The Buying Group Experience
Charlie recanted, somewhat. In another editorial titled "Buying Groups - From a BIG NO to a little yes," published in March 1981, he explained his original antipathy as follows: "The tone of those articles would have been very different, and the hostility much less, if at all, had the buying groups not given us the 'stonewall' treatment when we sought to interview them. They wouldn't return our phone calls or answer our letters. They acted like they were a secret society up to no good; very furtive about it all, as though something were going on that could not stand the light of day ... To a journalist, this is like a red flag to a bull."
Many things have changed in the ensuing decades. Buying groups have carved themselves a large niche in this industry's culture. Charlie Horton died in 1989, and to a large extent so did the controversy over buying groups - except for the few crusty die-hards described earlier. Leaders of all the buying groups generally return our phone calls and will talk to us off the record. But one thing has not changed with most.
All except one still stonewall when it comes to saying anything of substance for the record or inviting us to their meetings. The latter is especially important from our point of view. Nothing substitutes for personal contact. We understand the need for privacy in certain matters, and are willing either to forego certain sessions or not report on what transpires in them at buying group gatherings. But to exclude the trade press altogether from these increasingly significant industry events conjures up images of that "secret society" that so ruffled Charlie Horton's feathers.
This coverage was planned as a review of activities of all the buying groups in the industry. However, rather than accept half a loaf from some, we decided to focus only on the one organization that has extended full cooperation with us - not just on this story, but throughout the years. That's Omni Corporate Services, founded in 1980.
(The Fort?uying Group, dedicated to decorative plumbing and hardware, and Bath & Kitchen Buying Group also have been most cooperative. We've excluded them from this coverage only because
they are somewhat on the periphery of the plumbing industry with relatively
few PHCP wholesalers as members compared with the mainstream plumbing industry buying groups. We may do a close-up review of their activities in the future. For more information, visit their Web sites at: www.fortebuyinggroup.com and www.bkbg.com.)
On behalf of the entire industry, we offer thanks to Omni president Bob Hoff, who was reasonably forthcoming in the following interview, although he did decline to answer a few inquiries for proprietary reasons. Just as we cherish the right of free speech, we'd like to inform all the Nervous Nellies out there that we don't begrudge anyone the right to withhold information they'd rather not see in print before tens of thousands of readers. It's a question of balance. Talk to us about some matters of interest to the industry at-large, and we'll be happy to safeguard your deepest secrets. Treat us like pariahs, we are likely to feel insulted.
I'm not up to a Horton-style tongue-lashing, but I do think the groups that act furtively are doing themselves, their members, their vendors and the PHCP wholesaling community in general a disservice. We're all aware of the black eye the business world as a whole has acquired with investors due to widespread accounting scandals. This is a perfect time for business executives to open up and reveal themselves as something other than a pack of thieves and liars.
For now, the stage belongs entirely to Bob Hoff and Omni.
HOFF: One of the more important things is a framework for "focused networking" - the ability to get together with non-competing wholesalers to exchange thoughts and ideas on a wide range of subjects such as incentive programs, contractor promotions, showroom operations, inventory control, etc. The level of dialogue and camaraderie found at these sessions creates a learning experience not found elsewhere in our industry. Also, throughout the year, members make contact through the Omni office to find out what other members are doing in areas such as computer and software purchases, expansion plans, security, compensation programs, and more. Omni directs members to those who have had experience in the areas requested.
Promotional opportunities are another area that have become extremely important to the Omni membership. Promotional vehicles such as the Frequent Buyer Incentive program, Spotlight Vendor, and the Omni Road Show are exclusive to the membership and have become instrumental in building participation with supporting vendors. Omni also encourages individual and exclusive promotional opportunities with each vendor.
What are Omni's criteria for membership?
HOFF: Generally, potential members must show that they are able to add value to the Omni membership. Purchase level is important as well as geographic consideration. It is not Omni's objective to add members on every street corner. The value is diluted when a member's competition has the same services.
Just as important is a potential member's credit standing within the industry. Maintaining a highly favorable credit position with our supporting vendors is required by our Member Agreement and Participation Policy. Omni also monitors credit position with our vendors for possible action.
If I were an independent wholesaler looking to join a buying group, why should I choose Omni over any others?
HOFF: Seven years ago, I would have stumbled over the answer to this question. Today, I sincerely believe for a wholesaler at any level that Omni offers a wide range of opportunities that cannot be achieved through any other affiliation. The dedication of the membership and the board of directors has resulted in a 340% increase in purchases through the Omni group over this period. With the change to 100% member ownership and implementation of a strong Member Participation Policy, Omni and its vendor partners are assured of the strength of our independent wholesaler members as we look toward the future and the growth of our industry.
As with most buying groups, opportunities to join are quite limited. It is both an honor and a reward for a distributor to become a member of Omni. Aside from the fact that the cost of membership (and even the costs to attend our events and meetings), are subsidized, the value of belonging to Omni goes well beyond the dollars saved on the buying programs.
What's a ballpark figure on the costs and benefits of joining and participating in Omni?
HOFF: It goes without saying; the benefits far outweigh the costs. The amount earned by each member within Omni is dependent upon their participation level. One of the most significant developments within Omni was the implementation of the Member Participation Policy. A member has the ability to earn more than 100% of generated discounts and rebates. But that is proprietary information. No new member has ever been anything but positively surprised by the return they have received.
On what grounds might wholesalers be excluded from Omni?
HOFF: A potential member may be excluded due to geographic considerations, credit standing, or whether they can add value to Omni and its long-range plan.
