Capturing New Profits from Services

William Gibson, the great sci-fi writer, once quipped: “The future is here, it's just not evenly distributed.”

Keep that quote in mind when you read Buyers look for value from electronics distributors from the 2/15/07 Purchasing magazine. I like to study distributors in the electronics industry because they provide early insight into the evolution of other distribution industries, even though the dynamics and products can be quite different.

Here are two representative quotes from the article:

• “Distributors who have survived have gotten away from competing on price and try to sell services … Those distributors that tried to compete just on price aren't around anymore.” – Robin Gray, executive vice president of the National Electronic Distributors Association
• “We have crossed the point where more than 50% of the business we do today is substantially more than just parts.” – Dave Bowers, president of distributor Nu Horizons Electronics

As I point out on page 63 of Lead the Way in the Supply Chain, management’s internal assumptions and beliefs are often the biggest barrier to capturing new profits from fee-based services. When asked about fee-based services, one executive from a hydraulic and pneumatic products wholesaler-distributor told me: “Culturally we always gave this away. It’s amazing what we can charge with no questions asked!" (There are four more eye-opening quotes on page 63.)

Do yourself and your company a favor by reviewing this article with your management team, and then discuss questions 5 & 6 on page 68 of Lead the Way. Ideally, this exercise will challenge any outdated preconceptions and open your eyes up to new profit models.