What You May Learn from Someone Considering a Lab Supply Selling Career

Foreword

The key individual and your main point of contact to establish price is the sales representative. In this blog post we will examine what is driving up your prices and eliminating good customer service through the experience of someone who is considering a career working for a major distributor

What happens to all the prices of routine items after that initial setup?  The price steadily increases year over year. Who makes these pricing decisions?  Are you aware of how they are made?  Do you ever question these decisions?  If you decided to do so today, do you know who to contact?

Your most likely contact is your designated sales representative. You may or may not have even been assigned a rep. If you have no one to call, then you will pay the retail or web price. 

Big distributors want to steer most customers away from personal business relationships. As you will see in this blog post, there are large financial rewards for doing so.

I hope you will find this material interesting and informative. You may find some of the details disturbing. At the end, you will see that there is a better alternative to restore good service, knowledgeable representation and in many cases better, more stable pricing. 

The Mechanics of the Business

What does a lab supply distributor do?

The best, shortest and perhaps most accurate way to describe a distributor’s role is Box Mover. They don’t manufacture anything they sell. They buy a product from a vendor, ship it either to one of their warehouses or directly to the end user. If the merchandise goes into inventory, then the goal is to sell it within the first 30 days after it arrives - before the money is due to the vendor. Most big distributors demand at least net 60 or longer terms from their vendors. While presenting themselves as a “one stop shop,” the reality is that these distributors only carry approximately 5,000 items out of a portfolio of millions that are actually stocked  in their warehouses. The vast majority of SKU’s drop ship from the manufacturer.

Key elements of the lab supply business

Customer Facing

• Customer Service
• Field Sales or Telesales
• Sales Management / Major Accounts Management
• Collections

Non-Administrative

• Procurement / Inventory Control
• Logistics
• IT
• AR/AP / Accounting
• Office / Warehouse Management
• Human Resources
• Quality Control / Regulatory
• Accounting / Finance
• Pricing / Contracts

Product Management

• Marketing Management
• Product / Category Managers

Administration / Senior Management

• C-Suite (CEO, CFO, CIO, etc.)
• Legal
• Investor Relations

Sales recruits are told that distribution is a sales- and marketing-driven business. This industry is all about moving boxes, profit margins are thin, and overhead is significant when staffing and leasing one million plus square foot warehouses around the globe. The industry has experienced growth in excess of inflation averaging around 5%  in typical years; however, it has also seen downturns, especially when government funding is reduced. The market forecasts for growth have nearly always painted a rosier picture of the projected growth rate. The growth rate is projected to be 6.82% from 2024 to 2032 according to Verified Market Research.

The top three keys to success in this industry depends on:

1. Cash flow /cash management
2. Extremely careful inventory management (only stock what turns at least 13 times per year; prevent waste, such as expired goods)
3. Vendor management  (Extract more margins, negotiate rebates, private label products and extract cash in any way possible from suppliers)

You will note that none of these tactics depend on winning new business!  In fact, they have nothing to do with how good, bad, or large the sales force is. In other words, lab supply distribution is a FINANCE DRIVEN business that likes to pretend to be sales- and marketing-driven.

Is the grass greener on the other side?

With just two major players, the goal is to never let the competitor get a leg up. Employees who leave one company are often hired by the competition. Their knowledge is shared, so there are very few secrets. If you don’t like what you see at employer A, you can assume they will be the same at employer F. The operations will be nearly identical.

Growing a business in an industry that doesn’t grow very much

Fact:  Customers in the lab supplies business are very reluctant to change suppliers

In some cases, customers are so loyal to their current supplier that they will treat any competitor who approaches them with hostility!  (Those unlucky enough to get the rare face-to-face meeting.)

I have heard many reasons for this strange behavior, but I’ve never encountered a customer who will admit to consciously shutting off competition. You see this behavior, but no one will admit to it primarily because they know someone in their organization realizes that without competition, prices will go up.

These are facts that the new recruits will probably never hear. If known, they will be ignored when all the success stories are related by the recruiter. 

