A LOOK BACK...
As we enter a new millennium, trends like integrated supply, mergers and e-commerce are sure to take off faster than ever
By Industrial Distribution Staff -- Industrial Distribution, 1/1/2000
Welcome to distribution in the 21st century. Chances are when you arrived back at work after ushering in the Year 2000, no major changes affected your business, other than maybe a few Y2K glitches here and there. But don't sit still. Activity with e-commerce, integrated supply and mergers and acquisitions will be brisk in the new millennium, and it's bound to change the way you and your company work.How so? We asked four industry veterans what they feel have been the biggest changes during their long and illustrious careers. We also asked four of distribution's up-and-coming executives what they think will be the biggest change in distribution over the next five years. Responses appear on pages 78 and 79.
In this special welcoming of the new millennium, we also look at the growing issue of integrated supply and what it will mean to industry. While a recent study says integrated supply will grow 30 percent annually for the foreseeable future, opportunities are still numerous for small niche players. According to the report, many customers are unhappy with the service levels provided by large integrators, leading to potential opportunity for small players.
So, welcome to 2000. As in the past, there are bound to be winners and losers. The only difference is, with the speed of information available and with advanced technology gains, we may know who the winners and losers are much quicker than we did in the past.
J. MICHAEL MOORE
1999 Chairman of the Board, National Assn. of Wholesaler-Distributors
The distribution industry has seen many changes during my career, but for my money the most significant has been the availability of the information we use to run our businesses.
Before the recent breakthroughs in computing power and economy, it was difficult to know what was going on within your own business, much less at your suppliers' and customers' businesses. Now the technological walls that blocked the flow of information are falling, and when walls fall, power shifts. This power shift to the customer has enabled them to "act as one," demanding solutions to problems, rather than one-size-fits-all approaches.
This means the distributor's greatest need is for more information -- about customers and markets, their own activities and costs, their suppliers' products, and about the business environment -- in order to respond to customer needs. They also need it to do effective business with their suppliers. The good news is that never before has it been so possible for distributors to analyze data on finances, marketing efforts, customer profitability, inventory velocity, and activity costs. Nor has it been possible to collect information from, and supply knowledge to, their customers and suppliers that can help all trading partners prosper.
I'm proud of the role the National Assn. of Wholesaler-Distributors has played in responding to information needs. Their recent efforts (learn about them at www.nawpubs.org) have helped executives better understand what information they need to collect and how to use it to reinforce their spot in the channel.
Now that information flows more freely, I urge you to find new ways to put technology to work for your company. The winners in the new economy will realize that when information flows, it creates value.
BOB CLIFTON
Retired NIDA Executive Director
Simply put, the biggest change that distribution has seen has to be technology and what it has meant to the industry, not only in maintaining inventory more scientifically and economically, but also in general accounting and service to customers.
Just look at what computers have done for inventorying product. Inventories used to be tracked by cardex systems, where every item had a printed card kept in a big file, and inventory coming in and out was added or subtracted for each item. It was very time consuming because of all the manual work, and a lot of errors crept in. But that's how they did it for years, and some industry members hung onto that system long after they should have computerized. Of course, there were a lot of bad stories about computerization in the beginning, and the failures that occurred. Those stories delayed others from computerizing because they heard a horror story here and there.
The other big thing the computer did was enable a standard numbering system, which was essential for more efficient inventorying and to do away with those cumbersome cardex systems.
In the late 50s, techniques were born for determining product line profitability, sort of the front runner for today's activity based costing. The first systems designed were cumbersome, but worked. However, most distributors either found it confusing or didn't believe the system gave them accurate figures.
It wasn't until the 70s that the skeptics were drawn out of the woodwork and saw that technology was working. Despite the gains we've made, this is only the beginning. Distributors may not feel they can adopt certain technologies because they are too expensive, but tomorrow they may not be because of all the specialized software being developed for distributors.
GEORGE FLOLO
Vice President, Flolo Corp.
