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Your advantage comes by creating and building on the ecommerce ldquoumbilical cordrdquo connecting your data into your customersrsquo systems

Estimating Opportunity

Dec. 1, 2015
The electrical market’s dream of a frictionless end-to-end electronic commerce solution may finally be taking shape in a way that online retailers will find hard to disrupt.

Electrical distributors have been working for years to find the best ways of using technology to help their customers select and purchase the electrical products they need. It’s been a challenging quest, balancing the considerable cost of building out a consumer-grade online storefront with rich product data and intuitive yet secure transaction capabilities against the hope that enough customers will embrace it to generate a return.

Despite all the work and investment by companies in every part of the industry and the constant exhortations of consultants and marketing experts that everyone must get into the shopping cart or be left in the dust, the overall volume of sales coming to most distributors from their websites has remained in the low single-digit range, judging from the responses to Electrical Wholesaling surveys.

At the same time, though, a different and in ways more efficient and organic form of electronic commerce has quietly caught on and continues to grow. Contractors’ use of estimating software to streamline the process of building bids has led to a surge in distributor participation. Some estimates say as much as 40% to 60% of some distributors’ sales — particularly for larger commercial projects — are now coming to them through contractor estimating software.

Contractors overall are coming to embrace mobile technology as a vital part of their work flow. A recent survey by Electrical Construction & Maintenance (EC&M) found that an average of 45% of contractors among its Top 50 electrical contractors use mobile devices — tablets, smart phones and laptops — on the job, and of those who do, most use all three.

As estimating software, over 20-odd years of evolution, has come to incorporate specific supplier data on products and more importantly pricing, it has gained the potential to provide the missing link, and with a bit more refinement may finally take the industry where it needs to go.

This is not to say there’s no sense in investing in online storefronts and consumer-grade shopping experiences. Most customers need a variety of ways of finding and buying what they need depending on the kind of work in front of them. A lot of their work doesn’t involve estimating. For maintenance and repair work a familiar and intuitive website storefront is a natural preference, and will grow increasingly important as time brings the connected-from-birth generations into position to make purchasing decisions. But for now, there’s a bigger benefit to be gained by making sure your contractor customer’s estimating system connects effortlessly to your product offerings.

Companies in the data end of the electrical industry have built tools to help you. Two of the most widely used services, NetPricer by ElectricSmarts and Tra-Ser by Trimble (which bought Trade Service in 2012 and already had one of the bigger estimating software packages in the market, AccuBid) endeavor to make it dead-simple for distributors to connect their product and pricing data with most if not all of the estimating software packages used by electrical contractors.

The value of these systems to your customers is that they’ve grown organically out of the convoluted and laborious ways project take-offs have been done for generations in the electrical industry. In the typical scenario, the contractor gets a blueprint and makes a list of every piece of electrical equipment required — every light fixture, receptacle, switch, cabinet, panel board, foot of wire, raceway, conduit, fitting, and so forth, along with the detail specifications for each called out in the plan. Then he must assign a material cost each item and a labor cost to each phase of the installation to come up with his overall bid. The estimating software generates labor costs and the packages have become increasingly sophisticated over time about nuances like the added time it takes to get materials up to the third floor versus the ground floor and so forth. For his real materials cost he sends the materials list to his distributor.

Once a contractor has spent hours or even days creating a materials list for a project bid within his estimating software, he’s not eager to go find a distributor shopping cart, re-pick a thousand items and still end up with something that has to be keyboarded and reconciled with the estimate in his system. Not if he can avoid it.

Your advantage comes by creating and building on the e-commerce “umbilical cord” connecting your data into your customers’ systems. The estimating packages come preloaded with a limited database of products typically used on commercial jobs — generally 50,000 to 75,000 products. They may or may not be your brands. They certainly won’t have your specific negotiated pricing terms with that customer. Built-in pricing estimates are typically limited to standard “third-column” or manufacturer suggested retail pricing, sometimes with standard percentage discount functions. Contractors know those numbers are unlikely ever to win a job.

The solution is to make sure your brands, your pricing and communication links are all right there at the contractor’s fingertips. That’s where the data services come in. They allow you to upload a price file so that with the click of a button the contractor’s materials list is filled in with your prices, your brands, and have systems in place to incorporate product data that’s not preloaded in the system.

ElectricSmarts a few months ago announced an expanded partnership with the Industry Data Exchange Association (IDEA), Arlington, Va., that gives ElectricSmarts’ NetPricer access to IDEA’s entire Industry Data Warehouse (IDW) full of manufacturer-controlled product data, a cache of information on about 2.4 million electrical products at last count.

