From the largest industrial conglomerate in smokestack America to the smallest machine shop in an industrial park exists a market for electrical supplies that accounts for roughly 34 percent of all sales through electrical distributors.
This market will account for almost $26 billion in electrical product sales in 2002, according to Electrical Wholesaling magazine's “Regional Factbook” (EW — November 2001). When people think of the industrial market, too often they just think of massive industrial plants — assembly lines building minivans; steel plants with huge vats pouring molten steel into forms; or colossal factories cranking out the products that fill the shelves of every Main Street shop or big-box retailer. But a huge portion of the industrial market is in the smaller but more numerous manufacturers that produce products built into other products — the seat covers for that minivan; the machinery that mashes and molds that steel into other products; the packaging for those items on a store's shelves; and for zillions of other types of products or businesses. Thousands of smaller customers exist in a broad array of industries, including pulp, paper and timber; chemical manufacturing; refinery operations; bottling; packaging; machine-tool building; food processing; military and aerospace products; and heavy industrial and construction equipment.
These industries have an enormous appetite for electrical products. They buy lighting equipment; wire and cable; fittings; connectors; terminals; conduit and wiring systems; motors and motor controls; hazardous locations equipment; sensors; programmable logic controllers (PLCs); circuit breakers and fuses; switchgear; fiber-optic cabling and other datacom products; power conditioning equipment; signaling equipment; building management systems; machine-vision systems; bar coding equipment and electricians' supplies. Check out the illustration on the next page to see how these products might fit into a typical industrial application — and provide a sales opportunity for your company.
Selling a package of products ranging from tiny wire terminals to towering motor control centers, as well as stocking and talking knowledgeably about the hundreds of related products is not an easy task. This article provides an overview of the industrial market for newcomers to the electrical wholesaling business, as well as for industry veterans who want to brush up on the basic trends shaping this market and discover new strategies for scaring up industrial sales opportunities.
While the electrical systems are often much larger in industrial facilities than in the commercial market, with a few notable exceptions such as PLCs, industrial sensors and hazardous locations equipment, the products used in the industrial market are in the same basic product families as those used in commercial applications.
Electrical products designed for industrial applications often are a bit brawnier than their brethren in the commercial world, but that's usually a function of the size of the electrical system and the sometimes atrocious living conditions they must endure. Electrical products in industrial applications are tortured with extreme heat or cold, oily mists, corrosive liquids or gases, water, dust and grime, or potentially explosive environments. That's why industrial electrical products and systems must be carefully protected with the proper wiring systems, enclosures, junction boxes, or, in the case of wire and cable, tough insulation.
To get a fix on where the best sales opportunities are in the industrial market, let's first take a look at the other key trends shaping this business:
The key market indicators that track the industrial market reflect the sagging overall U.S. economy. One thing about the industrial market has held true over the years — when it's strong, business can be very, very good for the electrical wholesaling industry. But when your industrial customers are suffering from a dearth of demand for their products and they are not building new production lines or refurbishing existing facilities, business is tough. These economic indicators can help you judge this market's health: capacity of utilization, machine tool orders, durable goods orders, the Purchasing Managers Index, and Construction Put-in-Place statistics. Let's take a look at what these indicators say about today's industrial market.
Capacity of utilization. This statistic follows manufacturers' industrial capacity and how much of it is being used. The latest numbers available at press-time were not encouraging. According to the Federal Reserve Board, total capacity of utilization edged down 0.2 percent in January, to 74.2 percent, a level well below its 1967-2001 average of 81.9 percent. Because investment is expected to remain weak, capacity is projected to expand only 1 percent in 2002, the slowest rate of increase for this statistic since it began in 1967. You can find these statistics on the Federal Reserve Board's Web site at www.federalreserve.gov/releases/G17.
Machine tool orders. This is an important statistic because it measures the sales of the machines on the factory floor that do the actual shaping, cutting, bending, forming and perform other manufacturing processes. According to the American Machine Tools Distributors Association, last year's orders for machine tools were down 46 percent from 2000, and down 55 percent from the machine tool's industry peak year of 1997. However, December 2001's orders came in at a 6.9 percent increase over November 2001. These numbers are available at www.amtonline.org.
Durable goods orders. If you want to find out the total monthly sales of big-ticket items such as automobiles, refrigerators, computers and other electronic equipment, track the durable goods orders posted each month by the Department of Commerce at www.census.gov/indicator/www/m3/index.html.