Technological changes have affected all of our businesses, but nowhere has change been greater than on the manufacturer's plant floor.
Take, for example, how the role of the AC motor has been enhanced. With the introduction 30 years ago of variable frequency drive controllers and because of changes in its sophistication, this product has been dramatic, especially considering how they interface with standard motors. Nowadays, AC motor controls perform almost all of the other functions that standard motors used to.
Then there are logic devices, the use of which has increased exponentially. Not only have they replaced relays, but they also do so much more than relays were capable of, like serving as timers and counters as well. Changes like these -- all brought about by recent technology gains -- have revolutionized the manufacturing process on the plant floor. The main result has been increased productivity and profits, as well as better products.
OEMs are looking for a return on their investment in one year, some even within six months. Many of their decisions are made with a very short pay back time in mind, so there's got to be an enormous amount of increased productivity to do that. Most manufacturers are looking for a payback period of one year, and I don't think anybody is considering less than two years any more.
There's still a long way to go. The possibilities are there for better plant floor analysis -- I think they call it fuzzy logic -- and as that becomes more user friendly and gets better accepted from a pricing standpoint where you can afford the intuitive capabilities of it...that will take more decision making out of the manufacturing process and allow for better production. Also, with new materials that are not only lighter but also stronger, there is room for lots of improvement.
GEORGE SYDNOR
Vice Chairman Business Development,
McGraw Group, Inc.
Going back to the 60s, it was an age of innocence. There was a great deal of expansion of industry, and manufacturing was expanding everywhere. It was a manufacturing-driven economy, and in the 60s all a distributor had to do was find the product.
Well, the 70s came along, and for the first time since the start of World War II, supply exceeded demand. It was a time of great inflation, and it wasn't unusual to get two price increases a year, sometimes four. The period clearly marked the end of the old, and the beginning of the new.
In the 80s it became apparent that there was too much distribution and too much manufacturing of similar products. It forced a period of consolidation and marked the very beginning of the Information Age. And, it changed the inventory pipeline. Before, manufacturers would have distribution centers scattered around the country. All of a sudden, they weren't necessary. Cost began to come out of the channel, and everything started to become streamlined.
With computers reaching maturity, you no longer needed to stage inventories. This is one thing that was grossly inefficient and contributed to escalating inflation. With supply in excess of demand, productivity took over, made possible by technology. So came the dawn of the 90s, and the Information Age led the way into streamlining the distribution channel as well as the manufacturing process.
None of us know what this will look like in 2010, but suffice to say it'll be a very different landscape. The industry will be dominated by a few mega distributors, with a seamless flow of product from the manufacturer to the point of consumption. I see a much bigger play being made in our industry by companies like FedEx. Niche distributors will remain important at the regional level.
GEOFFREY FILKER
Chief Operating Officer, Eastern Bearings Inc.
There will be significant technological changes within the power transmission distribution industry during the next five years! These changes can negatively affect distributors who are not willing to strategically and tactically embrace them.
The use of the Internet as a communication tool in the channel will increase greatly. Electronic data interchange will become commonplace as distributors use the Internet as the pathway to transmit EDI documents directly to manufacturers and customers, thus eliminating network costs.
Also, there will be growing opportunities to link information in the channel between manufacturers, distributors and customers, where distributors can access product information from the manufacturer's information system at a touch of a button. The technology tools available to query the information systems of channel partners will continue to improve, thereby greatly reducing costs.
The acceptance level for e-commerce transactions will continue to evolve. As shopping for price over the Internet becomes easy, distributors must differentiate themselves to attract and retain customers. Distributors who the customer perceives as adding value will survive and those who exclusively merchandise products will be confronted with shrinking sales and margins.
Consolidation will continue to reduce the number of independent PT distributors in the marketplace.
Finally, as the PT and bearing distribution market saturates, we'll see the distributor's product offering expand to include products such as hydraulics and fluid power. Certain national chains are already offering these products to expand their market.
JEFFREY O'SULLIVAN
President/CEO, Muenz/Engineered Sales Co.
