OEM parts price gouging and solutions to get around it.

[treeguy347]

Rayco story:One of the jackshaft bearings let go on my 1620, so I tore it apart and found the cutter wheel shaft bearings are a bit tired as well. I called Rayco, as there's no Michigan dealer. They quoted me $150 each plus shipping. So I wandered to one of our industrial supply houses. They have them (exact same pillow block manufacturer and part number) on the shelf for $106. $174 less on the four of them and I can get get them locally?!?! They also can get the poly-chain belt for $100 less than Rayco. I can understand the OE being higher for proprietary parts, but at least be IN THE REALM for off-the-shelf stuff.

Rayco cost: $600+shipping, My cost: $424+tax and I have them same day

Vermeer story:
The holes on the lever connecting the feed bar to the hydraulic valve were getting a bit oblong along with the "c" clip that connects it to the spool. $35 for the lever, $12 for the c-clip, $1.50 each for the cotter pins. I told them they are out of their minds and went back to the industrial supply shop. $0.18 for both of the cotter pins and $1.09 for the c-clip. I welded the holes shut on the lever and redrilled them in about 10 minutes at our shop. Works perfectly and didn't get f'd by the stealership.

Vermeer cost: $50+tax My cost: $1.27+tax+10 min of my time and a couple cents of electricity/wire for the welder

Moral? of the story:Am I the only one fed up with getting the shaft at the dealer's parts counter? Anyone else with some good places and ideas to get around the dealer without sacrificing quality? Or should I start taking orders and charging a small convenience fee :msp_biggrin:

 

[imagineero]

I used to run a procurement company, and that doesnt sound too bad to me. Particularly when it comes to small ticket items, like clips worth less than a dollar each, for a dealer to do all the paperwork associated with ordering, receiving, shelving, holding, selling, invoicing and reconciling... costs them thousands of times more than the item. They could give it to you and lose less money. It may cost them $45+ in paperwork to sell you that $1.50 pin. And even if they got the pin for free, and there was no cost involved in getting it delivered to them and no cost for paperwork, its $1.50, and you need 2. How many people are going to buy them? There's no financial incentive to companies to sell items like these. They do it to service you. So that when you come in to buy parts, you don't have to drive around all over town trying to locate the item yourself.

We used to lose money on most small ticket items, but we did it because we had to. Most people just don't have the time to deal with stuff like that, if you're time is worth $200/hour running a tree company or whatever, then who gives a crap about $1.50? You just want your grinder running. Now. Good news, we have the parts in stock. Happy to sell you a couple spares if you need 'em too.

Price gouging is what happens to us in australia, where we get charged 500% markup on spares. 20~50% markup is pretty much just business as usual.

Shaun

 

[Pelorus]

Interesting rationale, Shaun, but on small ticket stuff like a cotter pin, why wouldn't a large company not just give them away? They are buying them in bulk for dirt cheap anyway, so why nickel and dime the consumer? What is "goodwill" worth? I always try to go above & beyond my client's expectations with the work I do, and it translates into referrals and repeat business. From the dealer's perspective, the cost of new customer acquisition is a lot higher than keeping an existing client base satisfied by giving them a couple of damn cotter pins.

 

[imagineero]

Mostly for tax reasons. If you're a publicly listed company then you also have obligations to shareholders. If things get given away, then you have to write them off in paperwork, which turns out to be even more expensive and cumbersome with manual ledger adjustments and authorisations than losing money on selling them. It is truly insane though. At the (publicly listed) company I was running, the cost of processing an order was somewhere around $120, from go to stop. This is the case especially with bigger companys that have cumbersome accounting packages. Working in a place like that makes you want to kill yourself for the futility of the whole thing.

Those cotter pics, for example - we might raise an order from the supplier, for, say, 50 units at .18c, total cost $9. We have to send them a purchase order, then pay for freight which is more than the cotter pins. We have to receive, inspect, and check the items into stock, unpack them and put them on our shelves. We then have to receive their invoice, make a payment to them, and document and reconcile that paper trail, and store all that information. Then, we will probably sell those cotter pins, 2 at a time, for $0.36c. For each of those sales, we will have to receive our customers purchase order, pick and pack the order, and deliver it to them. Then send them an invoice at end of month, receive their payment, document and reconcile that process, and store the paperwork. 25 times, at a cost of $120 worth of paperwork each time, costing us $3,000. That might happen over a period of a year or so. I kid you not.

Turns out I couldn't just go and buy all that stuff then give it away though. The owners of the company get upset for some reason.

Shaun

 

[jandh@amtelecom]

true!