What the new sales representative soon learns is that the sales territories they are given are nearly always the ones that are open because the last rep failed and was fired or quit. Territories that are highly profitable and growing are occupied by tenured, experienced reps. This is why the churn rate of new reps is so high, and why these territories seldom see any progress.

How long does it take for a new sales rep to become productive?

My best guess is two years. Companies could never tolerate a two year ramp up period so this opinion is not shared in public conversation. A six month “official” training period is carved in the corporate stone tablets.

The problem is that distribution companies can’t tolerate reps who aren’t showing “results” after 6 - 12 months. Unless they are lucky enough to have a new lab startup or some other once-in-a-decade customer purchase happen within the first year, the new hire will be terminated long before they ever reach full potential. Some of the most common mistakes made by new reps is described in this online paper published by Peter T. Francis in Advance for Administrators of the Laboratory in March 2009. This article is definitely worth a read by all sales representatives.

Taking business from a competitor

As I have stated in previous blog posts, there are just a few events that can trigger a change in primary suppliers:

• The supplier screws up to the point where money or customer revenue is lost.
• The head of procurement changes, or the lab is acquired by a new person in charge prefers a competitor.
• The lab is contractually forced to make a change by someone of much higher rank that signs a contract with the non-incumbent vendor.

That is a very short but complete list. In the past (see Francis article above), close relationships could develop over time between a sales rep and the customer. In some cases, business could slowly migrate from the primary supplier to the one employing the rep with a better relationship. This shift causes the employer to worry that if the employee goes to work for the competition, the business will follow the sales rep. In the post-Zoom era, personal relationships are much harder to establish via phone, chat or email. This lack of relationship is considered a win for the distributor.

Managing the mix - the best you can hope for

With business so hard to extract from an entrenched competitor, the best a rep can do is what’s known as “managing the mix.”  This term simply means getting an existing customer to switch from product A with lower profit margins to product P with much higher margins. P is used here to indicate “Private Label” products. Commissions are weighted heavily toward higher-margin items such as private label products, and since so few actual “wins” happen, the metric used to judge reps is the amount of growth they can produce in private label products over time.

From a customer perspective, is a private label product as good as a trusted brand?  Sometimes but not always. For example, companies have been trying for many years to come up with a Private Label product equal-to-or-better than  Kimwipes with little success. It’s experiences like these that make customers leery of switching from a trusted brand. No need to lecture lab folks on being careful!  It’s in their DNA.

A day in the life of a distributor sales rep

Travel, expense accounts, hotels, life on the road!  Going to national sales meetings at resorts in the dead of winter!  What a great life for a young professional!

Actually you are going to spend the vast majority of your time with a cell phone in one hand and a laptop in front of you in your home office. You will be generating quotes. You will be constantly answering the “where’s my stuff?” questions. You will be able to get a few actual appointments with friendly customers, maybe quarterly. More likely you will be called to an account when the customer wants to complain to someone.

You will send out emails with PDF attachments with new products and promotions (the latest item to be private labeled!)  You will tend to mailing lists. You will soon discover that the response rate to emailed promos or newsletters is near zero and it’s all a big waste of time.

You will be required at the beginning of each year to generate a business plan. The point of this absolutely worthless exercise is to get you to think about what you are going to be doing for the next twelve months, put it down on paper in a format guaranteed to impress management and HR, and be held up as an example to all the other sales reps who don’t excel at fiction the way you do. Sure it’s a big waste of time!  Just do it. Remember, they are paying your wage and that’s what they want. If they want to fire you, they now have the plan you never executed down in writing.

Vendors have been promised that they will be able to go see customers and travel with the reps. So you will be contacted by vendors requesting “work days.”  This puts you in a really awkward position. You can’t just say, “I can’t get in to see anyone!”  If you reject the offer outright, they will complain to management and this will be reflected on your performance review (see below.)  The best strategy is just set up a meet and greet at a local restaurant, let them have your attention for an hour, take their freebies and go back to your office and do some more quotes.