Would any of the national chains be allowed to join if they saw fit to apply?
HOFF: That would require evaluation by the Omni Board of Directors. Again, one would have to add value to the Omni membership as a whole.
Do you permit members to participate in other buying groups?
HOFF: Omni has allowed participation in other groups who offer product not related to Omni product offerings, such as electrical, lighting, building supplies, and so on. This continues to be reviewed as the group continues its growth.
What criteria do you place on participating vendors?
HOFF: As with our membership requirements, it is not our objective to have every vendor in a product category, although we would probably have two sources of supply in a product category for obvious reasons. The Vendor Committee goes through a lengthy process of surveys and evaluation prior to acceptance of any vendor into the Omni program.
It is Omni's goal to have the best vendor partners in every product category. We rank vendors by: 1. brand acceptance, 2. market potential, 3. current member support, and 4. their programs and policies.
As manufacturers continue to grow through acquisition and diversification of product offerings, maintaining clear-cut lines has become more and more difficult. Omni normally adds vendors based on their core product offering and the needs of the group.
Are the discounts standard or negotiated separately with each vendor?
HOFF: Each vendor program is negotiated separately under a variety of criteria with respect to the product category. Programs are proprietary to Omni and vendor confidence is protected.
Do you offer credit protection of any kind to vendors to assure that members pay their bills in a reasonable time?
HOFF: Omni made a change from a central billing process to direct billing a number of years ago. At that time, it was felt that the central billing concept was redundant and served no purpose in adding value. The deletion of this process meant more program benefits could go to the members, where they belong, and that each member would stand on its own credit.
Omni continues to monitor the credit portion of each of its members through a close working relationship with its vendors. If a member does not maintain a favorable credit position with supporting vendors, they face the loss of membership and expulsion from the group. This is spelled out both in the Membership Agreement and Participation Policy.
Your Web site touts direct invoicing to members as a member benefit, but doesn't that undermine one of the functional savings to vendors?
HOFF: Not in our view. Each vendor has its own credit acceptance requirements and credit department. We don't endeavor to change that.
Please explain Omni's member participation incentives to promote vendor purchases.
HOFF: The Omni Member Participation Policy is one of the best promotional vehicles for promoting vendor purchases through the group. It rewards the membership at each level of participation and encourages even greater rewards for increased purchases and the number of vendors from whom they purchase. Without going into specifics, each member can climb the ladder and benefit at each rung in the ladder. We found this to be an extremely successful method in encouraging participation, so much so, that many promotional vehicles reflect the concept.
With the implementation of the Participation Policy the percent of participation has escalated sharply. Also, bear in mind there are usually two options within the group.
Has Omni ever studied how many extra sales go to its vendors beyond that which they probably would have achieved selling to each one individually?
HOFF: Quite often, we find that before a wholesaler joins Omni, a particular vendor may not participate in any of that member's purchases. Once an Omni wholesaler, the majority, if not all purchases, may be switched to the preferred Omni vendor. Due to the structure of the Participation Policy we find that more and more of our members look to switch to Omni vendors. I can see the impact just by the number of potential vendors now knocking on our door.
Manufacturers reps frequently complain about buying group discounts being taken out of their hide in the form of commission cuts, even though they are expected to offer the same services to members. Would you care to comment on this complaint?
HOFF: We firmly discourage this practice! Omni does not take the place of the manufacturers representative. Over the years, we have worked very closely with the manufacturers rep in building and in getting business. The manufacturers rep has assisted us and we will continue to assist them. It is and should be a symbiotic relationship. Keep in mind that Omni has expanded the business of those manufacturers reps with our participating vendors.
Buying groups have usurped many of the functions that used to be performed by trade associations, and have no doubt contributed to the membership decline in ASA and its affiliates. Do you see anything trade associations can do for their members that buying groups cannot or will not?
HOFF: This is a byproduct that concerns us all. We as a group have not looked at taking over the functions performed by the associations. We have tried to avoid political action, setting industry standards, insurance programs, shipping and freight programs, etc. Many of the influential members of ASA and their affiliates are also members of Omni. The industry needs an effective association and we will continue our support.
Is there anything we haven't covered that you think important to share with Supply House Times readers?
HOFF: With consolidations, acquisitions, and continued growth of the national chains, the buying group offers the independent wholesaler an opportunity to remain competitive in a very competitive marketplace. Advantages of buying group membership are many and are being recognized more and more by the industry as evidenced by the ever-increasing number of wholesalers clambering to join. The industry is changing and it is nice to know you have a friend to help you meet the challenges that lie ahead.
Side Bar 1: Omni's LeadershipOmni is governed by a nine-member Board of Directors. This is a staggered Board with each Board member serving a three-year term. Every year three Board members are elected. Territorial coordination does come into play when nominating new Board members; but more important, willingness to serve and an unbiased dedication to Omni are prime considerations.
The following are the current Directors:
Tom Malson (Chairman) - Robertson Supply, Inc. - Nampa, ID
John Broedell - Broedell Plumbing Supply, Inc. - Tequesta, FL
Bill Curry - County Supply, Inc. - Lowell, MA
Bob Edmonds - R Supply Company, Inc. - Reno, NV
Jud Longaker - Mesher Supply Company, Portland, OR
John Mills - WHCI Plumbing Supply Co. - Union City, CA
Larry Skinner - Mountainland Supply Co., Inc. - Orem, UT
Donald Smith - Central Arizona Supply - Mesa, AZ
John Strong - Economy Plumbing Supply Co., Inc. - Indianapolis, IN
More information about Omni can be obtained from the Web site www.thinkomni.com.