New challenges for distribution

Industrial distributors will draw on a strong history to prepare for the changes ahead

By -- Industrial Distribution, 5/1/2000

Wholesale distribution came into its own during the 20th century. While rooted in the age-old mercantile activity of importing and exporting, it wasn't until the late19th century, when mass manufactured goods were introduced into the marketplace, that wholesale distribution developed into its current form. Government statistics on wholesale trade weren't even kept until 1929.

I promise I won't turn this into an economics lecture, but listen to these numbers:

Wholesale distribution has consistently outpaced the growth rate of the overall U.S. economy since 1929. From 1929 to 1998, the U.S. economy grew three percent annually, while wholesaling grew 3.6 percent-surpassing manufacturing growth of three percent and retail growth of 2.8 percent. In the final decade of the 20th century, wholesale distribution grew more than five percent annually. Talk about a growth curve: wholesale distribution sales in the last year of the 20th century exceeded $3 trillion.

In the century just concluded, wholesale distribution grew from a virtual upstart to an industry responsible for making the bounty and ingenuity of our great economy available to virtually everyone.

I am thankful to be one of the fortunate people born in 20th century America, to have had the opportunity and privilege of growing up in a family distribution business, and to have been part of the excitement this industry and this country have provided for so many of us.

The changes of the last several years, however, raise an important question: How will wholesaler-distributors fare in the decade ahead? We have clearly demonstrated our ability to add value in the channel based on our efficiency, tenacity, and ability to come up with creative solutions. But will these traits be sufficient in the years to come? I feel confident the wholesale distribution industry is positioned to move ahead and capture an even greater role in the supply chain.

Surely, there will be new and perplexing challenges to overcome along the way. First and foremost, wholesaler-distributors will need to become excellent in the game of e-commerce-and they will need to do it quickly. Investors are fueling a feeding frenzy in technology stocks, and as a result, venture capitalists are funding dot.coms at multiples even the best traditional companies can't hope to match. Some of these dot.coms have their eyes on nipping off chunks of the distribution function.

But is the industry ready to use the Internet for e-commerce? You bet. Member use of the National Assn. of Wholesaler-Distributors Web sites is proof positive. Since NAW launched its publications Web site last spring, more than 50 percent of all publications orders have been placed on the Web-and about 90 percent of members attending the association's February meeting registered through the Annual Meeting Web site.

In 1999, we began a journey that will continue to build momentum this year: NAW is rapidly becoming an "Internet association." The reason for this is simple: the association's job is to help distributors maintain and expand their central role in the channel at a time of unprecedented change and supply chain challenge.

J. Michael Moore is on the board of directors for Applied Industrial Technologies. This column was excerpted from his chairman's address at the National Assn. of Wholesaler-Distributors' annual meeting, held earlier this year.