Monday, June 25, 2007

Volume 36 - Price Fixing and Collusion

It seems to me that there is a great deal of collusion within the writing of specifications, the 'special pricing' of manufacturers, and the selectivity of 'who can and who cannot' bid projects with those special pricing numbers. And, if that is not 'collusion and price fixing' then someone ought to explain the concept to me.

The owners and developers of projects, practically all size commercial construction work, have a difficult time understanding, why the pricing of certain divisions, within the construction industry, have such high cost numbers (by the time the owner pays for them) and so very few people bidding their project. Well, let me explain a 'dirty little secret' that exists in Division 8 between the architects, specifiers, and certain manufacturers, that 'limitations' are built into the process. For example, a small 150 room hotel in South Bend, Indiana, only three bids were accepted, division 8 steel and wood doors and door hardware, all from three distributors carrying the very same door hardware product line. Another in Orlando, Florida when a manufacturer selectively gives out 'special pricing' only upon request and only to the 'chosen few', delaying any other requests or lowering discounts points for other interested distributors. Free enterprise exhibited at it's best. One has to give Assa Abloy and IR credit, they have spent hundreds of millions of dollars limiting the playing field.

It reminds me of a letter I received from Mr. David R. Nolan, Nolan Door & Hardware Company, Inc., on September 17, 2002 (If it weren't framed and hanging in our lobby, I would have scanned it into this blog) that states, and I quote after the greeting:

"What a week we just had! The story starts more than a year ago and is somewhat involved but, I'll share with you the short version. A year ago we were buying and selling Falcon locks, LCN closers and so forth. Ingersoll-Rand (actually Andrew White) approached us with several 'buying programs' involving Schlage, none of which were acceptable to us. Our objections were based on the pricing structure and the exclusivity; we were to give them all of our lock, closer and panic business. We found this repugnant to say the least and, as you probably know by now, told them to take their I-R package and....!

We were concerned then, and more now, by their insistence on monitoring all that we bid and sold. We are appalled at their unabashed disdain for distributors and their new posturing to sell institutions directly. Since we cannot condone that marketing strategy, we cannot support them anymore by purchasing their products.

It seemed that Assa-Abloy was the way to go, specifically Yale. While there was no stated requirement to buy the whole line, there is an ambitious annual purchasing goal. We accepted their buying program and went on our way selling their locks, your panics, your hinges and your closers. From time to time, mostly because of specifications, we would use their full line.

Late last week, we received a fax informing us that our buying program had been changed and, not in our favor. The stated reason, when I asked the representative what was going on,, was that our volume did not warrant the previous discount structure even though we have been opened up with them for less than one year. As the conversation continued, the real reason for the change in our program had more to do with the suppliers that we have chosen for our panics, closers and hinges. It was not stated that our program would be reinstated and/or improved if we were to change to all Yale but, that was the feeling that we were left with.

We refuse to be forced into buying from anyone. We believe in free enterprise and will continue to practice that. We also still firmly believe in the concept of loyalty to suppliers who have brought us this far even though in today's business world, this seems to be somewhat archaic.

The point of all of this is simply that we no longer have access to a lock line at competitive prices. Our cost on a Grade II cylindrical lock has increased by 80% in the past twelve months.

Do not, for a moment, think that this is about Nolan Door & Hardware Company; it's about all of us! We will have to rely more heavily than before on you to keep us a viable source of commercial and architectural hardware in our marketplace. I don't want to sound to 'Knute Rockne' but, it is indeed up to us to face this challenge in our industry.

It is my belief that we can and will but no one's going to do it alone. I am putting my complete confidence in you and our ability to continue to work together.

Hopefully yours,

David R. Nolan"

I often read that letter in attempting to understand our industry, and the importance that the distributor plays within the commercial construction arena, especially within Division 8 products. Independence2, LLC, with it's i.2 trademarked private labeled architectural hardware, is where door hardware meets value, where the distributor will always be respected, and where we have as much interest in their 'bottom line' as in ours, for they are the true key to this industry's long-term success and to the end user's satisfaction.