Finally, you will be subject to bi-annual performance reviews. These will be conducted by managers who may never have worked with you and only conversed with you by phone. If your numbers are good and you haven’t gotten on the wrong side of your manager, you can expect a good review. If your numbers are bad, you will get a bad review unless, of course, you ingratiate yourself with the manager doing the review. 

Back at the ranch…

By ranch, we mean warehouse / HQ - order processing and order fulfillment. PO’s pour in every day. The lower the interaction by human beings per order, the higher the profitability. Millions of dollars have been invested in software and technology to automate this process from the point you click “Submit” in your shopping cart to the moment it is delivered to your loading dock. The most important element is that you have been billed!

Profits begin to erode each time there is a customer - company interaction:

• Calling the toll free number and working with a CSR to help you find an item.
• Contacting a sales rep to obtain a quote on an item rather than paying full list price.
• Returning a product that is broken, mis-shipped, expired, etc.
• Calling to complain about a mis-priced item or excessive fees.
• Having the collections person contact you about late payments.

There are many more examples, but you get the point. With all that sophisticated software, these companies know who the “resource hogs” are. If you are one of them, your pricing will reflect your intensive use of resources.

So why have sales reps at all?  The sales force is primarily there because of the vendors. For the vast majority of customers a CSR could do the job. In major accounts, having a rep physically available may be required by contract. Having eyes and ears this close to a major buyer is a must.

Big distributors invest their money in-house and focus on maximizing the profitability on all those day-to-day transactions from customers. Uber-loyal customers may complain from time to time, but the vast majority will never notice.

How do people get to the top in this industry?

Appearance

Someone with a “stage presence” has a better chance of advancement. Physically attractive men and women have a much higher probability of rising up in the ranks. It’s not fair, nor is it right. It’s just the facts.

Stage presence also includes the ability to communicate effectively. Strong accents are not a plus. Knowing when to speak and - most importantly - the correct corporate buzzword to deploy at the right time is vitally important.

What works and what doesn’t

Points in your favor:

• Having played college sports preferably at a Division 1 school
• Having been a military officer
• Being related to an important customer or a corporate executive in some associated field
• Having worked for a vendor or for the “other guys”
• Having an optimistic personality
• Being likable
• Having the ability to flatter your boss.

Points not in your favor:

• Having a Ph.D
• Being overly blunt
• Being pessimistic or negative
• Having unusual personal style  (e.g., piercings, tattoos that show, etc.)

Intelligence

Assume that everyone in this industry is as smart or smarter than you - especially customers. You may be the smartest person but if you behave that way, your career is guaranteed to be short. Be aware, many managers may feel threatened if  they perceive their reports to be more intelligent or capable than they see themselves.

The best use of your intellect is to learn all you can about the products that will help solve a customer’s problem. The quicker you learn this information, the better off you will be.

It’s who you know

More than any other path to success, the winning formula is to befriend someone above you who is a “shooting star.”  Hitch your wagon to them, and watch your career take off! Be careful though. Shooting stars tend to have a short lifespan and when their glow goes out, you need to be on a life raft.

I’m a customer and all of this rep talk doesn’t seem to apply to me?

Fair point. Here’s why I believe that  the above helps you, the buyer.

You need to know who you are dealing with

Who are the key decision makers at the company you are buying from?  What are their motivations?  Are they being honest?  Where are the true levers of power being pulled, and by whom?

A long-term sales rep who really knows the business is a tremendous asset. What makes a tenured rep so valuable, is that they work so hard on your behalf - even though they are constantly struggling against the tides they face from their company. It’s a fine line, and only the best can walk that tightrope.

Alternatively

There are many expats that came from this grueling environment. I’m one of them. I was so tired of seeing my customers being taken advantage of that I came out of retirement, and with the aid of my family formed LPS in 2013.

Everyone should be entitled to a great advocate. Honesty is never optional. The world has changed and working remotely is now the norm. Everyone has access to the best representation the industry has to offer no matter where in the world you may be.