The MRO Pricing Mystery

By George E. Krauter

January 04, 2012 at 2:09 PM

Manufacturers of MRO products that sell via distributors produce products and arrive at their standard cost of goods. They then follow varying pricing policies to these authorized distributors. For example, there are different list prices for different markets, i.e. the Automotive-After-Market has a different listing than the Industrial Distributor that markets to Industry.

Discounts exist for distributors that are not available to end-users. These discounts can be augmented based on end-user, site-specific agreements, commitments of sales volume, competitive situations, etc. In addition, particular industries extend rebates based on a complicated scope of work. Many distributors employ people just to keep track of the rebate process.

The distributor does not have a real standard price for its inventory because of the overflow of discounts that exist for the various agreements.  One price agreement for a particular end-user can be (and is) used for the distributor to be more competitive in another arena.

For example, the standard industrial discount for hand tools (some exceptions exist) is 50% from an “industrial list price”.  However, 50% minus 10% minus an additional 10% can be attained:

$1.00 list = $0.50 x 0.9 x 0.9 = $0.414, not the standard 50% or $0.50. The distributor will use the 50% discount and add mark-up when they sell to their market (while pocketing the additional discounts provided by the manufacturers).

Mark-ups vary based on negotiation from end-users, relationships, perks and rush spot buys. 

The optimum pricing for an integrated supply agreement is known cost plus known fee (mark-up). Now the cost factor can be negotiated back to the manufacturer rather than squeezing down to the provider (a sure way to defeat the program and lose the benefits).

How is the traditional distributor going to address this problem and still provide an optimum cost scenario for the client?

 



Tags: MRO purchasing Industrial distribution
Category: Blog Post

George E. Krauter

user_avatar

George Krauter, former founder and president of Industrial Systems Assoc. [I.S.A.] has retired as vice president of Synovos.

Currently, he has initiated, "George Krauter Consulting [GKC]"  for effective reliability and cost recovery for consumers  of MRO materials. George is a recognized authority on the management of the MRO supply chain and support for maintenance reliability programs. His book, "OUTSOURCING MRO...FINDING A BETTER WAY" is available from Amazon and from Reliability Web.com.

He is published in Uptime, Modern Distribution Management, and Supply and Demand Chain Executive. George has conducted seminars across North America, in Europe, and in the U.A.R. as well as a guest speaker at Temple U., Howard U., Duke, and MIT.

George is a graduate of Temple University; he lives with his wife, Joyce, in Bucks County, PA. All grand kids live within eating distance. He can be reached anytime:   georgekrauter@comcast.net.



Please add a comment

Posted by Ayumi on
Good to hear from you Ivan,I have looked at only one Roger Taylor dranwig, i.e. that for the 1975 Hesketh 308. Accurate scaling up/down from 1/24 needs at least one known true dimension.I believe the magazine was either Motor, or Autocar or similar, however, I was sent a photocopy of the dranwig therefore not knowing what the source was exactly. Thank you for you for your kind overall assessment expressing your enjoyment at seeing the models I have made. Great cars in the 70 s, wonderful variety of designs and ways of trying to exploit aero' for example without wind tunnels; also fascinating interpretation of rules to appreciate evolution of the engineering, Gordon Murray being a really pro-active exponent of the latter, not to mention the iconic designs of Mauro Forghieri, the genius of Colin Chapman and the more formal thoughtfulness of Derek Gardner and Gordon Coppuck.Mark
Leave a Reply



(Your email will not be publicly displayed.)

Captcha Code

Click the image to see another captcha.


Related Content

Thought Leadership and the Demise of Your Third-Party MRO Outsourcing Program: Part 4

George E. Krauter

When one defines third-party MRO (3PMRO) success, one assumes that fundamental operations are being executed and that expectations are being met (i.e., ROI goals are surpassed} Read More

Guidance for Addressing the New Talent Acquisition Challenge

Dennis Bouley

The US Labor Department reported in March of this year that there were 6.6 million job openings, a record high. Although most of us applaud these numbers Read More

Millennials in Supply Chain Management Seek Advancement and Development Opportunities

Marisa Brown

Millennials working in the supply chain management field don’t fit the mold that the older generation assumes for them. APQC’s recent study Read More


Supplier Profiles

Staples

Staples Advantage is the one supplier that offers all the business solutions you need, all with the expertise of a specialty vendor. Read More

Digi-Key

It started in 1972 with an idea, a new concept in distribution. Today, Digi-Key Corporation is one of the fastest-growing electronic component distributors in the World. The stimulus for this growth is Digi-Key's customer-centered business philosophy… Read More

Lunney Advisory Group

Lunney Advisory Group was founded in 2007. Our firm is not your typical consulting company. Some members of our firm are highly qualified and experienced industry executives/practitioners while others are full time or adjunct university professors.… Read More


Webcasts

What CEOs Expect Of Purchasing

Guest Contributor

Procurement and supply management leaders have a seat at the table, and management’s expectations are high. But what do CEOs really want, and is purchasing delivering on these expectations? This webcast looks at how procurement and supply management … Read More

Growing Purchasing Influence On Indirect Spending

Guest Contributor

At world-class companies, purchasing’s influence touches just about every area of spending. But, how exactly do procurement teams get to the point where other departments approach them for help with sourcing such indirect categories as human resource… Read More

Procurement-Finance Collaboration

Guest Contributor

Procurement & finance are two business functions which are often at loggerheads with each other. One reason for this is the lack of perception alignment on an important metric of procurement and finance performance - 'savings'. Read More