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GOOGLE MAY ELIMINATE THE NEED FOR DISTRIBUTORS

If you thought Amazon Supply could be a threat to electrical distributors, "you ain’t seen nothing yet." Amazon Supply (AS) was set up to essentially be a distributor, stocking most of the items it sells. As of June, 2013, AS sells very few products that electrical distributors do. But, Google Shopping for Suppliers (GSS), set up in February, 2013, enables manufacturers around the world to sell directly to end users around the world. No distributors need be involved, although distributors can register as suppliers. As of June, 2013, the GSS web site lists many products sold by electrical distributors (along with electronic supplies that are not sold by typical electrical distributors, and test & measurement devices, few of which are sold by electrical distributors). And the GSS’ website clearly states that more categories will be added – just as AS has been adding. Because B2B end users are leery of buying from unknown sources, GSS has set up a way for sellers to be "verified" so that buyers would be inclined to trust them. And to increase the level of trust, GSS enables suppliers to post a copy of GSS-verified certificates (such as ISO-9001 certification that many manufacturers have obtained to vouch for quality control in production).

This Is Not A New Threat

"Disintermediation" was a term created in the early days of e-commerce to describe how e-commerce can eliminate distributors from the process of manufacturers selling to end-users. GSS is not the first website to threaten disintermediation. Independent trading sites have been around for several years, and some manufacturers who sell through distributors have also set up alias web sites to sell directly to end users. It is almost impossible to determine the ownership of such around-the-distributor alias sites. With its billions in cash, GSS is the largest and most threatening trading site to come on the scene.

Its Easy To Find A Product Through GSS

Examples of categories of electrical supplies within which products can now be listed on GSS include transformers, electrical wire, voltage meters and LED lighting. These categories may not seem to represent many items, but go to http://www.google.com/shopping/suppliers, and notice that there are 141 categories (now limited to Electronics and Electrical), sub-categories (e.g., Electrical Devices), sub-sub categories (e.g., Electrical Connectors and Terminals), and 3rd level sub-categories (e.g., Electrical Connectors). Within each 3rd level sub-category, dozens or hundreds of items can be listed by each verified supplier. For example, take THHN solid, insulated, single-conductor electrical copper wire. If manufacturers or suppliers list 10 different AWGs, with five available in seven different insulation colors, that’s 40 unique products. THWN adds 40 more; stranded adds 40 more; un-insulated copper adds 10 more; aluminum adds about 40 more; TFN, TFFN and XHHN add even more. Various reel and spool sizes add more unique products. And on and on. Its easy for a manufacturer/supplier to list more than 200 unique electrical wire products on the GSS website. And there can be listings from several competing manufacturers/suppliers, which may seem to make it difficult for an end user to find a needed product and buy it.

A search on the GSS web site is as simple as keying a partial product description onto the search box, then scrolling through each supplier’s product name, full description, attached picture and contact information (and a supplier-optional link to the supplier’s product-web page, and/or an optional spec sheet). GSS also allows a search by optional part number and/or optional product attributes (e.g., 20 amp) but as of this writing, few product listings contain a product number or attribute. Surprisingly, pricing information is optional (as is minimum order size, whether the product is customizable, lead time, model number, dimensions and operating characteristics).

As of this writing, the GSS trading site does not contain many commodity electrical products. For example, a search for "solid copper wire" did not result in a display of information for wire that can be pulled (through conduit or pipe); nor did a search for "copper wire." However, a search for "circuit breaker" resulted in a display of information for many products, including breakers that can be used in service panels. Surprisingly, a search for "20 amp circuit breaker" did not display information for circuit breakers. Over time GSS will recruit more suppliers, and more products will be added, with attributes.

Google Verified Supplier

Let’s look at how a supplier registers and gets verified, and the importance of verification. The first step is for a supplier to provide Google-requested information and documents that show that the supplier is registered for business (including, where applicable, company name in "local language", "factory office name or address", and "China customs registration number"); and is in good financial standing (via credit information). The required information varies according to the region of the supplier: US, Taiwan, Hong Kong or China. The required information is sent to a 3rd party verification company, which attempts to verify the accuracy of the general company information, the authorization of specific people, and the supplier’s credit information. If a supplier cannot be verified, it is allowed to reapply two more times within a 12 month period. Step two is to pay the annual verification fee: $1000 USD; $ 6000 Canadian; $7500 Hong Kong. (Clearly, Google is trying to sign up Asian manufacturers/suppliers.) The GSS website states that Verified Suppliers may in the future pay a per-transaction fee; e.g., for every view of its information, and/or for every sale made through GSS. (Suppliers with good credit can pay after being verified).

Step three involves uploading product information into the GSS web site, including defining the product’s category, sub-category, etc., as described earlier. A copy of each Certification document can also be uploaded, in which case the 3rd party verifier attempts to validate each. Suppliers can efficiently uploaded information about similar products by using a copy and edit feature provided by Google.

Note that the verification process is repeated every 12 months, and a new fee is due at that time. This policy by Google helps maintain the level of credibility that verification implies.

Information from Verified Suppliers appears on the regular Google (search) web site as well as in the Sponsored Results section of the GSS web site, ahead of information from unverified suppliers. Information for Verified Suppliers also contains a colored badge, signifying verification, and contains information that unverified suppliers are not allowed to provide to Google. Non-verified suppliers’ products information also appears after a GSS search, but well below the information of verified suppliers.

Is GSS Really A Threat To Electrical Distributors?

Yes. Do not dismiss GSS as it is now. Remember that Amazon started by selling only books, and its web site did not contain the features that today make it easy for buyers to find and buy something. Then Amazon established Amazon Supply, which claims to sell 750,000 products, and drew upon the best features of its consumer web site to create a B2B web site that is considered one of the easiest and fastest to use. Think of GSS today as the original, primitive-website Amazon but selling only three types of books. As Amazon did, GSS will undoubtedly expand its product categories and evolve its web site and business practices to make it easier for sellers and end users to do business. It isn’t the breadth of GSS’ products or the specifics of its web site that pose the threat to electrical distributors, its GSS’ deep pockets and commitment to evolving the disintermediation model. When GSS becomes very successful, how long will it be before some manufacturers of electrical products stop using electrical distributors to convey their products to end users?

Electrical distributors should determine which non-stock products that are bought for customers as special orders really don’t need the services of a distributor; especially products that are usually shipped directly from a manufacturer to a job site. These products are likely candidates for listings on GSS or other trading sites. Next, identify products that are stocked but usually not delivered until a few days after a sales order is taken. Thanks to advances in logistics, such as FedEx ground and UPS, these other products could also appear on GSS. Then, at the risk of giving manufacturers ideas, it may be time for a heart to heart chat with the manufacturers of these products about their plans for by-passing distributors. Some electrical distributors may then want to terminate their representation of some manufacturers, and no longer stock some of the products in question. Its also a good idea for electrical distributors to determine if their web sites are easy for customers to use to buy products, especially products that are not stocked or are usually shipped direct to job sites. A recent study showed that the vast majority of procurement specialists prefer suppliers who offer e-commerce, even if orders are placed by phone or FAX or email.

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For more than 30 years, Dick Friedman has worked with electrical distributors and electrical contractors to develop long range plans and acquire technology. He is a Certified Management Consultant and is objective and unbiased. He has Bachelor of Engineering and MBA degrees, and can be reached at 847 256-1410 for a FREE consultation. Or visit www.GenBusCon.com for more information or to send e-mail.