Study Seeks Extent of Problems and Opportunities in SPAs

June 11, 2009
Special pricing agreements drive somewhere between 10 percent and 50 percent of electrical distributors’ sales, according to a recent study.

Special pricing agreements drive somewhere between 10 percent and 50 percent of electrical distributors’ sales, according to a recent study. Most distributors consider SPAs with their suppliers a key source of competitive advantage, but they continue to be frustrated by the complexity of the process and the certainty that they’re leaving a lot of money on the table. Nonetheless, electrical distributors and manufacturers both expect their use of SPAs to increase in the coming years.

The study, conducted by Allen Ray Associates, Kennedale, Texas, and sponsored by Datalliance, Cincinnati, was based on 1,000 surveys sent to electrical distributors and followed up with phone interviews. It found that virtually all electrical distributors surveyed have SPAs with at least some of their manufacturers. Some of the larger distributors have several hundred to keep track of. Forty-eight percent of the survey’s respondents have at least 100 SPAs in place.

Because the terms and processes are different with each manufacturer, management of the process can become overwhelming. “Most distributors feel that their profitability is negatively impacted because they are missing at least some of the SPA claims they are entitled to due to the complexity of agreements, internal data management processes and varying manufacturing claim processes,” said the report’s summary.

Checking invoices against the SPAs can be a time-consuming process to begin with, and even when distributors manage to file their SPA paperwork, they often find their claims denied on the first pass, meaning it will be another 30 days before they see their money.

Despite the fact that the National Association of Electrical Distributors (NAED), St. Louis, has had a standardized process for handling SPAs since 2004 and the industry’s leading distributor enterprise software systems have been adding functionality to automate the process, only 25 percent of respondents said their complete SPA process is automated and another 71 percent said their process was partially automated. Even with some automation, the burden of constant updates on each agreement’s terms regarding prices, products covered and submittal processes can quickly get out of hand, the survey found.

Datalliance’s interest in SPAs grew out of conversations the company had with distributors and manufacturers in the course of setting up vendor managed inventory systems.

“We were interested in learning more about this because of its impact in electrical industry,” said Bob Jennings, vice president of sales and marketing for Datalliance. “It’s a topic a lot of manufacturers and distributors are interested in getting better at. It could be an important driver for improving results for both suppliers and distributors.”

Jennings found two of the survey’s results particularly surprising, “The first thing was the depth of the problem,” he said. “Second, generally if something’s a problem you’re not going to do more of it, but all these manufacturers and distributors say they’re expecting to have a lot more SPAs in the future. Whatever pain they’re feeling now is just going to get worse if they keep doing it the way they’re doing it.”