Trimble, via its purchase of Trade Service, has its own feed of the industry’s oldest source of product and pricing data, which also holds data on over two million electrical products. Contractors subscribe to Tra-Ser, the company’s product and price data service, and gain access via the company’s SupplierXchange service to distributors who likewise subscribe to Tra-Ser for pricing and product data updates, so both ends of the transaction are working off the same constantly updated data set.

From its inception, the estimating software platform idea has raised distributor concerns about reverse-auction abuses — that they might just make it easier for contractors to request pricing from every distributor in town so he can pick the lowest, spurring the usual concerns about a race to the bottom.

Valid though those concerns are, they have not proven out. The people providing data to these systems say they’ve fielded these questions from the beginning, but they haven’t seen any significant increase in price-shopping among contractors using the systems. In fact, if anything, it’s the reverse. Contractors often will buy from more than one distributor due to credit limits, product preferences and relationships, they say, but the contractors who price-shop electronically did the same thing with phone calls and fax machines before the invention of the Internet.

“The reality is that contractors sending their list to multiple suppliers and choosing on price just doesn’t happen that much,” says Tod Moore, vice president of Trade Service and Trimble’s MEP division. “Contractors are very loyal to their preferred suppliers. They’ll often have one source for this, one for that, but in end the relationship is more important compared to price.”

Keith Peck, president of ElectricSmarts Network, has seen the same thing. “Most contractors who subscribe only connect to one distributor. There’s another, smaller segment that will connect to maybe two. In some unusual cases they’ll have three or four. At some point the logistics and service and the credit terms and the relationship are more important to the contractor than saving two cents on a receptacle.

“Besides,” he adds, “the contractor wins or loses the bid based on labor cost. Materials pricing is important, but he’s much more interested in saving labor. He’ll pay 50 cents more per receptacle if it saves him five minutes on installation time.”

On the other side of the transaction, being integrated into the customer’s estimating system can yield tremendous gains in labor efficiency for a distributor, Peck points out.

“When you go from a process where you had counter people hand-pricing a takeoff item by item from a five-page fax and then sending it back, to a process where it’s now literally costing just three to four cents to respond to a pricing request through our service,” the savings are clear, Peck says. “When a contractor sends a pricing request there’s an alert on the distributor system, and he can press button, look at the whole request and price it out. Then he can call Joe and say, ‘I see you have a big bid in the works, can I help with logistics?’ He can do something more proactive to close the deal.”

An important side benefit to all this is that the online retail juggernauts that have struck worry into the hearts of distributors — the Amazon and Google efforts to capture more business-to-business commerce — won’t soon be going to the trouble of integrating themselves into estimating systems for every vertical market in the construction industry. It’s too cumbersome and their whole model is based on customers going to their websites and using their shopping carts.

Ongoing development of these systems should make the distributor’s advantage even stronger. The developments now underway concentrate on tying the different parts of the contractor’s systems together so that his estimating package links to his general accounting, purchasing and payment systems and also connects into the distributor’s enterprise resource planning (ERP) system to make the flow of business even more efficient with less chance for interference by human hands.

“For contractors, the estimating system is just one part of a bigger puzzle,” says Bob Stone, director of sales for Trade Service/Trimble. “They also have an enterprise system or a general ledger for accounting and systems for purchashing and inventory. They may use QuickBooks in the office and AccuBid in the shop and the two don’t necessarily connect. So we’re working on tools, whether that’s APIs or something else to bridge these systems so there are no breaks in the flow. We’re trying to lay out a path to integration but it’s very dependent on how a particular contractor’s organization is set up. It’s complicated, but we are going to get there at some point.”

Other advances underway include richer standard-format electronic catalogs that contractors can access from within the estimating package and custom configurators for special order and custom equipment. 

A comprehensive approach to digital commerce must include pretty much any way a customer prefers to do their research and purchasing. Distributors should have storefronts and shopping carts for after-hours purchases for small jobs that don’t involve estimating software and will need it for millennials who expect to research and purchase on the web. But for now, the higher priority for any distributor deeply involved in the construction market should be to make sure contractors can deal with them effortlessly from within their estimating software.          

About the Author

Doug Chandler | Senior Staff Writer

Doug has been reporting and writing on the electrical industry for Electrical Wholesaling and Electrical Marketing since 1992 and still finds the industry’s evolution and the characters who inhabit its companies endlessly fascinating. That was true even before e-commerce, LED lighting and distributed generation began to disrupt so many of the electrical industry’s traditional practices.

Doug earned a BA in English Literature from the University of Kansas after spending a few years in KU’s William Allen White School of Journalism, then deciding he absolutely did not want to be a journalist. In the company of his wife, two kids, two dogs and two cats, he spends a lot of time in the garden and the kitchen – growing food, cooking, brewing beer – and helping to run the family coffee shop.

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