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
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. Here in Part Two, we'll discuss the results of our sections for Technology Usage & Investments, The Balance Sheet, And Best Practices.
Technology Usage & Investments
Industrial distributors have been notoriously slow when it comes to embracing and adopting technology, likely due to most of them being family-owned, small-to-midsize companies that either lack capital or are just set in their ways. The amount of our respondents who indicate they’ve invested in technology has glacially increased over the years, but in 2018 we’re happy to report a sizable bump in most areas. The amount of respondents whose company utilizes CRM software jumped 11 percentage points year-over-year to 64 percent; those that offer online web ordering bumped up almost two points to 62 percent; respondents who use ERP software jumped 11 points to 38 percent; and those who use warehouse management systems increased five points to 35 percent.
Here are some other key findings in this section:
- Of the technologies we listed that respondents currently don’t have in use, the ones they are most likely to adopt over the next two years are online web ordering (30 percent); demand forecasting (27 percent); and CRM (26 percent)
- More than 67 percent of respondents say e-commerce is a priority for them — up more than four percentage points year-over-year — while the amount who say they are currently generating online sales improved more than six points year-over-year to 63.5 percent
- Asked what they primarily use their website for, respondents’ top selections were housing technical/product information (55 percent); e-commerce (41.5 percent); generate leads (41 percent); and find new customers (39.5 percent)
- 83 percent of respondents redesigned their website within the last several years
- 48 percent of respondents update their website content at least monthly
- Only 32 percent of respondents have a mobile app for their website
- 70.5 percent of respondents between 1 to 10 percent of overall sales from e-commerce; 21.5 percent of respondents get between 11 to 20 percent of sales online; and only 8 percent of respondents see more than 20 percent of sales come from the web
- 76 percent of respondents expect their online sales to increase over the next year — up seven percentage points from our 2017 survey
The Balance Sheet
Of our survey sections, this one by far is the most telling of the industrial economy, and it’s saying times are good. The amount of respondents who indicated their sales increased compared to a year earlier jumped 17 percentage points from 2017 to 73 percent in this year’s survey. For context, that figure was down to 42.5 percent in our 2016 survey. Likewise, the amount who indicated profits have increased improved more than seven points year-over-year to 65 percent.
Other key findings in this section:
- 87 percent of respondents expect sales to increase in the year ahead — up 9.5 points from a year ago and up 24 points from 2016
- Asked to select which tactic they consider very important for growth and business development, the choice with by far the most year-over-year improvement was improve/redesign website — which jumped 11 points to 51 percent — up 11 points to 51 percent — while advertising/marketing topped the list at 57 percent, and 53 percent picked sell more via e-commerce
- In terms of the timeframe to receive payments and receivables, 31-40 days remained the most common among our respondents, while 41-50 days jumped 11 points year-over-year to 32 percent and 16-30 days fell six points to 22 percent
Our Best Practices section focuses on distributor-supplier relations. We’ve found that the results of this section don’t necessarily correlate to the state of market conditions, though it was the case this year. Asked how their relationship with suppliers has changed in the past year, 35.5 percent of respondents indicated they’ve gotten better — up six percentage points from our 2017 survey. Only 11 percent say relations have gotten worse, while most — 53 percent — indicated relations have stayed the same.
More than half of anonymous respondents’ comments regarding how supplier relations have changed were negative. They include the following:
- “Customer technical ability and service has declined tremendously!”
- “Less customer service. Everything is pushed to online ordering and information.”
- “Cash flow issues have caused delay in payment and hurt vendor relationship.”
- “They allow other local distributors to price-cut.”
Positive comments regarding changing supplier relations included:
- “The discount placed on volume of purchased goods has improved over time.”
- “We interact with them more often and have developed more dedication both ways.”
- “New strategy to partner with specific suppliers on certain product groups has led to better engagement.”
- “We now have quarterly reviews with our top 10 suppliers.”
The other question we at ID have the most interest in from this section is what criteria respondents consider the most important when evaluating suppliers. Despite the popular ‘race-to-the-bottom’ rhetoric, our respondents indicate that price isn’t the top factor. It’s not even second. Given six options and asked to pick up to three, respondents have picked quality as the No. 1 supplier criteria for at least the past decade, and it repeated at the top this year with 82.5 percent of votes. On-time delivery was second with 68.5 percent, followed by price at 60 percent and service/support at 58 percent.
Other key findings from this section:
- Only 23 percent of respondents indicate the level of support they receive from suppliers has gotten better in the past year, while 26 percent indicate it’s gotten worse
- Perhaps due to the improved industrial economy, 90 percent of respondents’ suppliers have increased prices over the past year — up six points from our 2017 survey
- Of that previous 90 percent, 37 percent of respondents’ suppliers have offered new product innovations as a means to help reduce costs, followed by co-op advertising/marketing (31 percent), reduced shipping fees/drop shipping (28 percent) and technical assistance (27 percent) as other top methods
- 72 percent of respondents install/maintain vending machines at customer locations — up more than five points from a year earlier