Erik Gershwind, the president and CEO of giant industrial distributor MSC industrial Direct, had some interesting comments about industry consolidation and the importance of improving supply chain efficiencies during a recent conference call with financial analysts following the company’s quarterly earnings report.
What he said, according to a transcript of the call as provided by www.seekingalpha.com, should give pause to other industrial distributors as to the importance of streamlining their supply chain efforts as consolidation continues to increase.
MSC Industrial was No. 14 on Industrial Distribution's 2014 Big 50 List.
Gershwind said one of the reasons for the rise in consolidation is that customers want a national accounts program and are using technology and leaner supply chains to reduce their supply base.
MSC, for example, showed continuing momentum during the first quarter by posting growth rates once again well into the double digits in its national accounts and government programs. "We’re seeing both penetration of existing customers and solid performance in new account signings,” Gershwind said.
He pointed out that since the recessions of 2008 and 2009 there has been a renewed focus by manufacturers on the supply chain and the need to get their products to market faster.
“And so the whole purpose and reason for procurement, for supply chain, has moved a bit from just saying ‘hey, I exist to get the lowest price on a part,' to, 'I exist to help my company get products to market faster,'" he said. “In a world like that, MRO becomes much more strategic and important and I think that’s driving a spotlight on it and that’s leading to these big opportunities that are playing into the consolidation story."
The importance of increasing supply chain efficiencies is a main focus of many distributors and MSC is no exception.
Gershwind said MSC is streamlining its structure to better serve its customers and partner with its suppliers as it organizes its operations into a “front end and back end that will expand the company’s vision for the future.”
The front end will include customer service, CCSG, and MSC’s management function, Gershwind said. The search is now underway to find a senior level executive to lead those functions.
The back end is organized under the leadership of Doug Jones, who was previously MSC’s Executive Vice President of Global Supply Chain Operations. Jones is now the company’s Chief Supply Chain Officer and his expanded role encompasses a broader, end-to-end view of improving MSC’s entire supply chain, including customers and its suppliers.
Those responsibilities include distribution and fulfillment, transportation, purchasing and replenishment, and operational excellence, including lean and process engineering. Given the tight connection between the supply chain and technology, Jones has also assumed oversight of IT, Gershwind noted.
MSC is optimistic about 2015 since it is hearing more talk of capital investments that will lead to increased tooling consumption and demand across the company’s diverse customer base.
In the first quarter, the slightly improved business environment along with share gains resulted in MSC achieving a 7.8 percent organic sales growth.
Both vending and e-commerce remained strong, as MSC’s customers continued to leverage MSC’s technology platforms. E-commerce reached 54.5 percent of sales for the first quarter as compared to 50.9 percent a year ago and 53.7 percent last quarter. Vending added a bit above 3 points to its growth rate, and the company also added approximately 30,000 SKUs to its web offerings. It now has roughly 880,000 available online.
MSC expects to grow its sales force headcount by 8 percent to 10 percent for the year. In the first fiscal quarter, the company increased its sales force headcount by just over 7 percent from a year ago.