When integrated supply was introduced years ago, some distributors considered it nothing more than a fad that would eventually go away. That hasn't been the case. In fact, integrated supply has been growing — and will continue to grow — solidly, according to a report done by Frank Lynn & Associates. (See pg. 41)

Others, however, argue that integrated supply has never reached the levels many expected.

Industrial Distribution's 56th Annual Survey of Distributor Operations shows that only 27 percent of distributors have integrated supply contracts with their customers. Many smaller distributors are involved as second-tier distributors selling through the integrator. And 87 percent of distributors involved in integrated supply say they expect the number of such contracts to remain the same or increase in the years ahead.

Frank Lynn & Associates' report, Integrated Supply: The Overlooked Giant, says integrated supply will grow up to 25 percent this year on top of 18 percent growth in 2001. By 2005, the study estimates that integrated supply sales will reach $26 billion. The study covered the top 17 integrated supply distributors with sales of more than $100 million.

There are some who don't believe the market will grow that substantially, particularly in light of the economic downturn. Others question how many distributors are, or will become, involved in integrated supply. Some distributors have bowed out of integrated supply arrangements because it is too costly and time consuming. It can also require significant investments in technology, because in many cases the distributor's computer system must be linked to his customer's.

In addition, some distributors involved in integrated supply say they can't meet the growing demands of customers who believe integrated supply is a panacea to their inventory/purchasing problems. Many customers have negated contract agreements with integrated suppliers because they believe they haven't reduced costs as much as had been expected. Some of these customers have inked contracts with new integrated suppliers or have gone back to their original way of buying.

The problem sometimes lies at the feet of the distributor who doesn't have a clear grasp of his profit margins or promises more than he can deliver.

Integrated supply will be around for a long time to come. The question is whether it is right for you.