Purchasing Managers Index (PMI). The Institute for Supply Management, formerly known as the National Association of Purchasing Managers (NAPM), offers a wide variety of statistics at its Web site, www.napm.org, on the purchasing activity of manufacturers and service companies. One of the many useful statistics on this Web site is the Purchasing Managers Index, which tracks purchasing activity on a national basis, as well as by industry. ISM's PMI is 54.7 percent in February, an increase of 4.8 percent from the 49.9 percent reported in January. This is the first time that the PMI has topped the 50-percent mark since July 2000.
Value of construction put-in-place (industrial). The Department of Census tracks construction of various market segments on a monthly basis. Construction on industrial facilities in January 2002, the most recent report at presstime, had fallen 34 percent from January 2000, but had edged up slightly over December 2001. These reports are available at www.census.gov/pub/const/c30_curr.pdf.
Maintenance, repair and modernization of electrical systems continue to account for about half of all electrical work performed in industrial facilities. New construction of industrial facilities often directly depends on demand for the products that the plant produces. It's also affected by local or national economic trends and the financial health of that company. As in any new construction market, distributors ride the ups and downs of new industrial facility construction. When the construction of new industrial facilities is hot, the sales potential is huge. But when customers are not building new facilities, distributors must take advantage of the more consistent demand for electrical products needed for the repair, retrofit and modernization of existing buildings.
The nice thing about this market is that it's seldom as cost-sensitive as new construction work. The gross sales dollars may not be as big, but the profit margins tend to be much higher. Customers need distributors that can react immediately on their demands for repair products, and price is seldom as much of an object when a key assembly line is down because of a malfunctioning electrical component.
A relatively small group of manufacturers produce huge amounts of the products for the industrial market. A full-line electrical distributor probably isn't a big player in the industrial market if he or she doesn't stock at least one of the following lines: Rockwell Automation/Allen-Bradley Co., Milwaukee, Wis.; Cutler-Hammer/Eaton, Pittsburgh; GE Distribution & Control, Plainville, Conn.; Siemens Energy and Automation Inc., Alpharetta, Ga.; or Square D Co., Palatine, Ill. Siemens, Cutler-Hammer, GE and Square D provide not only industrial control and motor-related products, but broad distribution equipment and switchgear packages, too.
Rockwell/Allen-Bradley has a different focus. Until its 1994 acquisition of motor giant Reliance Electric Co., Cleveland, Allen-Bradley focused solely on motor controls and automation systems. The company now not only focuses on these products, but the industrial software that tells this equipment what to do.
One of the more interesting trends in the industrial market is the consolidation of Rockwell Automation/Allen-Bradley's distribution network. Historically, this company had the most selective distribution strategy in the United States, with about 400 electrical distributors committing up to half of their entire stock and sales to the company's products. However, several of the largest Rockwell Automation distributors have been purchasing other companies that have the franchise or merged with other Rockwell distributors, and there are fewer total companies offering this product package. McNaughton-McKay Electric Co., Madison Heights, Mich., has purchased several Rockwell/Allen-Bradley distributors throughout the Midwest in recent years, including Kiemle-Hankins Co., Toledo, Ohio, earlier this year; EMCORP, Columbus, Ohio; Findlay Electric Supply Inc., Findlay, Ohio; Advance Electric Supply Co. Inc., Flint, Mich.; and Tab Electric Supply, New Bern, N.C.
In other big industrial market news, RERO Distribution Companies, Inc., Rochester, N.Y.; Holmes Distributors, Inc., Portland, Maine; and Oakes Electric Supply Inc., Holyoke, Mass., merged in 2000 to cover much of New England and upstate New York.
Integrated-supply arrangements lose some of their luster. Five years ago, you could not pick up an industry publication without reading about a new integrated supply agreement. In these arrangements, noncompeting distributors of industrial, MRO and construction products band together to offer mutual customers a single-supply source for many MRO needs. These integrated-supply partnerships tend to target the largest industrial customers, but they also work for large companies with multiple facilities such as Fortune 500 service companies and utilities.
At one time, there were more than a dozen of these groups of distributors operating in the electrical industry, but that numbers seems to have decreased in recent years. One reason is their expense. They often require that participants communicate via electronic data interchange (EDI), conform to the ISO 9000 family of quality standards and meet tough delivery and order-fill requirements. There are also whispers that when renewal time comes around, many customers are not only demanding the high service level and cost savings that integrated supply can offer, but price discounts, too. As a result, fewer distributors are interested in integrated supply agreements, and they are leaving the field to the companies that have traditionally focused on servicing these agreements.
Today, the biggest players in integrated supply include Cameron and Barkley/Hagemeyer, Charleston, S.C., W.W. Grainger Inc., Skokie, Ill., and the Vantage Group. Cameron and Barkley is the biggest single player in integrated supply, and its expertise in this area was a key reason that Hagemeyer NV purchased the company in 2000. Integrated supply contracts account for a larger portion of CamBar's total sales. Since that acquisition, Hagemeyer has bought several other distributors to services these agreements.
