxley result in litigation and perhaps jail time.  Sarbanes Oxley forced big distributors to think long and hard about how they were going to increase profits.  The new strategy:

  • Only contract with the ‘A’ and some ‘B’ listers.
  • For the smaller labs only write a contract when you are forced to do so.
  • No more “one-off” contracts – write just one and apply it to as many customers as possible.
  • Reps calling on customers often become “client advocates.”  So reduce the number of customers who reps call on and consolidate interactions through telesales.
  • Jettison tenured, high salaried reps if they aren’t strategic in retaining an ‘A’ or ‘B’ list account.
  • Assume that smaller customers would prefer to deal with a computer rather than a human.

So you aren’t an ‘A’ list buyer.  What can you do?

The blind faith approach.

You have bought from this company for years and they have always treated you fairly do just keep on buying like you always have.  Sure, prices go up all the time and there is not much you can do about it.  Wasting time shopping around for lower prices is a fool’s errand.

The savvy shopper approach.

A highly intelligent person armed with Google and a credit card can, in today’s world, find what you need at an unbeatably low price.  And you can boast to your friends about your latest find!

The competitive bidding approach.

Some people, even today, have rules forced on them that say they must get 3 competitive bids on everything they buy.  Fortunately these rules are being relegated to the history books for purchases under a set dollar limit.  But there are some who persist in this time wasting practice.  And many people see no problem whatsoever with telling a sales person “I’m paying $10.00 for that item and getting free shipping, what’s your price?”  (Disclosure – they are paying $12.00 and getting charged shipping.)

The Tonto approach.

For the younger readers, Tonto was the poor Native American that was the Lone Ranger’s buddy who did all the dirty work for him.  He wasn’t a lawman like the big guy.  But if the Lone Ranger need a latrine dug, then Tonto was the go-to guy.  Scientists are the Lone Ranger in this lame analogy and Tonto here is someone who is underpaid, overwhelmed, with no science background tasked to do the ordering (and, and, and...)  Their plates are typically so full (they also pay the bills, do payroll and vacuum) they have neither time nor inclination to focus on doing “professional grade” procurement.  This person is often fiercely loyal to the company and guards their turf with the determination of a Pit Bull.  In other words, they really aren’t receptive to trying a new approach.

The Star Trek approach.

To boldly go where no [insert 'man', 'woman', 'one' or 'person' here] has gone before.  To apply science to the procurement process – not just to the cost of an item.  To trust that there may be a better way for those who are bold enough to explore.

Summary

For those who are considering the Star Trek approach, we salute you!  Lab Procurement Services is here to help.  While you may not be an ‘A’ list customer to the big distributors, every client we serve is an ‘A’ list customer and we believe that everyone deserves that level of service no matter what your size.

[1] One very large 'A' customer reportedly received a prebate of $4,000,000!

[2] Preferably a rep that has been with the company 10 years or more.

[3] Your rep will likely be someone with no lab background and less than 1 year with the company and will be replaced with another new person within a year.  You aren’t large enough to demand someone who really knows what they are doing!

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