Report: Integrated supply; contracts worth $5 billion
By Staff -- Industrial Distribution, 8/1/1998
Orlando, Fla.-- The industrial integrated supply market will continue its stunning growth but may not be headed where you think, a major new study concludes.The value of integrated supply contracts more than doubled to $5 billion during the past three years and is expected to reach $11 billion by 2000, according to Frank Lynn & Associates' report, "Integrated Supply 2: Shaping the future of the industrial marketplace." Released in late June, the report follows the company's landmark 1995 study.
"This new channel of distribution could grow to $40 billion to $50 billion within the next ten years -- truly one of the most rapidly growing billion-dollar markets in business and industry today," the report states.
Billed as a market research report and strategic planning document, it includes interviews with 45 of the largest integrated suppliers, 40 manufacturers of MRO supplies and an in-depth survey of 50 large industrial plants involved in integrated supply-type activities. It also includes a detailed section on integrated supply distributors.
The report highlights a number of trends in the MROP market. Those include:
* Many end users are unsatisfied with the results so far but say they are not likely to turn back from integrated supply. Two-thirds of customers surveyed said they were not happy with technical support provided by manufacturers in single-source contracts, for example.
* Distributors find it much harder to reap savings in the third and fourth years of contracts. That's because so-called soft costs in inventory management and procurement are squeezed out more easily during the first few years -- then the savings decline. Successful integrators reduce their overall operating costs or get better prices from manufacturers to continue achieving success.
* More failures are expected, particularly among distributors unable to invest enough capital or maintain services.
* Expect more major, brand-name manufacturers to commit their businesses to distributors that key on integrated supply.
* The emergence of contracts covering OEM supplies for new plant construction.
* Penetration of the large plant market grew from eight to 12 percent in 1996. Total market penetration reached eight percent of a $43 billion estimated market in 1996.
"We're going through a three-to-five-year period when everything is up for grabs," Lynn told an audience at the ASMMA/I.D.A. Spring Convention in June. He said the West Coast is the only region showing little activity, which he believes reflects "younger" manufacturing plants that have done programs of their own.
He defines integrated supply as "a partnership whereby an end user outsources to a supplier or suppliers some or all of the MRO procurement, inventory management and material usage functions in order to reduce the total channel costs of fulfilling MRO needs." I
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