We’re excited to provide the readers of Industrial Distribution with the results of our 70th annual Survey of Distributor Operations. The objectives of this report, as always, has been to understand the most critical issues affecting distributors and to provide data to help drive their educated business decisions. Through these results — pulled in late March and covering the previous 12 months — we’ll discuss new and ongoing industry trends and what trends have fizzled. Last year’s findings largely corresponded with the tough times industrial distributors were experiencing in the middle of an industrial recession. Are distributors now experiencing recovery that matches market reports? Read on to find out.
Our survey covers the following areas:
- Demographics — This establishes a profile of survey respondents based on company size, years in business, sales volume and product line.
- Challenges, Trends & Economy — This outlines the initiatives distributors are undertaking to address key business and market concerns. It also covers mergers and acquisitions and how distributors view the impact of the economy.
- The Balance Sheet — This offers insights into revenues and profitability and addresses areas of investment, concern and other analysis of factors impacting revenue.
- Best Practices — This sheds light on distributor relationships with suppliers and customers, as well as their global business plans and what challenges are involved.
- Tech Usage & Investments — This covers areas like e-commerce and other big-impact technology solutions for now and the future.
- Value of the Distributor — This addresses the reasons our survey respondents believe customers do business with them and which service offerings play a significant role in the industry.
- Employment — This identifies hiring and layoff trends, recruitment and compensation.
You’ll notice that this year’s survey section is considerably shorter than in past years — less than half the length of last year’s. That’s because, starting this year, we’ve decided to include only the most pertinent survey stats in our print issue and then make the full report available to download online. That report will contain more stats, charts and commentary beyond what is included here and in the print magazine version.
In the May/June print magazine, we originally stated the full report would be available May 18, but since it took a little longer for us to finalize than anticipated, that date is being pushed back. We'll let you know as soon as we have a new date picked out!
The results of this study are based on an email survey sent to Industrial Distribution subscribers in March 2017. 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.
Comments on this year’s results? Email ID editor Mike Hockett at Mike.Hockett@advantagemedia.com
VALUE OF THE DISTRIBUTOR
Industrial distributors have collectively been ramping up their value-added services over the past decade as price becomes less of a factor in customers’ buying decisions, more manufacturers sell direct and competition amongst distributors edges ever higher.
Our survey shows how this trend is impacting sales (figure 6). Forty-one percent of respondents say services comprise at least 11 percent of their total revenue — up eight points from last year’s survey. Beyond that, nearly 21 percent say services comprise at least 21 percent of sales — a figure that has climbed steadily from 14 percent in 2014.
We always ask our respondents what they feel are the primary reasons customers do business with them. Relationships (83 percent), product availability (73 percent) and delivery time (61 percent) remained the top three as expected with little or no difference from last year, but what reasons changed the most? Technical support was picked by 64 percent — down five points from last year’s survey, while 34 percent 24/7 support — up five points. Though 48 percent of respondents chose price as a primary reason, that’s down three points from a year ago, suggesting distributors feel that price is becoming less of a priority for customers.
As for which services respondents are charging a fee for, the amount who say they charge for consigned inventory dropped almost seven points from last year’s survey to nine percent. Inventory management fell six points to 14 percent, while tool crib management gained five points to 14 percent. Other notable changes were a two-point gain in set-up/installation to 26 percent, while employee training declined 3.5 points to 13 percent. Other top revenue services such as shipping (70 percent), fabricating/kitting (23 percent) and design/engineering consulting (20 percent) had little or no change.
Other notable statistics from this section:
- Forty-eight percent of respondents say they are involved in vendor-managed inventory (VMI) programs — down more than three points from last year’s survey. VMI involvement was above 51 percent in each of the three previous years.
- Thirty-six percent of respondents say their business is a member of a buying group, co-op, or both — identical to our 2016 survey. That breaks down to seventeen percent who are in a buying group — down seven points; those in a co-op increased nearly five points to 8.5 percent and those that are members of both increased two points to 10 percent.
Go to any industrial supply trade show and you’ll almost certainly hear a message about the great need for talent recruitment and succession planning in distribution/manufacturing. Even with the great strides made in the industrial economy over the past six-plus months, these are areas that continue to present a major challenge to distributors. How do you make working in a warehouse, or selling industrial products attractive to new talent? How do make industrial distribution attractive to a millennial workforce? Our readership faces these questions increasingly every day.
Sixty percent of our survey respondents say yes – identical to last year and shows there’s a large chunk that are struggling to recruit. We asked our respondents to rank their business on its ability to recruit on a range of poor, fair, good, very good and excellent. More than 38 percent say they are fair or poor, while only 24 percent rate themselves as very good or excellent. The largest chunk of respondents – 38 percent — rate themselves in the middle as good. But our results show that more respondents think they are mediocre or worse at recruiting than above average.
On a positive turn, the upswing in the industrial economy apparently has distributors back in staffing expansion mode (figure 7). Nearly 32 percent of our respondents say they anticipate a need to add staff in the next 12 months — up eight percentage points from last year’s survey. Meanwhile, the amount who say 7they have reduced staff in the last staff months dropped four points to 18 percent. Only six percent anticipate a need to lower headcount over the next year — down two points, while more than 44 percent have added staff in the past year.
Where are those staffing additions being made? Sales expectedly takes the top spot with 63 percent — down two points from last year — while 39 percent of respondents chose warehouse and customer support. The areas making the biggest gains are clerical — up nearly five points from our 2016 survey to 12 percent, with customer support up four points. Meanwhile, administration is down four points from a year ago to 15.5 percent.
Overall, our respondents’ sales headcount appears to be levelling off in recent years. This year, 50 percent say their number of sales reps stayed the same over the past year — up more than three points from our 2016 survey and up 11 points from 2015. The amount who say they have more reps is at 36.5 percent this year — down more than one point from a year ago.
Retaining employees is arguably just as important as recruiting them. So how are distributors getting their employees to stay? Out of five options, 69 percent of our respondents picked higher pay — down 3.5 points from last year’s survey and down almost seven points from 2015. The option of training was unchanged from last year at 55 percent, while 49 percent chose improved benefits package – down almost 11 points from 2016. One respondent wasn’t shy about commenting “Our company is very poor at retaining quality people.”
Employee benefits can be a touchy subject among employers, especially after the industrial recession forced some distributors to slash employee benefits as a means just to get by. Even with economic conditions more favorable now, the amount of our respondents who say they offer health insurance coverage dipped another four points from last year’s survey to 84 percent — down from 93.5 percent in 2015. Asked to pick any benefits they offer, 67 percent picked bonus/compensation programs – down five points from last year. Other options taking a sizeable decline were employee recognition programs — down eight points to 31 percent; flexible hours — down eight points to 28 percent; and profit sharing — down nearly four points to 31 percent. Benefits seeing a rise were 401k/pension — up four points to 75 percent; sales performance reviews — up 7.5 points to 57 percent; and stock options — up more than eight points to 20 percent.