Technology, not Rising Commodity Prices, Must Drive Future Growth in U.S. Wholesale Distribution Industry

Research by Pembroke Consulting suggests easy growth may be over, but IT investments can continue to drive volume and profit gains

St. Paul, MN — January 10, 2007 — While productivity gains in America's wholesale distribution industry have been driven in large part by rising commodities prices, future industry growth will require stepped-up investments in information technology, according to a new study by Pembroke Consulting.

Of the 906 wholesale distribution executives surveyed in mid 2006 for the report, seven out of 10 are looking primarily to existing customers for growth over the next five years. But these distributors will need superior operational marketing execution to identify the best add-on sales opportunities with their current customers, according to Adam J. Fein, president of Pembroke and lead author of the report, which was sponsored by Lawson Software.

"Identifying new sales opportunities at existing accounts must be uncovered using fact-based insights drawn from customer-level data analytics," Fein writes in the report. "It is extremely challenging and time-consuming for a wholesale distributor to identify the right items for a cross-selling offer without the rich data and analytic tools available from a sophisticated business system."

As an example, study sponsor Lawson pointed to Aggreko, a rental company specializing in power generators, temperature control equipment and compressed air systems. The company uses Lawson M3 Sales and Marketing Automation to better understand customer opportunities and track marketing efforts.

"Our marketing campaigns are much more focused than before," said Julie Regan, head of sales development at Aggreko. "We can segment customers into industry groups, import information and get an immediate overview of campaign activity, all virtually at the touch of a button. Faster access to information enables us to demonstrate to each customer and prospect a deep understanding of their needs and the market in which they operate."

The Pembroke survey found that more than 70 percent of distribution executives targeting new customers for growth will focus on their current geographic markets. That typically means displacing an existing vendor, which could result in the addition of new customers with significantly lower gross margins if salespeople win business only through price cuts. Fein indicates that IT systems that provide management with integrated, coherent views of sales transactions and accounts can help protect against profitless customers.

As another example, Lawson cited Sapa Building Systems, a supplier of aluminum window and door systems to customers in the building and fabrication industries, which turned to a new customer relationship management (CRM) system, Lawson M3 Mobile Sales, to improve both forecasting and efficiency of the sales process. "The result is that we can now accurately predict the value of our sales pipeline, and have a better understanding of the likely effect on our business and resources," said Kathy Cookson, MIS manager at Sapa. "It also naturally speeds up our response time and efficiency from inquiry to quotation."

The other approach survey respondents cited to gaining new customers was through acquisition. Once again, IT plays a significant role in the viability of this strategy. "Acquisition success can be linked directly to the acquiring company's internal capabilities for managing the post-acquisition integration process," Fein writes. "A growth-oriented IT infrastructure must support fast visibility and/or rapid integration of an acquired company's customer records, orders, inventory, warehouse operations, transportation and finances."

In fact, more than half of survey respondents cited limitations in their ability to manage information related to either add-on sales opportunities with current customers or tracking the sales pipeline of new customer prospects. This concern was prevalent across distributors of all size, growth strategy or industry subsegment.

Lawson released the study as it steps up marketing of its Lawson M3 Enterprise Management applications to the distribution industry in the United States following Lawson's merger with the former Intentia International AB in April 2006.