Lab Supply Purchasing - Key Questions

Lab Supply Purchasing - Key Questions

Lab Supply Purchasing -

Key Questions

If your lab could buy directly from the manufacturer of, for example, HPLC Grade Acetonitrile, do you think you would get a better price? Probably not. Why not?

 

In this post we will take a look at how a product gets from the manufacturer to your lab, and how the final price you pay is governed by the many companies along that path that extract a profit.

 

Then we will take a look at what you can do to avoid the many ways big distributors get you to pay more for the goods you buy without sacrificing your valuable time and at no cost to you.

 

Why don’t manufacturers just sell direct to the end user?

Those who do

There are two broad categories of manufacturers who sell direct to the end user:

  • Major equipment manufacturers (equipment that requires installation and field service.)
  • Life Sciences vendors who make and sell Molecular Biology products.

 

You may ask why these companies can sell direct to consumers, often at the published retail price when so many other companies can’t or won’t? The simple answer is that these products are generally proprietary. You can’t get them anywhere else. In the Life Sciences sector, once a process incorporates these products, switching to an alternate brand is unthinkable.

Those who don’t

The vast majority of items used in your lab are used by tens of thousands of other labs all over the world; if you are a manufacturer and you want to reach this worldwide market, you need a company who will buy in bulk - truckloads - and then ship it out to each individual lab - distributors.

 

Distributors can be a manufacturer’s friend or their undertaker. If you are a manufacturer who decides to go ahead and sell direct - and many do - if your pricing is lower than the distributor's pricing, you run the risk of having your products end up in the distributor graveyard. Think Amazon or Google here.

 

If you are a seller of common items like filter paper, you have plenty of competition within the distributor’s portfolio. How do you get the distributor to promote your brand of filter paper rather than your competitor’s? Just like Amazon and Google - you pay for pole position.  If you are a small manufacturer with limited resources, you are priced out of the game. The problem is that the distributor takes orders for enough of your products that you can’t do anything about it.

 

The golden rule is: Don’t become a competitor to your distributors.

What this means to you

  1. You will continue to use products from huge manufacturers and pay a premium for them.
  2. If there is an equivalent product from a smaller manufacturer at a better price, your distributor has no incentive to inform you of that option.
  3. Because vendors have to pay so much money to retain their preferred status with the major distributor, increasing the price year-over-year is assured.
  4. Smaller manufacturers who build “a better mousetrap” will still find it difficult to gain traction in the market, unless they are extremely well-funded.

 

Myth 1: The buying power of big distributors ensures you will pay the lowest price.

warehouse

 

The costs of operating a multi-billion dollar distribution business are enormous. For every $1 in profit, $.19 is overhead. What this means is that if a big distributor negotiates and obtains a 20% additional discount over smaller distributors, they are now on equal footing with the small distributor. You can read more about this topic in my blog posts Tricks of the Trade and LPS vs. Traditional Distributors.

 

The fact is, if you don’t spend $1,000,000 or more on lab supplies each year, you need to develop a relationship with a company such as LPS to ensure that the prices and terms you are being offered by your big distributor are fair. For more read my blog post Profitization.

Myth 2: Big distributors buy directly from the manufacturers.

This problem is best illustrated by this true story from my time as a Major Accounts Manager with VWR serving Eastman Chemical Company:

 

A customer had ordered a heating mantle from VWR provided by Barnstead. (Barnstead, at that time was known as “the world’s largest manufacturer of lab equipment.” Barnstead was subsequently acquired by Thermo Scientific.) This item was backordered. So I called Barnstead and asked if they could expedite.

 

Barnstead told me that the heating mantle was backordered from their supplier. They informed me that they bought this from a supplier in Pennsylvania and gave me their contact information and wished me luck. I called this company and they reported that they were backordered from their vendor.

 

I asked if I could contact that vendorand and they provided me with the name of an importer located in San Diego. I called them and they told me that they were backordered by their vendor who was a manufacturer located in Taiwan.

 

So let’s sum up how this heating mantle was to get from the manufacturer to Eastman:

 

  1. Manufacturer in Taiwan sells to importer in San Diego
  2. Importer in San Diego sells to distributor in Pennsylvania
  3. Distributor in Pennsylvania sells product to Barnstead in Iowa under private label.
  4. Barnstead sells heating mantle to VWR.
  5. VWR sells the heating mantle to Eastman.

 

Is it any wonder why lab items often cost so much? This product was marked up five different times before it reached the end user! Don’t forget the shipping costs incurred by this product traveling between all of these destinations, which are rolled into the wholesale price.

 

So why didn’t VWR just go to Taiwan and buy this item? For two reasons: 1) The volume of sales of heating mantles didn't justify it. 2) They didn’t want to make waves with the relationship with Barnstead.

 

Is this just a one-off example? Of course not, but there are so many barriers put in place to prevent anyone outside the distributor from learning these details that we will never know the prevalence.

How does a company like LPS make a difference?

By remaining objective and eliminating financial bias

In our original example, Acetonitrile HPLC grade, I invite you to read my blog post “Chemical Pricing: Is it Intentionally Confusing.” The opening paragraph has an illustration that you will likely never see produced by any distributor:

acetonitrile pricing

Dawn acetonitrile

As a Procurement Services company, our mission is to explore the various buying options available to our clients and offer cost saving alternatives regardless of brand. Our mission is to deconstruct the barriers, erected by big distributors, to ensure you pay a premium for big brand products. If these brands are important to you, our job is to find a reliable source that is willing to provide at a better price.

Conclusion

My hope is that if you have read this article that you will now realize that there are some very smart, sophisticated people working at big distribution companies with one goal. To keep you coming back to them for lab supplies, never questioning the price. You will always remember that while there are lower prices out there, the effort you will spend to obtain them will never be cost-justified.

 

At LPS, we have proven our process to many clients in our ten plus years in business. Our services are provided without fee. You don’t have to go it alone. We are here to help.



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