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!
For the online version, this is part two of three. View Part One here, and stay tuned for Part Three.
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
TECH USAGE & INVESTMENTS
As more and more millennials comprise management and executive positions at industrial distribution companies, those firms are steadily becoming more tech savvy and incorporating more technology into their operations.
The other side of this area is e-commerce — a topic that drives endless conversations among our audience. Though the B2B world was slow to adapt to e-commerce implementation compared to B2C, distributors continue to get better at it.
This year’s survey shows that 63 percent of respondents consider e-commerce a priority at their business (figure 3), up more than three percentage points from last year. Likewise, the amount of respondents who say they are currently generating web-based revenues ticked up by more than a point to 57 percent. While these figures show increased e-commerce utilization, they also show there’s plenty of untapped potential in this space, especially given that more than 91 percent of respondents say they buy products online.
Surprisingly, our respondents indicated that the utilization of several technologies declined from last year’s survey. The amount that say they use Wi-Fi/wireless email declined nine points to 71 percent; customer relationship management (CRM) software declined two points to 53 percent; warehouse management systems (WMS) declined nearly five points to 30 percent; ERP software declined a whopping 12 points to 27 percent and sales force automation (SFA) dipped one point to 20 percent. The only technologies that increased in usage were online web ordering (up 4.5 points to 60 percent) and RFID (up two points to 13 percent).
Those declines are contrasted with the technologies respondents say they are likely to adopt over the next two years. There, CRM increases 11 points from last year’s survey to 23 percent; SFA increases two points to 20 percent; demand forecasting grows six points to 20 percent; WMS grows three points to 17 percent, Wi-Fi grows five points to 15.5 percent and ERP grows five points to 14 percent. Meanwhile, online web ordering grows another six points to 33 percent of respondents.
Some other notable stats in this section:
- Nearly 81 percent of respondents say their business has redesigned its website within the last several years — the same figure as last year’s survey. Nineteen percent can’t recall how long it’s been since their last redesign — up more than a point.
- Fifty-one percent say their business updates the content on their website at least monthly — down one point from last year’s survey. On the positive side, the amount who say they hardly ever update website content declined more than four points to 20 percent.
- Thirty-three percent of respondents say their business now has a mobile app for its website — up more than two points from last year’s survey, and up 11 points from 2014.
- Twenty-eight percent of respondents say at least 11 percent of their sales come via online — up nearly four points from last year’s survey.
- Sixty-nine percent of respondents expect their online sales to increase over the next 12 months — essentially flat from last year’s survey.
THE BALANCE SHEET
Along with the Challenges, Trends & The Economy section of our survey, this year’s Balance Sheet section truly exemplify the considerable turnaround in the industrial economy.
Almost 56 percent of respondents say their sales increased from the previous year (figure 4) — up more than 13 points from our 2016 survey. That figure is still down a ways from the 70 percent who saw sales grow in our 2015 survey, but a healthy rebound nonetheless. Fifteen percent of respondents say their sales decreased — down 11 points from our 2016 survey.
Likewise, nearly 58 percent say their profits increased compared to a year earlier — up 12.5 points from last year’s survey, while the amount that saw profits decrease — 15 percent — dropped 12 points.
Our respondents are certainly optimistic about the year ahead, with nearly 78 percent saying they expect sales to increase (figure 5) — up almost 15 points from last year’s survey. That 78 percent figure is actually a hair above where it was in our 2015 survey before the worst effects of the industrial recession set in. Only five percent of respondents expect sales to decrease over the next 12 months — down four points from last year’s survey.
When asked which tactics they consider very important for business growth and development, respondents’ top choices this year were: add product lines, at 52.5 percent — up 13 points from last year; marketing, at 52 percent — down three points; sell more online, at 49 percent — up two points; and improve/redesign website, at 41 percent — up eight points. Another major improvement was in hiring more employees, which jumped nine points to more than 32 percent.
Our survey shows that their timeframe for payments and receivables continues to improve. More than 32 percent of respondents say their timeframe is 30 days or less — up 10 points from a year ago. That percentage has risen for three straight years. Meanwhile, the amount of respondents who say their time frame is between 31 to 50 days dropped almost 12 points from last year to 57 percent.
The relationship between distributors and suppliers is always an interesting dynamic to track, especially with our respondents’ growing concern of manufacturers selling direct.
So when it comes to relations, what do our distributor respondents value most? We asked them to pick up to three from a list of six options (figure 6).
- Eighty percent of them say quality is their No. 1 criteria — down more than six points from our 2016 survey ago to a four-year low
- On-time delivery was second at 66 percent — up 7.5 points from last year’s survey
- Price — which has seemingly become less of a priority in industry conversations compared to service level — jumped nearly seven points from last year’s survey to 60 percent
- Service/support remained flat at 56 percent
- Reputation was fifth at 29 percent, while terms rounded out the criteria at eight percent
According to our respondents, supplier relations dipped over the past year. More than 14 percent say their relationship with suppliers has gotten worse — up more than four points from last year’s survey; 29 percent say relations have gotten better — down four points; while most respondents — 56 percent — say relations have stayed the same. Likewise, the amount of respondents who say the level of support they’ve received from suppliers has gotten worse — 22.5 percent — increased more than two points from last year’s survey, while 55.5 percent say support has stayed the same.
84 percent of respondents say their suppliers have increased prices in the past year — up more than two points from our 2016 survey. That figure has stayed within two percent of that over the past three years since topping out at 89 percent in 2014.
When asked what methods suppliers have offered as a means of reducing costs, 38 percent of respondents picked new product introductions as their top choice — up nine points from our 2016 survey. Other top choices included reduced shipping fees (29 percent), co-op marketing (27 percent) and technical assistance (26 percent). In the “other/write-in” — which nearly 20 percent of respondents chose, two-thirds of respondents said no price reduction assistance has been offered by their supplier, with one respondent saying, “They have offered nothing and no logical reason for their (price) increases.”
Onsite vending continues to grow as a means of boosting supplier relations, evidenced by a six-point jump from last year’s survey to 33 percent of respondents who say they install/maintain vending machines as customer locations. That figure has increased nine points since 2014. Of those who say they don’t offer vending machines, 17 percent say they plan to pursue offering them.
We finished up our Best Practices section by asking respondents about their global business interests. Forty-nine percent say they currently do business outside the U.S. — down three points from last year’s survey. Eight percent say they will do business internationally within the next three years — up 2.5 points from 2016 — while 36 percent say they plan to stay exclusively domestic. Overall, 64 percent say they either currently do business outside the U.S., plan to, or have in the past.