Are you getting the maximum benefit from your distributor contract or agreement? Don't assume that your distributor rep has the expertise or the motivation to guide you. Here are a few things to ask for that will help you get the most out of your existing agreement.
Maximizing Your Hot List
Most contracts include a hot list. This should represent the top spend items you purchase with discounts applied at the lowest level – by SKU and unit of measure. One problem with a hot list is that it is never created during contract development and two years after signing the contract, you are not likely to be enjoying discounts on the items you purchase most. Make sure to ask your distributor rep for an accounting of your top spend items annually. Insist upon seeing an accounting of your spend data including manufacturer part numbers.
Distributors try very hard to place limits on the number of items on your hot list. Your contract should spell out what the maximum number is. If you don't reach the maximum, then you need to have a talk with your distributor!
Managing Your Discount Schedule
So you are getting list less 50%. The question is, on what and from what? Let's first address the "on what" question. The two most common contracts are discounts from "CDC" codes (Thermo Fisher) and discounts based on vendors or broad categories of products (VWR).
- Rule #1: A discount on something you don't buy is of no value.
- Rule #2: Vendors and CDC codes change, however on a five year contract, your discount schedule doesn't – and you lose.
- Rule #3: List prices are almost always set by the distributor and not by the manufacturer.
- Rule #4: When your distributor changes a product from one code to another, the product you buy will price according to the discount of the new code.
If your contract doesn't have a "fixed price book date" clause, then the easiest way for the distributor to raise your price is to change the list price. If the item is on your hot list, then this will not affect you. If it is priced from the discount schedule, then there is nothing you can do about it.
In virtually every instance, this new code just happens to have a lower discount than the old code. Once again, you have little recourse other than to make sure you maximize the number of items on your hot list to avoid this.
Take Advantage of Vendor Direct Pricing Whenever Available
When a vendor provides you, the end user, with a direct contract and this is assigned to a distributor for fulfillment, this is called a "rebate" contract or "SPQ" (special price quote.) In most cases, the prices you will pay will be far lower than the distributors' standard costs. This is a common practice within the lab supply industry. BD pioneered this and they refer to this as a "Z contract." Chemical manufacturers and certain container suppliers offer these very lucrative offers that you should
- ask for if not offered, and
- take advantage of them whenever available.
If you purchase HPLC grade solvents without a rebate agreement, you are paying too much. You will get no better prices than with a rebate (SPQ) contract!
Vendors offer these to clients with volume. In some cases, such as the Bio/Biocom contract, vendors proactively offer these to win volume at the group level. If available, seek them out, even if this means switching from a similar but functionally equivalent item of another brand. It is worth it!
Take Advantage of Private Label Items
Distributors are good shoppers, too. Their best shopping is done on items that carry their own brands such as Fisher brand or VWR Collection. They also make the highest profit margins when they sell these to you.
Armed with the knowledge that these items have a very low cost to the distributor, these are the items you should insist on being on your hot list, if possible, and to ask for a quote on – EVEN IF YOU HAVE A CONTRACT!
Distributors have a goal for supply contracts and agreements with their customers: profitize. Once you have signed the agreement and you begin to put all your eggs in their basket, their goal is to increase the amount of profit they make from your purchases. They count on the fact that you will not be diligent about monitoring the contract once the ink has dried on the signatures.
You can avoid this. LPS is here to advise you, or to take a more active role with your vendors on your behalf.