We’re excited to provide the readers of Industrial Distribution with the results of our 68th annual Survey of Distributor Operations. The objectives of this report, as always, have been to understand the most critical issues affecting distributors, and to provide data to help drive their educated business decisions. Through these findings, we’ll discuss new and ongoing industry trends, and what trends have fizzled.
In this segment, we focus specifically on:
- Demographics, which establishes a profile of survey respondents based on company size, years in business, sales volume, and product line.
- Challenges, Trends & Economy, which outlines the initiatives distributors are undertaking to address key business and market concerns. This also covers mergers and acquisitions, and how distributors view the impact of the economy.
- The Balance Sheet, which offers insights into revenues and profitability. This addresses areas of investment, concern, and other analysis of factors impacting revenue.
- Best Practices, which sheds light on distributor relationships with suppliers and customers, as well as their global business plans and what challenges are involved.
- Tech Usage & Investments, which covers areas like e-commerce and other big-impact technology solutions for now and the future.
- Value of the Distributor, which addresses the reasons our survey respondents believe customers do business with them, and which service offerings play a significant role in the industry.
- Employment, which identifies hiring and layoff trends, recruitment, and compensation.
The results of this study are based on an email survey sent to Industrial Distribution subscribers. Recipients of the survey were offered an incentive to complete the questionnaire. Industrial Distribution’s subscriber base is comprised of 30,000 readers, the majority of whom identify as executive, upper management, sales, or sales management. Results are based on a pool of respondents within this subscriber base.
Because Industrial Distribution transitioned to a new publisher in 2010, no survey was conducted that year. Therefore, results which track comparisons over the past decade will reflect a gap between 2009 and 2011.
Comments on this year’s results? Email ID’s executive editor, Anna Wells, at Anna.Wells@advantagemedia.com.
Value Of The Distributor
With merger & acquisition activity in the industrial distribution marketplace at an all-time high and no end in sight, value-added services have become a key component for independent distributors to hold their own. It’s now at the point where calling many independents “industrial distributors” doesn’t do their business justice as many of them devote equal effort to being a service provider. Be it tool repair, product training, or safety seminars, value-added services often are distributors’ bread-and-butter.
Webinar: The Future of the Independent
Still, distributors at large do most of their business as a product supplier, and that was reflected as respondents – able to choose all that apply – said “Product Availability” was tied with “Relationships” as the primary reason customers do business with them (Figure 1). Both factors received identical votes at 81 percent. For product availability, it was a 9 point jump from last year and identical to the figure it had in 2013. Relationships has shown a considerable decline from 91 percent in 2013 and 84.5 percent last year. “Technical Support” was this year’s No. 3 reason at 69 percent, down 2 points from last year, while “Delivery Time” was fourth at 66 percent, up 4 points from a year ago.
“Price” remains a relatively low priority for doing business, as only 49 percent marked it as a primary reason. That’s up a bit from 43 and 44 percent in 2013 and 2014. Even so, Price as only the fi fth reason reflects the overall push for value-added services. After that, “24/7 Support” was sixth at 36 percent, followed by “Vendor Managed Inventory” and “Engineering Capabilities” tied for seventh out of nine factors at 34 percent. 24/7 Support showed a 6 point increase over last year, while Vendor Managed Inventory was up 10 points. Engineering Capabilities had only a 2 point increase. The considerable increase in VMI correlates to the vending increase in our survey’s Best Practices section.
Write-in responses to the “Other” reason for doing business varied. They included responses such as, “Meeting customer needs,” “Expanded solution for multi-location companies,” “One-stop industrial shop,” and “Service/training after the sale.”
The amount of respondents who said they are not providing unbundled services (services for a fee outside of a purchasing contract) dipped 1 point yearly to 42 percent, a figure that has hovered in the low 40s in recent years. This tells us distributors are still reluctant to charge separately for services, and rather include those services, and their added cost, in the total cost of a product.
Asked to choose which services (all that apply) distributors charge a fee for, this year’s results (Figure 2) closely resembled the last few. Shipping services again were far and away at the top at 68.5 percent. It’s held near 70 percent for three years now, although down from 2012’s mark of 78 percent. The next-closest services were Set-up/Installation (26.5 percent) and Fabrication/Kitting (25 percent), as those three have remained in that order for the last three years.
Design/Engineering Consulting (24 percent) showed a 7 point bump from a year ago, Employee Training (19 percent) was unchanged, while Tech/Product Support (18 percent) was up 6 points. Write-ins in this category included:
- Safety Seminars
- Predictive Maintenance
- Service Plans
- Engineering Services
One write-in also noted offering free shipping was dependent on order quantity, while another mentioned that not all fees are charged to all customers, or all the time.
This year, 13 percent of respondents said they derive no revenue from value-added services. That figure was at 34 percent as recently as 2009 and dropped to 14 percent in 2011 coming out of the recession, and it has leveled off since. It dropped another 2 points since last year. Distributors that had 1-10 percent revenue from value-added services has declined steadily since 2012 (56 percent), charting this year at 49 percent, while the other ranges (11-20, 21-30, 31-50, 51+) were virtually identical. Overall, the numbers show another marginal increase in distributors adding value-added services as a revenue stream after previously not partaking.
Even though respondents showed a low priority (34) percent on VMI as a reason customers do business with them, the percent that said they are involved in VMI programs had another increase this year. Charting at only 46 percent in 2013, it jumped to 51 percent last year and is now at 54 percent. This shows that while distributors aren’t yet investing heavily in VMI, the amount that offer it continues to grow.
Lastly, we continue to keep track of distributors’ involvement in coop groups/buying groups (Figure 3). The figure has held steady for 5 years now, as 36 percent of this year’s survey respondents said they are either a member of a buying group (22 percent), member of a co-op (5), or both (10). Those individual numbers didn’t fluctuate much, with the largest difference being a 2.4 point increase in buying group members.