Another player is the Vantage Group, which provides multi-location support to industrial and commercial accounts on a national account basis. Its members are Crescent Electric Supply, East Dubuque, Ill.; McNaughton-McKay; Platt Electric Supply, Beaverton, Ore.; and Rexel, Inc., Dallas, through its Westburne and Branch Group operating companies.
More electrical contractors are being hired to do on-site maintenance work at manufacturing facilities. Your industrial customers can cut operating costs by farming out their electrical service work. This is an important trend for electrical distributors, because it can change the buying influences. Check with industrially-oriented electrical contractors in your market to see if they are involved in this type of work.
Advances in the centralized control of the manufacturing process and electrical systems continue to create new sales opportunities for electrical distributors in what's now called “datamation.”
As the automation of the factory floor has evolved over the past 25 years, end users have been able to monitor, collect and process unprecedented amounts of information. For years, distributors provided the hardware that made this happen, such as programmable logic controllers, sensors, relays, pilot lights, variable speed drives, enclosures, cabling and related connectors.
But as the need to collect and process this information increased, distributors' customers began asking for high-speed communications systems to carry information from the factory floor to the corner office, or to other facilities. This information is carried on industrial communications networks usually constructed of shielded twisted-pair cable, coaxial cable or fiber-optic cabling.
Datamation has created new sales opportunities in voice/data cabling products that didn't exist several years ago, and is attracting a lot of interest in the distribution community. For instance, Graybar Electric Co., St. Louis, Mo., is mounting a major initiative to go after the automation market. While the company has for years supplied industrial facilities, it's blending its experience in voice/data products with its more traditional electrical products package to provide a full basket of solutions to industrial customers.
The automation software that customers use requires expertise in both software and hardware. It's no longer enough to just provide the “nuts-and-bolts” for the factory floor. Distributors' customers are looking for a one-stop solution in supply and software programming. In fact, the software has become such a big part of the sale that products such as PLCs that were once considered the highest of high tech have become commodities. This trend means that distributors either must have the programming capabilities on staff or partner with companies such as systems integrators that have this expertise.
Remote management of an industrial facility's electrical system offers real-world benefits to your customers — and provides a solid sales opportunity.
End users can now use power-monitoring systems to put a computer in the maintenance foreman's home so he can monitor the night shift without having to rush back to the factory. These systems can also immediately alert maintenance personnel of blown breakers, power fluctuations, energy usage and dozens of other electrical measurements.
OSHA has gotten more serious about trying to stop electrical accidents on the job. The Occupational Safety and Health Administration (OSHA) continues to enforce its regulations to make industrial plants safer workplaces, and these regulations have created sales opportunities for electrical distributors. The “lockout-tagout” rules require industrial facilities to use specially designed lockout tags to ensure the circuits electricians are working on cannot be inadvertently energized by other workers. Other requirements call for proper signage, GFCI protection of many electrical circuits, and frequent inspection of portable cords to ensure that they are always in safe working order.
New products and manufacturing processes replace the familiar ones. New products that do jobs better, faster or at less cost than traditional electrical products will continue to attract customer interest. For instance, new types of cable tray systems offer customers more options in wiring systems; the move toward modular electrical equipment has increased the demand for multiple-contact connectors; and ribbon cable and insulation displacement connectors are finding their way into more OEM applications.
Next month's installment: The Commercial Market
Editor's Note. Some of the most popular articles that Electrical Wholesaling has run in the last 10 years were part of a series on the key market segments in the electrical wholesaling industry: commercial, industrial, residential, utility, voice/data, schools and hospitals.
The electrical market has changed significantly in the past 10 years. To reflect this evolution, Electrical Wholesaling is updating this series in monthly installments.
The articles are written for new employees at electrical distributors, independent manufacturers' reps and electrical manufacturers, as well as for industry veterans who need to brush up on a particular market segment. The articles use cutaway drawings to highlight the sales opportunities in each type of facility and are written with a “Beginner's Guide 101” flavor to walk readers with little knowledge of the electrical market through the material. These articles are also part of “The Electrical Marketer's Survival Guide,” which has become a popular training resource available in a book and on a CD-ROM. It's available by calling (913) 967-1946.
