The 65th Annual Survey of Distributor Operations

The truth is, Industrial Distribution magazine has been tracking industry data since before many of you were born. Because of the longevity of this report, we’re excited to unveil the 65th iteration of the Survey of Distributor Operations . . .

This article originally appeared in the May/June 2012 issue of Industrial Distribution. To view it in its original format, click here.

For a 101-year old magazine, a 65-year-old survey seems practically new.

The truth is, Industrial Distribution magazine has been tracking industry data since before many of you were born. Because of the longevity of this report, we’re excited to unveil the 65th iteration of the Survey of Distributor Operations, a report we consider to be one of the most comprehensive distributor surveys in the industry.

The objectives of the study are to understand the most critical issues facing today’s industrial distributors. The study further examines current trends, job market conditions, best practices, growth and development, and technology improvements. In this issue, we will focus more specifically on the results and analysis of our reader-generated feedback in the following areas (click on any category to be taken to that article on our website):

  • Demographics, which details industrial distributors’ demographic characteristics such as ownership, years in business, company size, annual revenues, product lines carried, and so on.
  • Challenges, Trends & The Economy, which outlines the challenges and initiatives distributors are undertaking to address key business and market concerns. This will further spotlight mergers and acquisitions affecting the industrial distribution community, as well as examine how industrial distributors are coping with business practicality in a time of economic uncertainty.
  • Technology Usage & Investments, which describes the information technology applications and solutions distributors are now using, plan to adopt, and will have the greatest impact.
  • The Balance Sheet, which offers insight into revenues and sales forecasts, as well as ways distributors will re-invest in their companies.
  • Best Practices, which will shed light on distributor relationships with their manufacturing suppliers, along with reports in distributors’ global initiatives.
  • Value of the Distributor, which highlights the reasons for customer loyalty.
  • Employment, which examines the state of the industrial distribution job market.

Results of this study are based on an email survey sent to Industrial Distribution subscribers. Recipients of this survey were offered an incentive to complete the questionnaire.
Industrial Distribution’s subscriber base is comprised of 27,000 readers, the majority of whom identify as upper management (executive level managers or company owners). The remainder of our subscriber base identifies as 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.

Market Report
One of the most important elements of an annual report like the Survey of Distributor Operations relates to it’s ability to track and compare trends in data over many years. Despite this, it’s still important to look at the state of the economy as it exists right now.
Based on the most recent Manufacturing ISM Report on Business, economic activity in the manufacturing sector expanded in March for the 32nd month, and the overall economy grew for the 34th straight month.
“It’s just a very, very balanced report,” says Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management. “If you look at this month and at the first quarter, I think we see a lot of steady and consistent growth.”
The PMI (purchasing manager’s index) registered 53.4 percent in March, an increase of one percentage point when compared with February’s PMI reading of 52.4 percent. A reading above 50 percent indicates the manufacturing economy is generally expanding, while a reading below 50 percent means it is generally contracting.
Two other indexes that saw improvement over last month were ISM’s Production Index and ISM’s Employment Index. Production registered 58.3 percent in March, up three points over last month’s reading of 55.3 percent. Meanwhile, employment registered 56.1 percent in March, which is two point nine percentage points higher than the 53.2 percent reported in February.
“Production kind of comes along with new orders and backlog (both of which grew as well),” says Holcomb. “Employment, this is a good leading indicator of what we’ll see in the Bureau of Labor Statistics figures that come out shortly. I’d expect some more good news in terms of the size of employment. This is anticipating a continuation of new orders and production.”

Supplier Deliveries: One area that has completely reversed track over the course of the past two months has been supplier deliveries. ISM’s Supplier Deliveries Index registered 48 percent in March, which meant that the delivery performance of suppliers to manufacturing organizations was faster than in previous months. The March reading was one percentage point lower than the 49 percent reported in February. Prior to February, there were 31 consecutive months in which supplier deliveries slowed.
According to Holcomb, this is not exactly normal. “Generally speaking, we like to see slower deliveries,” he says. “Those indexes are above 50 for the long haul. What this says to me is that suppliers have anticipated this consistent demand for their raw materials, and they have increased production and increased inventories in order to be able to fill their orders faster. That’s another good sign, at least in the short term in supplier deliveries.”

Prices: Prices of raw materials have been on the rise as of late, but Holcomb says that had quite a bit to do with suppliers introducing their new pricing at the start of the year. Furthermore, he isn’t concerned the manufacturing sector (or economy as a whole) will see a repeat of 2011, where prices skyrocketed. The ISM Prices Index registered 61 percent in March, 0.5 of a percentage point lower than the 61.5 percent reported in March. Though there has been growth in the area of prices for awhile now, it hasn’t been quite as substantial as in past months. “It leveled off at a pretty respectable rate,” says Holcomb. “It’s not too high like it was last year. I think we are continuing to see moderate price increases for 2012.”

Overall Outlook: According to Holcomb, there’s a lot to like about the March Manufacturing ISM Report on Business. He suggests there are no signs that would indicate economic activity in the manufacturing sector and overall economy shouldn’t continue to grow in the coming months.
“I’m always looking for that, but quite honestly I don’t see it,” says Holcomb. “I just see a lot of consistency. I think things are at the right level, which leads us to believe that it is sustainable for the next few months — unlike last year, when we got overheated in the first quarter or so. In this case, I think we have learned from those lessons. It is more tempered, and it bodes well for the next several months.”

As an adjunct, according to the latest ISA Economic Indicators Report (EIR) from the Industrial Supply Association, activity among its manufacturer and distributor members dipped slightly from last month but remains in positive territory.

The report showed manufacturer activity in March at 61.82 percent, compared to 63.99 percent the previous month and the distributor index at 62.86 percent, compared to 64.83 percent in February. For each index, a reading above 50 percent indicates expansion, while a reading below 50 percent indicates contraction.
According to John Buckley, ISA executive vice president. “It is gratifying to see all channel members continuing to do well. However, while the channel continues to expand, we are seeing a few signs of slower growth. The Manufacturer Index for New Orders is showing a bit of contraction at 46.6 percent. The Overall Business Activity Index was just about flat at 51.1 percent.”

Ultimately, our survey results in this issue reflect a healthy mix of confidence and caution, which suggests our group of survey respondents are waiting for a bit more economic and political stability before truly diving into to some of the initiatives that were put on hold throughout the recession.

We invite you to read on, and if you have questions or suggestions, please feel free to email the editor at [email protected].

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