We’re excited to provide the readers of Industrial Distribution with the results of our 69th Annual Survey Of Distributor Operations. 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 and what trends have fizzled. How has the ongoing industrial recession impacted distributors? Read on to find out.
In this online segment, we focus specifically on the Value of the Distributor, which addresses the reasons our survey respondents believe customers do business with them, and which service offerings play a significant role in the industry.
So many of the distributors Industrial Distribution stays in contact with emphasize the value of having a personal touch with the customer, and the many things they do to go above and beyond to keep the customer happy. With so many industrial distributors diversifying their product offering to become more of a one-stop-shop for customers, it’s harder than ever for companies to stand out from each other. Because of this, service provides a competitive edge, which was reflected in this year’s survey.
Asked to choose the primary reasons they feel customers do business with them (Figure 1), last year respondents chose relationships and product availability an identical 80.6 percent each. But in 2016, relationships had a 4.6 percentage point gain, while product availability declined 6.5 points to second place. Technical support held steady in third at 68.4 percent, while delivery time was again in fourth with a 3.6 point drop to 62.2 percent. Our respondents have indicated that price has become more of a factor in recent years, climbing 5.2 and 2 points over the last two years to 50.7 percent in 2016. Engineering capabilities (31.1 percent) and vendor managed inventory (30.6 percent) had year-over-year dips of 2.7 and 3.2 points, respectively. After jumping 6 points a year ago, 24/7 support had a considerable 8 point drop this year to 28.2 percent, perhaps due to customers being able to troubleshoot problems and get answers right from distributors’ websites instead of relying on phone calls.
Our respondents indicate that more distributors are charging customers for services as of late, perhaps as a result of difficult economic conditions. In 2014, 58.2 percent of respondents said they didn’t charge for services. That figure dipped to 56.9 percent last year, and stands at 54.3 percent in 2016. Still, a majority of respondents’ businesses don’t charge service fees, and likely include those services in the total cost of a product.
Asked to choose which services (all that apply) distributors charge a fee for, our results have grown increasingly salient over time. Though this year’s results again were quite similar to 2015’s, the amount of variation was larger than in recent years. Shipping once again was the overwhelming top choice — 69.7 percent — that is charged for, up 1.2 points from last year, while fabrication/kitting (24.9 percent, no change) and set-up/installation (23.8 percent, -2.7 points) were a distant second and third. The biggest variation was a 5.4 point decrease in those that charge for design/engineering consulting, at 18.4 percent, while tech/product support took a 5 point decline to 13 percent. Inventory management saw a 3 point bump this year to 19.5 percent.
Though distributors are doing more now than ever to emphasize their value-added services, our survey indicates those services still aren’t great money-makers. The amount of respondents who said they derive no revenue from value-added services (Figure 2) held steady this year at 12.6 percent, while the majority of distributors — 54.4 percent — get 1 to 10 percent of total revenue from services, a 5 point gain from last year. However, those that earn 11 to 20 percent had a 3.3 point decline to 16.2 percent, while those in the 21 to 30 percent range dipped a point to 7.3 percent. Only 33 percent of respondents say they derive at least 11 percent of total revenue from value-added services.
The amount of respondents who said their business is involved with vendor-managed inventory programs had a 3 point decrease this year to 51.2 percent, a change from what was a steadily growing trend from 46 percent in 2013 up to 54.3 percent last year.
We end this section asking about respondents’ involvement with buying groups/co-ops (Figure 3). After making a 10 point jump to 42 percent in 2013, the amount of respondents who have some form of involvement has held steady in the mid-30s these past few years. Those who are part of a buying group ticked up 2.6 points this year to 24.3 percent, those in a co-op dipped 1.2 points to 3.9 percent, while those in both declined 2.2 points to 7.8 percent. Meanwhile, 64.1 percent aren’t involved in either. The amount involved in buying groups has seen a 5 point gain since 2014.
Want to compare this year's results to last year? See our 2015 survey here.
The results of this study are based on an email survey sent to Industrial Distribution subscribers. 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.
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.
Comments on this year’s results? Email ID’s editor, Mike Hockett, at Mike.Hockett@advantagemedia.com