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


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

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:

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
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