Think strategy
Strategic planning helps companies respond to the driving forces impacting distribution
By Mike McClelland -- Industrial Distribution, 4/1/1998
I'd like to ask each of you to close your eyes for just ten seconds and think about where you want your company to be in ten years.If the Facing the Forces of Change report is accurate, at least a few of you have just performed more strategic planning in ten seconds than you may have done in the past ten years. (Facing the Forces of Change is published by the National Assn. of Wholesaler-Distributors' Distribution Re-search and Education Foundation.)
As you reflect on your company's strategic plan -- or as you resolve to create one -- here is some food for thought. In 1997, NAW officers asked the members of the NAW Association Executives Council (the individuals who lead our line of trade associations) what they thought were the top driving forces that will impact wholesale distribution during the next decade. In my view, the strategic plan for your business would have to take these driving forces into account. Let me play David Letterman and present the top five to you, in reverse sequence.
The fifth most important driving force for the next decade is the trend toward businesses and consumers paying a premium for speed. Whatever we are doing for our customers that adds value -- whatever it is -- we stand to be better compensated by providing these benefits faster.
Driving force number four is economic expansion or recession. Although they are different sides of a coin, both expansions and recessions place significant stress on the distribution function in our economy.
Driving force number three is disintermediation. Unless we continue to add valuable services, reduce channel costs, and add speed, we run the risk of being bypassed by our trading partners in the channel.
Driving force number two is fundamental shifts in customers. In the '90s, lots of new markets opened up in virtually all of our lines of trade. Going forward, we should expect, and prepare for more of the same. Our goal must be for markets to shift toward us, not out from under us.
And finally, the most important driving force for the coming decade: the Internet as a mainstream transactional tool. The key will be converting the Internet from use as an informational tool that basically shows potential customers our catalogs to a transactional tool that will take customers' orders and money electronically.
I would add one other driving force to the list because I think it deserves our serious consideration. That force is consolidation.
According to a DREF research study published last year, nearly 80 percent of wholesale distribution's lines of trade experienced significant consolidation during the past ten years...and virtually all of them will experience consolidation as fast or faster during the next ten years.
My company's experience is a case in point. For the first 51 years of Hardware Wholesalers, Inc.'s corporate existence, through 1996, we did zero acquisitions. In 1997, however, we did our first -- a $230 million acquisition. And we are not alone in the hardware wholesaling business. Fifteen years ago, the four largest hardware wholesalers accounted for about 35 percent of total hardware sales through two-step distribution. Today, the number exceeds 60 percent and is still growing.
Whether your company has done zero acquisitions, one acquisition, or 100, pay close attention to consolidation in the markets in which you operate and make certain you are benefiting from it. The knowledge you gain could come in handy before too long. As baseball legend Yogi Berra once said: "It's amazing what you can observe just by watching.''
And as you develop your strategic plans, make certain they are executed and carried out. As Yogi Berra also said: "When you come to a fork in the road, take it.''
Mike McClelland was 1997 chairman of the board for the National Assn. of Wholesaler-Distributors. This column was excerpted from his speech given at the NAW Annual Meeting in Washington, D.C. in February.
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