This article first appeared in Industrial Distribution's May/June 2013 Issue. To view it in it's original format, please click here.
Executives from key industrial organizations discuss how suppliers of every swath can identify opportunities for new markets and product lines.
Over the last decade the industrial distribution marketplace has changed dramatically, surviving in a challenging economic situation and a changing business environment. Industrial Distribution’s associate editor, Abbigail Kriebs, got a chance to speak with three industry executives representing diverse viewpoints to hear how business has changed in the last few years and what trends they see going forward into the rest of the year and beyond.
Industrial Distribution: What kinds of changes has your company seen in the past decades that have affected its business more than anything else?
Jack Bailey, President and CEO of IDC-US
Jack Bailey, President and CEO of wholesale cooperative IDC-USA: Probably the most significant change in the last ten years has been the advancement of technology. Technology has taken the art of “just-in-time” to a whole new level. Distribution companies are now technology companies because distribution is driven by logistics and logistics is driven by technology.
Roger Woodward, President of master distributor Alliance Distribution Partners: Although Alliance has only been in business since 2009, the intense marketplace pressure on independent distributors has greatly affected our business strategy. With national distributors and internet players aggressively moving down-market, independent distributors face significant competitive threats. Despite these challenges, independents still control majority market share in industrial supplies. Creating offerings that protect the health and viability of the independent distributor channel is critical to the success of our business.
Tom Barfell, Director of buying cooperative INCOM Distributor SupplySM: The last decade has brought a number of changes to our business with industry consolidation, the emergence of e-Commerce, globalization, and a demand for broader product selection (including private label) from fewer sources. Consolidations and mergers have impacted our business as the smaller to medium size distributors — the ones who most benefit from the programs, tools and specialized services we offer — are being absorbed by larger distributors.
It’s driving an even greater need for highly talented and knowledgeable sales people to combat an increasingly competitive market. Today’s distributor sales team needs to be highly functional online as well as in social media.
Industrial Distribution: How does the distribution landscape look different than it did ten years ago?
Bailey: We are seeing more and more distribution companies diversifying their product offering. This is driven by competition as well as the end user’s desire to implement vendor reduction initiatives.
Roger Woodward, Presdient of Alliance Distribution Partners
Woodward: Industry consolidation has dramatically changed the landscape in our business. Vendor mergers, distributor acquisitions, and increased private equity investment are creating much larger entities across our industry. It’s a truth in the distribution business — the bigger you are, the greater potential you have for creating competitive advantages in the marketplace. This trend will only accelerate in the years ahead.
Barfell: Today’s new technologies and the growth of e-Commerce and mobile/tablet applications have put product information at everyone’s fingertips. So while many customers are used to looking through catalogs and line cards to make purchase decisions, today’s distributor is becoming more computer-savvy as end users find additional efficiencies in leveraging the internet. End users are also relying more on their supplier to carry the inventory they need when they need it, which has actually provided a tremendous opportunity for master distributors like INCOM Distributor Supply. We break case on 90 percent of our products, and having a superior logistics network of distribution centers allows us to provide same day shipping direct to the end user. We carry the inventory so our distributors don’t have to.
Industrial Distribution: How has your company had to adapt to stay relevant to the industry?
Bailey: We are now required to provide our distributors with more options so they have a larger arsenal to fulfill the customers’ needs. We have needed to increase our inventories dramatically, not just in quantities, but in the number of product lines and verticals. We also recently launched a redesign of our website, providing the end user with the resources they need to stay ahead. The new website highlights training resources, allows the end user to search for IDC Independent Distributors in their area, and offers an “Ask the Expert” feature that will connect the end user with the closest IDC Independent Distributors and get the answer they need quickly. There are more features that we will be adding to the website this year. It is ever-evolving. Technology changes every day, and changes the way we all do business. If you’re not keeping up, you’ll be left behind.
Woodward: In a changing marketplace, Alliance has stayed focused on the key growth drivers: product line expansion, enhanced marketing offerings, and increased use of technology. In the past year alone, Alliance has introduced over 40 new vendors and doubled our catalog and print marketing programs. On the technology front, we’ve dramatically expanded our website and e-Commerce offerings. Continued growth and development of these programs is central to helping our distributors win in the marketplace.
