Wisdom and experience count for a lot in this industry. The elder statesmen have seen everything happen, maybe twice. Following is the first of a series of excerpts from Profiles in Wholesale Distribution Leadership, a program sponsored by the Distribution Research and Education Foundation of the National Assn. of Wholesaler–Distributors. J. Michael Marks, a principal and managing partner with the Indian River Consulting Group in Melbourne, Fla., led some of the industry's best and brightest executive leaders through an oral history of the industry, including insights into their wisdom, knowledge, experience and mistakes. Included are their opinions on the manufacturer/distributor difference, executive judgment, and the state of distribution.

On the subject of the core differences between manufacturers and distributors, Kaufman had this to say:

"The world has an image of distributors, not particularly flattering. I sort of had that directional sense when I came here, but apart from that is the fact that there are a number of very real attributes of the industry that are different from, say, manufacturing, where I'd been before. The biggest, I believe, is that a distributor has no really hard assets that distinguish them. A manufacturer may have a patent portfolio that gives them enormous knowledge and protection, and a platform to leverage off of. They might have a phenomenal R&D lab, even if they don't have patents, but terrific product development expertise, and they can develop products. They might have world-class factories, either world-class technology or world-class cost, all of which are hard assets that are always there, and that they leverage off of.

A distributor has nothing more than their people. And so, unlike other hard industries, the major asset walks home every night at six, seven or 8 p.m., and the question is, 'Does the asset walk back the next morning?' Patents don't have feet, development labs don't have feet, and factories don't have feet. So you come back the next day and it's still there.

In distribution, your people are all you're trading on. And if they don't come back, you have nothing. Even the people who would say, 'No, that's not true, Steve. Distributors have customer relationships, and they have supplier [relationships] or relationships with their principals,' and those are hard assets. Well, I would say, 'sort of,' because, if you look deep, you find that those relationships are really held by the people, not by the institution. And I've seen many times where customers, and even supplier relationships, walk out the door with a key employee, and if that key employee shows up someplace else, the relationship has moved.

I've seen major suppliers, brand name semiconductor companies, give a franchise to a nondescript distribution company solely because an executive that they had dealt with at another company moved over there. So the notion that the only asset you have is a body and your people, and that they are on foot, is a very, very different framework than traditional manufacturing or industrial-based industries. You know, maybe some of your customers know you, but it's not a solid brand that you can really trade on. And that's true for most distributors."

When asked about executive judgment, Kaufman said this:

"Good judgment comes from experience, and experience comes from bad judgment. And life is a series—or a managerial life is a series—of building your skills and your judgment on the back of the mistakes you've made. If you have the self discipline and the ego control to stop and look at the mistake, admit it was a mistake, and figure out why you made it, then the next time you can say, 'Ahh, that looks like the other time. Let's try it differently.'

It's not a question of avoiding mistakes; you can't. You tell your children, it's not how often you fall down, it's how you pick yourself up. So don't be afraid to make mistakes. But you've got to learn from the mistakes. More importantly, don't repeat mistakes. Make new mistakes.

My father would have been amazed at how I was able to live my entire career on making new mistakes, and in finding new mistakes to make. A phrase I love is, 'Learn from the mistakes of others—you'll never live long enough to make them all yourself.' Watch other people, and learn from what they've done."

In discussing the present and future state of distribution, McClelland said:

"Distributors have more tools today to accomplish their goals than they've ever had in the past, and a lot of that comes from electronic communication. That is the ability to send data electronically, and as an example, to talk with a group of storeowners at one time over a teleconferencing system. One of the keys to distribution is communicating with the people that you're buying from, and the people that you're selling to, whether it's product and product availability, or whether it's programs or events coming up. In some respects, the job of a distributor is easier today than it was years ago, because you've got all of those tools that, hopefully, would bring all of your key ingredients together. As you well know, the function of distribution is as needed today as it's ever been.

Some of the big boxes have confused that function by showing that they can be successful by doing a lot of drop shipping. We're seeing more and more of them and, in particular, Lowe's, who still does an awfully good job of distribution. I still remember some of the old timers saying, 'Don't worry about them. They'll be a flash in the pan. There were others before them.'

They weren't right, but they would have been if computers hadn't come along. Before computerization, retailers could not manage their inventories. They didn't know soon enough when they needed more, and they found out too late when they had too much. It always affected cash flow, and it always affected cash sales and customer satisfaction. So when Home Depot came along, and they had a good business model with everything going right, and they had the tools to manage that inventory and communicate with a lot of stores at one time, they made it work.

The thing I get worried about is the distributor who always is saying to his customers, 'What can I do for you?' If you don't know what you can do for that customer, how do you expect them to know? Your job as a distributor is, in large part, observation. What is it I could provide for them so they could do better? Is it different product? Is it different retail systems? Is it the way I deliver the product to them? Is it the way that I allow them to communicate with me? How can I put them on an equal footing with Home Depot?

There will be times when they'll give you an answer that you wouldn't have thought of on your own, and it's a good answer, but the fact of the matter is, the responsibility of 'How do I serve you?' is the distributor's. I'm living this job everyday. I ought to be able to observe what needs are out there.

I've always said to our staff, 'Every time you drive down the road and you see a Wal-Mart truck, ask yourself, how many stops will that Wal-Mart truck make?' In answer, he's only going to make one stop. He picks up at the distribution center, he goes to that store, and he unloads.

When a truck leaves our stores, how many stops does he make? In our case, he's making about 10 stops. That means Wal-Mart's logistics program right now is 10 times more efficient than ours. So what can we do to get that down to eight stops per delivery? Six stops per delivery? We'll probably never get it down to one, but if we ever got it down to six, just think of how much more efficient we would be. We could reduce prices and still have good margins and still provide good rebates back to our members. So how do we do that? How do we help every member today who's buying 10,000 a week buy 15,000 a week? Well, it'll come from one of two places. We're either going to show him where he is buying from some other distributor, and he ought to be buying it from us, or we help him increase his sales so that he has to buy more from us. So the constant focus is on, 'What can I do to help my customer, or my member-owner, to meet and exceed his goals?'"

Watch for Part 2 of ID's excerpts from Profiles in Wholesale Distribution Leadership in a future issue. For more information on the NAW series, visit www.naw.org.