Pivotal distribution issues examined at NAW
By Industrial Distribution Staff -- Industrial Distribution, 3/1/2000
Washington--Supply chain partnerships, consolidation, the Internet and politics were the chief topics of conversation among the distributors attending The National Assn. of Wholesaler-Distributors Annual Meeting, Jan. 31-Feb. 2 at The Capital Hilton in Washington, D.C.In the political arena, the ergonomics regulation proposed by the Occupational Safety and Health Administration and currently under review tops the list of NAW's grassroots efforts in Washington this year, according to NAW chairman Michael Moore.
"[This regulation] could well be the most sweeping regulation ever to be imposed on the wholesale distribution industry," Moore said in the annual chairman's address. "NAW has been flooding Congress with letters urging our legislators to block OSHA from issuing such a far-reaching regulation."
In addition, NAW's Wholesaler-Distributor Political Action Committee is focused on November's elections, although the organization had not yet endorsed a candidate at press time. Attracting the attention of a bevy of news media as well as NAW's largely republican membership, New York City Mayor Rudolph Giuliani delivered a lunchtime address to NAW attendees. Giuliani is expected to contest First Lady Hillary Rodham Clinton for election to the U.S. Senate in November, although at press time he had not yet officially announced his candidacy.
Industry consultants addressing the membership included Mark Dancer and Carl Cullotta, principals with the consulting firm Frank Lynn and Associates. Dancer and Cullotta addressed the issue of supply chain partnerships -- including consortia, alliances and integrated supply arrangements -- and how those partnerships are fundamentally changing how products get to market and how value-added services are created.
Adam Fein, president of Pembroke Consulting, Inc., led an examination of the trend toward consolidation within wholesale distribution. He was joined by Bill Sanford of Wilmar Industries, and a panel of executives including Paul Nowak, CEO of VWR Scientific Products; Bill Wade, former CEO of Quality Distribution Service Partners; and Chip Drapeau, president and CEO of PSDI and MRO.com, Inc.
Fein said that while many consolidators have not fulfilled the promise of consolidation, the potential benefits remain: increased purchasing power and access to better insurance; size-based operating efficiencies which lower the cost of sales; and finally strategic advantages such as investing in technology and offering more value-added services.
The success of a consolidator, Fein said, depends on the organization's ability to follow best practices, which include having a skillful post-acquisition integration; retaining customers and key relationship managers; having access to capital; growing to serve large customers; leadership in offering value-added services; and more.
Looking toward the future of consolidation, Fein predicted that independent contributors will continue to thrive on the "golden crumbs" left by larger consolidators. He also predicted that private roll-ups will continue while consolidators step away from public capital markets, and that e-commerce and online exchanges will level the playing field but trigger more consolidation.
Attending distributors -- whose industries ranged from industrial to food and beverage to beauty supply products -- shared a keen interest in learning more about how the Internet is revolutionizing business-to-business commerce and wholesale distribution. Scott Latham, a senior analyst with AMR Research, and Ross Elliott, vice president of development at NxTrend Technology, led the effort to address issues related to e-commerce.
Reassuring distributors that it's not too late to delve into e-commerce was the message at the heart of Latham's presentation.
"There's been a very slow adoption rate with regards to e-commerce. A lot of companies haven't shifted resources to e-commerce yet," Latham said. AMR Research shows that most companies have a Web site, Latham said, but that only 20 percent of those sites allow customers to check orders and only 10 percent enable customers to actually place orders online.
"E-commerce is absolutely going to change the way you do business. But if you haven't done anything with it yet, don't panic," Latham said. "E-commerce will present more of an opportunity for you folks than a threat.... Distributors that use e-commerce to become part of an integrated supply chain will not be disintermediated, but those that continue [only] using the phone and fax will."
Both Latham and Elliott predicted that online independent trading exchanges (ITEs) -- like Ariba, CommerceOne and BuildNet.com -- represent a real threat to wholesale distributors in that they will begin to replace buying groups and resemble brick-and-mortar distributors as they build warehouses and take hold of inventory. In order to survive, distributors will either need to participate in or compete with trading exchanges, and build upon the strength of their customer relationships.
Quoting research by the Gartner Group, Elliott predicted that by 2001, 70 percent of distributors will operate online through marketplaces and will reap more than 80 percent of their sales through the online marketplaces.
Using technology to integrate business processes between your company and your business partners, suppliers, customers, buying groups and the digital marketplace will be key to a successful future in wholesale distribution, Elliott said.
Both Latham and Elliott pointed out that distributors are currently in a position of strength.
"You have something they (dotcoms/trading exchanges) want. You have the customer relationships, the knowledge and the logistical ability to deliver goods and services that they can't touch," Elliott said.
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