In 1997 the O.A. Muenz Co., an 80-year-old cutting tool house, merged with Engineered Sales Co., a 56-year-old abrasives specialty house, to form Muenz/Engineered Sales Co. The merger was made with the next century in mind, based on our belief in the strength of strategic partnerships.
I believe catalog houses will continue to gain strength during the next five years, which requires small independent distributors to do things that catalogue houses can't. We can't possibly afford to carry the inventories that they do. What we can do is provide customers with technically trained salespeople who can recommend tooling systems that will improve their customers' manufacturing methods and lower their application costs.
While many industrial distributors are looking to join forces through any of the consortiums or mega distributors that have become so prevalent over the past decade, I believe there will continue to be a need to provide service to our customers as independent specialists well into the next century.
As independent specialists we can, for example, establish vendor managed inventory systems in an effort to reduce customers' acquisition and possession costs. We can also work to help customers control their tool usage without the need for a crib attendant by installing tool vending machines.
Those are the types of customer-specific, value-added services that customers will continue to seek from independent distributors. The catalog houses and mega distributors of the industry will continue to be challenging competitors, but we feel that the role of independent distributors in the new millennium will be to become the benchmark of value and service by which our competitors are measured.
DAVE GRIFFITH
President & CEO, Modern Group Ltd.
I see significant trends coming together in the material handling, construction, rental and municipal industries in which Modern Group operates.
I believe consolidation will continue and that some of the current consolidators will fall apart as their financial strategies break up in the face of operational challenges. I see many new players getting into the game: rental houses, manufacturers, major chains, and international firms looking to expand into the US. I see technology, in particular e-business becoming a defacto channel of distribution and business-to-business communications and information flows becoming the standard requirements to play in the game. Internet, e-mail, sales force automation, and online customer service will become standard. I also see continued margin pressure as both the expense side grows with medical and related personnel costs, and the impact of new players in the market makes themselves felt. I do not see significant price increases in the current economic environment.
It will be interesting to see how firms deal with the downturn in business when it comes. I strongly believe that highly leveraged firms, both public and private, will be particularly challenged. I think strong financial and operational skill will pay off.
I also see the rental industry continuing to grow significantly and organizations that ride that trend with a customer service focus doing well.
I believe that firms with strong people, quality products, and technology strategies that match up to their markets and to identified customers requirements, will do very well. I am also certain that old way of doing business will not work and that nimble and responsive companies are the ones that will thrive.
PAULA BASS
President, KBC Tools & Machinery, Inc.
First, in the 1980s we saw corporate America engage in a feeding frenzy of mergers and acquisitions and, a bit of indigestion later, these same companies started spewing out divestitures. Dreams of increased profits, synergy, and economies of scale were quickly dispelled.
Now, once again, after a gluttonous meal of small distributors, the industry will experience indigestion as we head into another series of divestitures.
Secondly, manufacturers who plan for a satisfying meal of uninterrupted production will continue to outperform their less foresightful competition. No longer will end users be able to hide behind the words, 'we buy on a just-in-time basis,' which make deadline panic sound like a high tech alternative.
In the next century, distributors will discover they don't have to be integrated suppliers or tier one suppliers to eat hearty. They can still have a good meal by continuing to improve purchasing, customer service, operations and fulfillment, and by adapting technology and providing speedy delivery.
Distributors will also benefit from having not been the first in the buffet line of technological advances. By learning from those who 'ate' before us, we can choose from the palatable and affordable and still enjoy a good meal.
Finally, I predict that the catalog business will continue to grow. After all, the best way to get the meal you want is to order it from a menu. All the information you need is available in a quick and easy-to-understand format. Whether ordering from a traditional catalog, a CD ROM, DVD or Web-based version, customers can get exactly what they want without waiting for a salesman to show up at their door. In the next millennium, buyers will prefer to order at their convenience.
Talkback
Related Content
Related Content
Sponsored Links
View All Blogs
