Complexity, technology, agility and quick, decisive action are words and phrases we all hear at industry trade shows, seminars and conferences. The wholesale distribution sector is no different.
“Facing the Forces of Change: Decisive Actions for an Uncertain Economy” is a new wholesale distribution research study from the National Association of Wholesaler Distributors (NAW). The study, written by Guy Blissett, IBM’s New York-based wholesale distribution lead, sums up the situation.
Blissett writes: “Given the lingering uncertainty in the economy, wholesaler-distributors must continue to take decisive actions that will position their companies for growth and prosperity. Gone are the days of overly cautious and slow decision-making processes. The business world is moving too fast, and wholesaler-distributors must be informed, intelligent and nimble enough to make rapid but prudent decisions, and then adjust and iterate as necessary.”
In a phone interview, Blissett said: “Wholesale distribution is a very challenging industry to capture with broad brushstrokes. To my mind, there’s no wholesale distribution industry. Each [vertical] has different components and supply chain and macroeconomic dynamics. If you’re talking about building materials in the Southeast, there’s a different set of challenges and issues than an industrial manufacturer in the Midwest.
“That said, some dynamics do cut across most lines of trade,” adds Blissett. “There’s tremendous pressure on pricing that distributors realize from customers. There are commodity price pressures. In some cases, they’re caught between customers who don’t want to pay more and suppliers who want to increase prices because commodity prices are up.”
As catalogs and geographies expand, customer demand increases. As we have seen recently, events on the other side of the globe can have a dramatic effect. “Who would have thought a tidal wave in Japan would affect auto parts in Dearborn, Mich.?” Blissett says. “It’s just more complex across the board.”
The Consolidation Conundrum
Consolidations, mergers and acquisitions are adding to the complexity, says David Johnston, senior vice president for supply chain at JDA Software in Scottsdale, Ariz. “Consolidation is creating more complex supply chain and distribution networks. Some distributors are making investments to deal with complexity, striving to hold down inventory and cut time to market.”
The complexity also hits the vital transportation link of the supply chain, especially in commodity prices and fuel. Distributors are focusing on better technology to optimize freight movements, often by contracting for fuel, rather than spot buying to lock in more favorable rates.
“Buy at a lower price and sell at a little higher price,” Johnston says. “It’s a bit of a challenge. Theoretically, all cost synergies gained are passed on to customers.”
How do you fight back against the consolidation tide? Industries such as pharmaceuticals and electronics are merging, and when they do, they look to cut down the number of suppliers. Distributors with many categories are more likely to survive.
Even huge distribution companies like Grainger, for example, are broadening their portfolios. “We’re seeing that across the board with portfolios and geographical coverage,” says Blissett. “Distributors are rushing into things like safety, janitorial services, the environmental areas like wind, solar, recyclables and lighting. They can talk to customers at a deep level.
“I also see distributors pushing to much more integrated areas,” he adds, “such as taking over procurement functions. That’s very new, but I’m hearing more of it. They put a person onsite and manage the spend in certain categories.”