Mostly for tax reasons. If you're a publicly listed company then you also have obligations to shareholders. If things get given away, then you have to write them off in paperwork, which turns out to be even more expensive and cumbersome with manual ledger adjustments and authorisations than losing money on selling them. It is truly insane though. At the (publicly listed) company I was running, the cost of processing an order was somewhere around $120, from go to stop. This is the case especially with bigger companys that have cumbersome accounting packages. Working in a place like that makes you want to kill yourself for the futility of the whole thing.

Those cotter pics, for example - we might raise an order from the supplier, for, say, 50 units at .18c, total cost $9. We have to send them a purchase order, then pay for freight which is more than the cotter pins. We have to receive, inspect, and check the items into stock, unpack them and put them on our shelves. We then have to receive their invoice, make a payment to them, and document and reconcile that paper trail, and store all that information. Then, we will probably sell those cotter pins, 2 at a time, for $0.36c. For each of those sales, we will have to receive our customers purchase order, pick and pack the order, and deliver it to them. Then send them an invoice at end of month, receive their payment, document and reconcile that process, and store the paperwork. 25 times, at a cost of $120 worth of paperwork each time, costing us $3,000. That might happen over a period of a year or so. I kid you not.

Turns out I couldn't just go and buy all that stuff then give it away though. The owners of the company get upset for some reason.

Shaun

Yes, I can sympathize with that. I work behind the counter at an AGCO Massey/ Challenger dealer
during the day, and do tree work evenings and weekends. I see the same process going on all the time too. Although I have been known to give away a few cotter pins etc.

 

[treeguy347]

then who gives a crap about $1.50?

It's the principle. Sounds like an opportunity for someone to cut through all the red tape, paper pushing, bean counting crap, run their parts department efficiently and gain a competetive edge on price.

we get charged 500% markup on spares.

I wish, the cotter pins were 1666% markup and the clips were 1100%

The good thing for me is the industrial supply house is 20 miles closer to me. If we factor in time, it's even less profitable to go to the stealership.

 

[imagineero]

It's the principle. Sounds like an opportunity for someone to cut through all the red tape, paper pushing, bean counting crap, run their parts department efficiently and gain a competetive edge on price.

I'm guessing you haven't run a business then ;-) It's not a question so much of markup, but a question of profits ex business income tax. Add up all your business expenses. Wages, workers comp, insurance, building rent, electricity, office equipment, vehicles communications, advertising etc. Divide that by 52 to get your weekly running cost. Then figure what you're going to sell, how much it costs, and how many you can sell. Add the cost of running your business to that, plus another 15~20% and you're done. Sounds easy, right?

In truth, you're never going to be able to turn a profit on something like a bearing. Supply houses are already selling them at near wholesale prices. You're not going to do much better on price than they are, and they're going to sell many thousands of units in a year while you're probably only going to sell a few hundred at most. You really don't even want to sell them at all, there's no profit. You want to sell machines, and servicing. Workshop hours = $. But you need the parts to service the machines, and if you didn't stock parts for machines you sell, treeguys would complain on arboristsite. Making $45 on a bearing sounds pretty good, until you see the cost of running the business.

I think you should jump right in there and start reselling them yourself. You could turn a tidy profit if you don't rent any office space, work for free, use your personal vehicle and computer, have no insurance or advertising, no employees, and offer no warranty or returns, and don't pay any tax.



Shaun

 

[ozzy42]

Do you think each Vermeer dealer has to go to a supplier for each part they stock?

If yes,then all of the scenarios above would certainly apply.
However.One would think they get spare parts from Vermeer ,which does buy them in bulk and would not ship just a box of c-clips but , include them in the weekly order from dealers.A box of clips thrown on the truck with 2 cutter wheels ,5 jackshafts 12 hydro lines,500 teeth ,etc ,etc, would cost jack to ship.

I'm with treeguy on this one . Stealer markup on some items is un-called for.

 

[RVALUE]

Those prices you quoted don't seem out of line to me. ( I once did that with a caterpillar bearing from $ 156 to $ 9, which IS out of line.)

HOWEVER I do have a problem with them building an inferior product and not standing behind it. (My diesel mule made it 2200 miles, which is 140 gallons of fuel, when the crank broke in half. They said it happened to all of them. $ 5500 to fix.) Now that's not right.

Tarry on.

 

[imagineero]

Do you think each Vermeer dealer has to go to a supplier for each part they stock?

I can't comment on the internal structure of Vermeer obviously, but I was part of a publicly listed company and each branch was set up as a standalone structure with our own paperwork, despite the whole thing being owned by shareholders - this wasn't a franchise. But regardless of whether they order their parts internally, or externally, the cost and paper trail required is the same. To be honest, ordering internally might be even more cumbersome in terms of the process and paperwork involved, because internal sales tend to be so sloppy and slow. It would almost certainly be cheaper overall to have each branch order whatever parts they need from the supplier directly. The savings in warehousing and dispatch alone make it worthwhile.

Shaun