Figuring Out What They Want
In the second part of this three-part article on the state of industrial distribution in 2004, former editor in chief of Purchasing magazine James Morgan addresses the shifting priorities and needs of industrial buyers
By James P. Morgan, Contributing Editor -- Industrial Distribution, 7/1/2004
What buyers see
As customers see it, business prospects for the distribution industry depend a great deal on performance. Distributors who add value to their business dealings will, for the most part, do well over the next 15 to 18 months. Still, there is a core of companies that will continue to struggle for another year at least.
Thus, along with some generally optimistic words about the health of the industry, there also is a stream of pessimism. Respondents to Purchasing magazine's annual distribution survey, for instance, are displaying some signs of unease—or at least signs of less than all-out satisfaction. In general terms, a very large number of distributors and their customers are concerned about an uneven level of service provided by many of the nation's distributors.
"Uneven" is the word many purchasers use. They are satisfied, or reasonably satisfied, with the level of service provided by their distributors.
Many purchasing professionals, for instance, tend to agree with Dennis D. Brooks, international program manager for General Electric in Cincinnati, giving high marks to distributors for their work in introducing and pioneering the use of e-commerce tools in order fulfillment, in helping customers reduce inventory costs and in providing help in shortening order lead times.
Other purchasing executives also have good things to say about their distributor suppliers. Ken Robison, purchasing manager for CMT, is impressed with improvements in inventory management turned in by some key distributors, and Donald R. Stancil, regional procurement director at Weyerhaeuser, reports improved integration with Manufacturing Resource Planning systems as the result of distributor efforts.
But along with all of the good things purchasing executives have to say about their distributor suppliers, many also are displaying anxieties about them. At first glance, many of their complaints seem to be petty, poorly defined and/or tentative when compared with performance complaints of past years. Perhaps most important, an unusually large percentage of the complaints about performance appear to be aimed at smaller distributor suppliers.
In defense of distributors, one popular explanation of this strain of pessimism seems to be linked to recent buyer worries about the economic climate. Unfortunately, their worries seem to be coloring the truth about what's good, and what's not so good, about industrial distribution. In short, the worriers seem to be coloring perceptions about distributor performance and what they should be providing to customers.
How would you rate your distributor supplier's overall
performance?
Source: Purchasing
Too much breast-beating
As a result, say a fair number of purchasing professionals, some pretty "dumb" things are being said about distribution, the economy and the purchasing profession. In a fit of pessimism, some purchasing executives are even changing some of their supplier selection priorities. To wit: since 1999, price, quality, inventory, and on-time service have been moving down in the rankings of what buyers say they want from suppliers. For worriers, this is a sure sign that the country is in deep decline. (What few of the worriers seem willing to admit is the possibility that current swings of the economy have been managed so competently that supplier selection criteria don't need to be applied so frantically.)
Some of the worriers' questions will begin to be answered over the next few months. Meanwhile, these areas of unease need to be monitored and addressed by purchasing professionals all along the supply chain:
Prices. Ironically, distributor pricing is attracting the greatest amount of attention from buying executives these days. The irony is that while pricing often is reflected in lower item pricing from manufacturers in economic downturns, the same often is not true of goods sold by distributors. Distributor pricing, especially on non-production items, tends to be more rigid than manufacturer pricing in periods of economic change. As a result, many purchasing executives report that their firms are experiencing serious cost squeezes.
"I don't know whether they're unable or unwilling to fight price increases," says the buyer for a small valve maker in Houston, but "it's been open season for the past few months."
On many items, says the president of a small New Jersey electronics firm, "price and availability have nagged at us all year and forced us into a serious cost squeeze." Many purchasing managers go further in suggesting that their distributor suppliers are not fighting hard enough to keep prices in line.
In a fair number of instances, buyers suggest that most of the pricing problems they are facing fall into the leverage category—big companies fight price hikes, small companies don't have the clout and don't try.
How does distributor performance stack up against manufacturer suppliers?
Source: Purchasing
According to a purchasing manager at a pump maker in Mansfield, Ohio, her biggest problems with distributors are that "they're not manufacturers. We can oppose price increases by manufacturers and often win. But with distributors (especially small ones) it's another story. They'll usually pass price increases along to us and tell us they can't do anything about it."
Availability. The assistant administrator for an Ohio transportation company is typical of many purchasing executives who complain about back ordering. "With business down, I would expect fast service. Instead, many distributors seem to be reducing their inventories," he says. The materials manager for a New England toolmaker suggests that availability problems are spilling over into a number of supply management areas—e.g., "inventory, minimum quality standards, returned products and newly imposed shipping charges."
Delivery. Missed and late deliveries seem to be nagging buyers in many parts of the country. "They need to meet delivery dates better," says the manager of information technology and materials contracts at Bechtel Bettis, Inc. A fair number of buyers indicate that missed deliveries and badly handled deliveries have been edging higher since the summer of 2001. A purchasing agent at Hamer, Inc., for example, reports instances where distributor personnel appear to be mishandling information about time of delivery and also failing to acknowledge purchase orders.
Technical assistance. "Invariably, I have to call the manufacturer for 'real help'—especially on steel products," says the purchasing agent for a roller producing company in northern Illinois. In many cases, buyers say, the problem can be traced to the steamy labor market at the end of the 1990s. Good sales help got hired away and many firms found themselves unable to train replacements fast enough.
In addition, a number of buyers are not so sure that lack of knowledgeable sales help is all the result of unplanned circumstances. For instance, the purchasing agent at a Minneapolis capital equipment maker suggests that some distributors who used to provide large amounts of technical assistance free—or at relatively low cost—are now selling product knowledge.
Communication. For many purchasing executives, the biggest problem area in dealing with distributors is more a matter of communication than technical assistance.
Damage. Compared with past years, minimization of damaged shipments has shown significant improvement. Still, many buyers list damage, returns and getting the right kind of special packaging among the biggest problems they have in dealing with distributors. A number of buyers complain that despite long-term improvement in damage control, there has been a fairly sharp increase in problems over the past several years.
Cost control. Many purchasing executives also complain that distributors are not doing enough to hold the line on costs. The purchasing manager for a Massachusetts capital equipment company, for instance, cites "poorly trained inside sales contacts, inadequate order processing systems, terrible phone systems and lack of customer skills," for recent poor showings in controlling costs related to buying from distributors.
Watch for Part 3 of this series in a future issue of INDUSTRIAL DISTRIBUTION.
| Order handling efficiency | 6.3 |
| Customer service (int. & ext.) | 6.2 |
| Understanding of cost issues | 5.1 |
| Relations with their manufacturer suppliers | 4.9 |
| Level of technical support | 5.6 |
| Handling of delivery and lead-time issues | 5.7 |
| Range of products | 6.8 |
| Geographic range of service | 5.7 |
| E-Business capability | 5.4 |
| SOURCE: PURCHASING |
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| Author Information |
| James Morgan is former editor in chief of Purchasing magazine. |
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