Olsztynski Editorial: The Missing Link
Supply Chain Management (SCM) in the PHCP industry pertains almost exclusively to EDI transactions between vendors and distributors. Yet, when it comes to the cost-cutting that SCM is supposed to address, this is only chipping away at the tip of the iceberg. The typical wholesaler might have as many as a couple of hundred vendors, but does business with thousands of contractors. Vendor purchases typically occur less than a dozen times each year, while many contractors buy several times a month. Surely whatever savings SCM has to offer at the first step of distribution could be multiplied at the next.
Little attention has been given to contractor SCM because few contractors have the computer technology and savvy to make it work, and even those who do tend not to have the wherewithal. They don't see savings worth the time and effort, and some resist getting so intimate with a given supply house.
Yet, something interesting is happening behind the scenes that could give a jump start to contractor/wholesaler SCM. The Mechanical Contracting Foundation (MCF) of the Mechanical Contractors Association of America (MCAA) is funding a study titled "The Value Chain - Adding Value to the Supply Chain." MCAA represents some of the biggest mechanical contractors in the country.
Heading the study is Iris Tommelein, Professor in Construction Engineering and Management at the University of California, Berkeley, and Faculty Affiliate of the Business School's Supply Chain Management Institute. Her research will focus on the relationships between mechanical, service and plumbing (MSP) contractors and their wholesaler-distributors. The ultimate intent is "to remove waste from a value chain and streamline it."
EDI per se is not addressed in Prof. Tommelein's proposal, but it seems almost inevitable that automated purchasing will end up identified as one of the efficiencies that add value to a supply chain."How can MSP contractors best structure their supply chain relationships ¿in order to remove waste and maximize value in the overall chain? The purpose of the research is to identify best practices and industry challenges to achieve process improvements in the MSP supply chains," she wrote.
I have my own theory why PHCP wholesalers seem to lag behind most other distribution industries in adopting modern technology. Some of it has to do with the prevalence of big, bulky products that don't lend themselves to automated order processing as well as little packages. Another aspect simply has to do with our industry's down-to-earth culture. Many wholesalers get turned off by the jargon-laden language of IT specialists and academics. They might as well be talking classical Greek.
Cut through the leaden language, however, and you'll find a pretty simple quest. The MCF study wants to help mechanical contractors identify which suppliers are most worthwhile doing business with beyond the low bid.
In fact, I'm going to go way out on a limb here and predict a conclusion of this study once it has run its course.
I think the researchers will end up recommending that contractors look to reduce the number of wholesalers they do business with. Most contractors buy from at least a half-dozen supply houses in the course of a year, and relatively few channel more than 25% of their purchases with a single one. They feel compelled to spread business around due to the price-shopping imperative and to assure themselves of getting what they need when they need it.
Understandable motives, but they lead to inefficient and short-sighted business practices. The MCF study would do its constituency a large favor if it could put some credible data together measuring in dollars and cents the distinction between price and value. This would serve as a springboard for mechanical contractors to look to partner more closely with worthy distributors.
The wording of Prof. Tommelein's study proposal does not suggest she will be looking beyond the wholesaler channel as a way to shore up the "value chain." This doesn't mean the researchers won't explore direct sales from manufacturers or other potential supply sources - it would seem almost negligent on their part not to do so. Yet, there seems to be a common understanding within the mechanical contracting community that good wholesaler-distributors earn their keep. They don't seem to be looking to do an end run around you folks. They just want to be able to figure out which distributors give them the biggest bang for their material bucks.
This is good news for the PHCP wholesaler-distributor channel overall, but maybe not so good for wholesalers with a "business as usual" mindset. MCF's "Value Chain" study is scheduled for completion at the end of June 2004. It promises to be an eye-opener.