With these fast-changing trends, as well as the overwhelmingly technical nature of many of the products, the industrial business can quickly become quite confusing for newcomers to the electrical industry or the industrial market. Don't despair. The following basic sales strategies have withstood the test of time in the industrial market. You can increase your chances for survival in the industrial jungle by committing to these basic concepts:Know thy customer
It all starts with homework. For starters, you must determine a customer's product needs. That means you have to find out what type of equipment is already installed and who manufactured those products. You also must know which employee or employees have the most impact on the purchasing decision and what these buying influences want from an electrical distributor. Develop a standardized customer profile to help gather the appropriate information.Know thy competitors
Identify your customer's primary suppliers, and familiarize yourself with the services, strengths and weaknesses of those competitors.Know thy stuff
If you don't really understand the technical basics of the products you sell, travel with a company product specialist, inside salesperson, independent rep or factory salesperson who does. The industrial market is the most technical of all the market arenas in the electrical wholesaling industry, and product expertise is a huge value-added benefit that you must offer the customer.Experience the applications
There's no substitute for getting out on the plant floor and learning more about the working environment where your company's products live. Many of these products are specifically designed for the industrial market's adverse environments. Knowing the neighborhood can help you make more informed product recommendations and keep your customer in line with the necessary National Electrical Code (NEC) regulations, particularly in the area of hazardous locations. Tour the plant on a regular basis to keep abreast of any changes in equipment, or upcoming repair, retrofit, modernization or new construction work. If your customer will let you, don some coveralls and spend a full day on the plant floor to check out their world. It will be a great opportunity to familiarize yourself with the electrical system, meet the plant personnel and get a feel for the flow of how things work. The customer will usually appreciate your interest.Be there or be square
Service sells in this market, because the cost of a malfunctioning assembly line can be measured in thousands of dollars per minute. If your company is in the MRO market, it isn't a player unless it offers 24-hour emergency service and delivers on its promises to keep salespeople accessible through cellular phones, e-mail, pagers and all other modern and not-so-modern tools of communication.Build sales by helping customers save energy — and cold cash
The potential cost-savings of energy-efficient products hits home in the industrial market. Energy-efficient lamps, lighting controls and related lighting equipment; variable-speed drives; energy-efficient motors; PLCs and power-monitoring equipment can slash operating costs for your customers.Offer your customers regulatory relief
As mentioned earlier, OSHA and NEC regulations often create sales opportunities for electrical distributors. On your plant tour, check to see if the present electrical system and any planned modernization fall under the classification system in the NEC's Chapter 5 for hazardous locations. And while on that tour, don't forget to look for applications for lockout-tagout devices, signage or new portable cords so you can save your customer a headache or two when confronted by an OSHA inspector.
Sizing up sales opportunities — You can use the following questions to evaluate a customer's needs, find out the key buying influences at that facility and define what they expect from their suppliers.MRO customers
- What is the plant's engineering structure and role in product selection?
- How many electricians does the plant have by shift?
How many electrical foreman are present each shift?
- What are their names, addresses and phone numbers?
- Can these foremen use any products they want?
- Who is the head of electrical plant maintenance?
- Who reports to the head of electrical maintenance?
- Can stores buyers change parts numbers on their own?
If not, who initiates the change and why would he or she make it?
- Who writes requisitions, and are those sent to purchasing or the stores room?
- Which distributor does the account prefer to do business with? Why?
- Does the account have blanket or systems contracts with these distributors?
- What influences do local codes have on plant electrical installations?
- Are there any electrical contractors favored for plant expansions, major rework projects and machine setting contracts? If so, who are they?
- Do these contractors furnish time-and-material, or labor only?
- If these contractors furnish time-and-material, who decides on the brand to be used? Who influences that decision?
- Are you in contact with the electrical superintendent and/or the foremen on these jobs?
- Does this account build its own electrical panels? If not, who does?
- Does this account have strong specifications? Who writes them?
- What is purchasing's view of “Just in time”?
- Does purchasing favor suppliers with a Total quality program?
- Does this company allow vendors to hold on-site product training seminars?
- How are distributors or manufacturers evaluated?
- What is the account's primary product?
- Who are their customers?
- Who heads design engineering and what is that department's structure?
- Who heads manufacturing engineering?
Who reports to manufacturing engineering on the plant floor?
- What are the labor rates?
- Do they buy your type of material from distributors or direct?
- Which distributor provides the best service? Why?
- Do they have contracts with electrical distributors? If so, which ones?
- How often are these contracts negotiated?
- Where are their other (if any) plant locations?
- Do they subcontract assembly work? To whom? What type of work? Where?
- Who is involved in making a decision on a new product?
Who has the final authority?
- How big in sales dollars is this company?
Conveyors & conveying equipment
Machine tools and accessories
Materials handling equipment
Specialized industrial equipment for woodworking, food products, metalworking and the paper & print industries
Farm and construction equipment
Elevators and escalators
Refining (chemical and petroleum products)
Pulp & paper
Ammunition and arms manufacturing