We’re excited to provide the readers of Industrial Distribution with the results of our 71st annual Survey of Distributor Operations, sponsored by Infor. 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, as well as what previous trends have fizzled.
Whereas our 2016 survey results mirrored the downtrodden industrial economic conditions at the time, our 2017 survey respondents indicated a solid recovery for most. The industrial economy has only improved further since then, so one can likewise expect our 2018 results to show continued improvement and optimism among distributors.
But beyond economic factors impacting fiscal numbers, our survey aims to find to what extent industrial distributors are utilizing technology; the state of supplier relations; how distributors view their place in the supply chain; how they are faring in employment; and more.
In this survey report, we focus specifically on:
- Demographics — establishes a profile of survey respondents based on company size, years in business, sales volume and product line
- Challenges, Trends & Economy — outlines the initiatives distributors are undertaking to address key business and market concerns, as well as mergers and acquisitions and how distributors view the impact of the economy
- Tech Usage & Investments — covers areas like e-commerce and other big-impact technology solutions for now and the future
- The Balance Sheet — offers insights into revenues and profitability, addressing areas of investment, concern and other analysis of factors impacting revenue
- Best Practices — sheds light on distributor relationships with suppliers and customers, as well as their global business plans and what challenges are involved
- Value of the Distributor — addresses the reasons our survey respondents believe customers do business with them, and which service offerings play a significant role in the industry
- Employment — identifies hiring and layoff trends, recruitment and compensation
Prior to 2017, this report would discuss the majority of results from the more than 50 questions our survey asks. This year, in the effort of transparency, we want to give our readers access to the results of every question. That’s why this report summarizes the key survey findings, while readers can download the full survey results at the end of this article.
The results of this study are based on an email survey sent to Industrial Distribution subscribers in April 2018, with a collection time of three weeks. Recipients of the survey were offered an incentive to complete the questionnaire. The majority of Industrial Distribution’s subscriber base is comprised of readers who identify as executive, upper management, sales or sales management. Results are based on our pool of survey respondents from within this subscriber base.
Comments on this year’s results? Email ID editor, Mike Hockett, at Mike.Hockett@advantagemedia.com
In Part One, we discussed the results of the Demographics section of the survey, as well as Challenges, Trends & The Economy. In Part Two, we discussed the results of our sections for Technology Usage & Investments, The Balance Sheet, And Best Practices. Here in Part Three, we'll discuss the results of our sections for Value of the Distributor and Employment, along with additional respondent commentary.
Value of the Distributor
On the flip-side of our best practices section, our Value of the Distributor section features internally-focused questions asking respondents to evaluate themselves on an operational-basis. Distributors know they typically can’t compete with direct-to-consumer manufacturers and retailers on price, which is why price usually falls only middle-of-the-pack among the options our respondents pick as reasons customers do business with them. And despite the role of digitization growing more every year, distributors will seemingly always value relationships and services above all else. More than 87 percent of our respondents chose relationships as the top reason they earn business — up 4.5 percentage points from our 2017 survey. Product availability was second at 79 percent, followed by delivery time (64 percent), and technical support (63 percent). Price (53 percent) was fifth out of nine options.
Other key findings from this section:
- 47 percent of our respondents say they are providing unbundled services to their customers for a fee — up 3.5 points from a year earlier
- 70 percent of respondents charge for shipping — by far the most popular fee-based service here
- The service that saw the biggest one-year increase was employee training — which jumped 10 points to 23 percent of respondents — while other top fee-based services include fabrication/kitting (28 percent), design/engineering consulting (27 percent, +7.5 points) and set-up/installation (27 percent)
- Fifty percent of our respondents say between 1 and 10 percent of their sales come from value-added services — up seven points from our 2017 survey; 15 percent see 11 to 20 percent of sales come from services; while only 19 percent of respondents’ business is comprised at least 21 percent services
- 46 percent of respondents are involved with vendor-managed inventory programs
- Most our respondents — 60 percent — are not involved with a buying group or co-op — down four points from our 2017 survey; 22.5 percent are in a buying group; 4 percent are in a co-op; and 13.5 percent are members of both
Industrial distribution still tends to be a baby-boomer driven industry, which makes recruiting new talent a bigger challenge each year. Millennials became the largest generation in the U.S. labor force in 2016, and according to the Pew Research Center, they comprised 35 percent of the labor force through the end of 2017. Distributors have been forced to modify their hiring techniques to match millennials’ desires, and many companies are struggling to adapt. Compounding this challenge is a resurgent U.S. economy and lower unemployment rates — reducing the available applicant pool nationwide.
Asked if they are typically able to find suitable job applicants for their company, only 55.5 percent of our respondents said yes — down nearly five percentage points from our 2017 survey. This contrasts with respondents’ self-ratings on their ability to qualify and recruit. On a scale of poor-fair-good-very good-excellent, 62 percent of respondents rated themselves as good or better, with only 4 percent rating themselves as poor.
Other key findings in this section:
- 57 percent of respondents say they have added staff in the past year — up more than 12 points from a year earlier — while 26 percent anticipate the need to add staff in the next year.
- 12 percent had to reduce staff — down six points from our 2017 survey
- For context, in 2016, 22 percent of respondents had to reduce staff and 23.5 anticipated having to do so in the year ahead.
- For respondents that added staff, the most popular job categories those additions were made to were sales (71 percent, +8 points), warehouse (54 percent, +14.5 points) and operations (35 percent
- For the small percentage of respondents who had to reduce staff, the top job categories for reductions were warehouse and clerical (both 32 percent), followed by sales (29 percent)
- 58 percent of respondents rate the importance of hiring technically-trained employees as very important — up nearly six points from a year earlier; 36 percent rate it as somewhat important, while only 6 percent rate it as non-important
- 43 percent of respondents say their number of sales reps have increased in the past year, while only 13.5 percent say they’ve reduced sales reps
- When asked which means of employee retention respondents use, higher pay/pay for performance was the top pick at 77 percent — up almost nine points from our 2017 survey — while training (59 percent) and improved benefits package (54 percent) also saw notable gains from a year ago
- Almost 87 percent of our respondents offer health insurance coverage to employees
- Out of 13 options, the other top benefits respondents offer include bonus/compensation programs (73 percent, +6.5 points), 401K/pension (69 percent, -5.5 points), sales performance reviews (53.5 percent, +6 points) training programs (38 percent) and tuition reimbursement (34 percent)
- Less than 5 percent of respondents have had to reduce their employees’ overall benefits package in the past year, compared to 10 percent in our 2017 survey
Finally, we end our survey with an open-ended question asking respondents if there are any other issues they see as relevant to their business. Responses included the following:
- “Need to move towards the Cloud to keep pace with our software provider.”
- “Vendor inventory support has become a major issue, causing us to go elsewhere to find substitutes.”
- “Being based in Canada and purchasing U.S. product from the U.S., the exchange rate is killing us. I have American companies buying product in Canada and shipping back to the U.S. to take advantage of the exchange rate.”
- “The general lack of technical expertise on all levels — vendors, employees (both potential and employed) and customers. The customer base is declining by the day. Nobody knows anything, nobody can find anything and everybody is a victim! I am 70 years old and when I retire or die, a big chunk of my industry will shortly begin to atrophy.”