Making sustainability a priority for distributors — one worthy of the investment of staff, time, and financial resources — requires a discussion of the business case for sustainability.
Sustainability initiatives can benefit all distributors but especially midsize distributorships; however, many of these midsize distributors are the ones least likely to begin their sustainability journey. The reason: the beginning steps in the sustainability journey often require a financial investment. While this may be true, it is also the case that most sustainability initiatives pay for themselves over time through cost savings — and oftentimes, significant cost savings at that.
Why Sustainability Is an Important Investment
The marketplace has changed in recent years and most midsize organizations are dealing with four overarching challenges. These challenges tell us exactly why investing in a sustainability program is not just the “right thing to do,” but rather, the right business thing to do.
For distributors, these challenges are the following:
- Consolidation of customers
- An ever-evolving marketplace
- Cost increases and tightening profit margins
- New customer requirements
Consolidation of Customers
A decade or two ago, a distributor's sales territory was typically filled with locally owned and operated companies right around the corner. Today, many of these locally owned companies are gone, replaced by megaretailers. If a distributor wants to sell to these megaretailers, better jump on a plane, because their purchasing offices are not around the corner. Purchasing is usually handled out of one or a very few central locations.
This situation has impacted most all distributors throughout North America. But what we need to realize is that the consolidation of customers is continuing and forcing companies to compete in new and different ways.
While the number of potential customers is declining, we are seeing an increasing number of new competitors in almost every sector.
For example, in the professional cleaning industry, which I am most familiar with, major retailers such as Staples, Office Depot, and Home Depot are having a significant impact. These retailers are investing heavily to expand into B2B industry sectors, bringing with them their brand recognition, purchasing power, established infrastructure, resources, and the ability to work on tight margins.
However, it is not just the evolution of big-box retailers into traditional distribution sectors that is making a difference. Technology is also changing the playing field. For example, Amazon and other Internet-based businesses are learning how to cost-effectively and quickly deliver all products, including cleaning products. Some are even able to deliver products the same day the order is placed, something that even many locally based janitorial distributors cannot do.
Cost Increases—Margins Are Tightening
In addition to the number of potential customers declining at the same time that competition is increasing, midsize distributors are experiencing a rise in operating costs, which are anticipated to continue increasing over time. These costs include energy to light, heat, and cool offices and warehouses; fuel for cars and delivery vehicles; water for drinking and landscaping; waste disposal; and more.
While consolidation and competition are increasing steadily and almost predictably, costs of fuels and energy are potentially volatile due to ramped-up global demand, geopolitical challenges in the Middle East and Russia, and risk factors such as hurricanes and other natural disasters that can interrupt supplies.
All of these situations can directly affect the cost of petroleum, heating oils, and natural gas, increasing operating costs. This can quickly cause cash flow and other problems for midsize distributors.
New Customer Requirements
While distributors work to operate more efficiently to help them weather the storm of customer consolidation, added competition, and increasing costs, our customers are also facing new requirements and placing additional demands on their suppliers.
Sustainability reporting, for example, has moved from a “nice to have” to a “must have” in just a few years. According to the Governance & Accountability Institute, the number of Standard & Poor’s 500 companies publishing sustainability reports increased from just under 20 percent in 2011 to more than 80 percent four years later.
This directly affects their suppliers, which are increasingly being asked to provide sustainability information as part of the qualifications for doing business. We should note that requests for sustainability reports is most impacting very large distributorships. But for smaller distributorships to jump on board and service these larger customers, this will be expected of them.
Fortunately, for many distributors, large and small, sustainability purchasing tools are now available. Designed for use by both building administrators and distributors, they help administrators select distributors that have implemented sustainability programs. Further, they help distributors know what needs to be done to become more sustainability focused.
What It All Means
It appears that medium-size distributors, and likely all distributors, must increase their focus on sustainability if they wish to thrive in the 21st century. Sustainability is not just about protecting polar bears, spotted owls, endangered species, and of course, future generations. It’s also about distributorships of all shapes and sizes operating more efficiently and cost-effectively as they keep track of their sustainability efforts.
Stephen Ashkin is president of The Ashkin Group and known in the professional cleaning industry as the father of green cleaning and the industry leader, turning sustainability into cost savings. He can be reached at [email protected]