Tom Barfell, Director of INCOM Distributor Supply
Barfell: We’ve invested in our online platform and mobile applications and continue to evaluate key categories and develop new commercial product vendors in order to stock the products most relevant to the industries we serve. Building solid relationships with our vendors has been critical to our ongoing success and they’ve been great partners by ensuring we have the right mix of in-demand products. Providing a comprehensive vendor managed inventory offering is also now a necessity.
With the increasing demands on distributors to continually provide value-added service to their customers, being able to offer affordable solutions that they could not easily develop on their own has been extremely important. That includes the creation of print catalogs, flyers, e-Commerce platforms, consolidated billing, and many other services they need to stay relevant to their customers.
Industrial Distribution: In 2000, we saw the internet and e-Commerce really kick off on the consumer side of business. Why do you think the B2B market has been lagging a little behind?
Bailey: The consumer side of business educated the public on utilizing e-Commerce purchasing. That’s the good news. The bad news is consumer companies like Amazon.com and eBay have raised the functionality bar so high that it is financially difficult for the industrial market — with it’s lower margins — to keep up.
Woodward: I believe the transition to B2B e-Commerce has lagged B2C because it is hard to do. Cost, systems limitations, picking the right technology partner, and creating product content are all significant challenges for distributors. Another issue is the “forced” business discipline it requires. Locking down customer-specific pricing and automating shipping rules are big hurdles for many distributors.
Barfell: It’s still a people business. While moving more business online has seemed out of reach for the small to medium-size distributor in the past, the efficiencies gained by partnering with a master distributor make entry into e-Commerce much more affordable. That being said, the business still requires a face-to-face relationship with customers to introduce new products that can save time and money and solve problems for the customer.
Industrial Distribution: Which trends do you currently see driving the marketplace?
Bailey: There is always a lower price. In the end, the distributor that is going to get the business — and keep the business — is the one who can provide the best service, regardless of whether that superior service is delivered by technology, relationships, expertise, or all of the above.
Woodward: The big trend we see at Alliance is the industry movement away from a product-focused, relationship-based selling to a transaction-centric model. In the past, product knowledge and relationships won business. Today, the focus is on the transaction — how can you make the ordering process as easy as possible? The internet, vending machines, call centers, and other forms of multi-channel selling are all examples of this transaction-centric focus. Younger people are entering our industry and they want to conduct business in a much different way than the traditional model. Our industry must embrace this trend and give customers what they want: quicker and easier ways to order and receive their products.
Barfell: Consolidations, mergers, and acquisitions of small to mid-size distributors has certainly changed things up. And the expectation for a very broad product mix from a single supplier providing immediate access to those items — accompanied by a robust e-Commerce interface — are all part of today’s competitive landscape.
Industrial Distribution: Which trends do you think will gain momentum? Which ones do you think will slack off?
Bailey: Technology and e-Commerce are here to stay and will continue to grow. Some distributors are already providing solutions by viewing problems through a video connection. This is just the beginning. The e-Commerce trend will be commonplace, but will not replace the customers’ desire for service and solutions. National accounts will receive less and less focus as the lack of service frustrates the end users.
Woodward: At Alliance, the trends we see gaining momentum are industry consolidation and transaction-centric selling (internet, e-commerce, vending). We believe in the next ten years, thousands of vendors, distributors, and wholesalers will consolidate. Companies will have to get bigger to survive. The shift to transaction-focused selling is also going to be a matter of survival. To help distributors, manufacturers and master distributors will also need systems that speed the order and fulfillment processes. Well-defined e-Commerce and transaction-focused models will soon be essential to surviving in our changing marketplace.
Barfell:We believe there are clear trends that are gaining momentum in our industry: consolidation, product expansion, e-commerce initiatives, improved inventory management, and sales productivity. The traditional outside sales force will consolidate and become more specific to the industries and market segments, requiring a superior skill level and advanced technical knowledge to be successful. In reaction to large, broad line suppliers, local independent suppliers will need to provide niche services and products to fill the gap left by nationwide and global distributors. With the growth and user comfort level with e-Commerce, it seems inevitable that there will be less and less reliance on printed sales collateral.