Tom Gale, Author at Modern Distribution Management - Page 24 of 28
Posts By Tom Gale

The nation’s largest banks are undergoing stress tests right now to determine their degree of leverage and financial health. On one level, it appears a little like getting the 300-pound heart-attack victim who has been eating jelly doughnuts for 20 years onto a treadmill. A five-minute exercise on a machine you’re not used to won’t solve the core problem. I think there’s a lesson for our industry.

Distributors and manufacturers have been undergoing stress tests of a different nature for at least the past 12 months. Nearly every company we talk with has had to make significant structural changes in their organization, including layoffs. Some let employees go for the first time in decades. Your current team has had to adapt and take on more complex …

The past few weeks, with a few economic indicators going up here and there, have given many distributors a glimmer of hope that we might be near the trough of the business cycle.
 
For distribution executives, this is the toughest part of the cycle. The difficult decisions made on the way down are not easy, but the bottom line often does the deciding; conserving cash is king. Few distributors and manufacturers have avoided layoffs; indeed some have cut their work force for the first time in decades.
 
It’s always possible to be too conservative, but this downturn has redefined what that means. Markets are volatile. A day of strong orders is followed by a day when phones are quiet. It’s impossible to forecast effectively to start the rebuilding process. …

The Industrial Supply Association Conference & Trade Fair took place earlier this week. I moderated a panel session, The View from Wall Street on Industrial Markets, with Walter Liptak, security analyst for Barrington Research Associates, Chicago, IL, and Holden Lewis, Industrial Equipment Analyst for BB&T Capital Markets Equity Research, Richmond, VA. They gave the industry insiders in that room (standing room only) a view from the investment side on strengths, weaknesses and trends.
Sometimes the truth hurts, and their analysis of a range of macro trends, end-use markets and outlook for the near-term was not pretty. That said, some of the data gave a glimmer of hope on top of the recent positive signs that we could near the bottom of this cycle and see a …

There’s an old joke about a headache going away because you stopped hitting your head with a hammer. That’s one way to view the few pieces of good economic news trickling out over the past four weeks. Most analysts are getting excited because certain economic indicators are not falling as fast as they were.
 
Whether we have hit bottom is still wild speculation. The important thing is that these signs of hope are necessary precursors to a recovery. We have to wait to see if they are real. It’s encouraging that the first wave of good and less-bad news at the end of March has been more or less sustained into mid-April. Even the steel industry and the deep pit it has been in has started to look better. And this week’s market and positive earnings reports …

Arguably, there has never been so much stress put on so many wholesale distribution businesses. By necessity many distributors are revising the models that have served well as successful growth engines – for decades in many cases. Revision is an understatement for some, as they see revenues drop double digits and radical changes in customer buying behavior.
 
Some distributors are making changes out of necessity. Others have built a business based on long-term strategic plans, and they have the most options for coming out of this current downturn stronger. These options have the potential to yield significant market share and competitive advantage over the next 12-24 months.
 
We are in a major transitional period in this industry as companies adapt to these …

W.W. Grainger has increased the number of SKUs in its catalog 33 percent, year-over-year. The massive scale of Grainger’s product expansion over the past few years indicates a reorientation of Grainger’s traditional model.
 
Five years ago, Grainger invested in a multiyear branch expansion program in the top 25 major metro markets. The goal was more local sales people and larger, more merchandise-oriented branches. In 2003, the company set an aggressive 7-10 percent annual growth rate target, and this effort was the engine. The company saw an opportunity to take market share from competitors by increasing presence in local markets.
 
The effort was all about increasing customer service. The recent product expansion effort has come with an increased focus …

According to a Reuters report earlier this month, private equity firm Bain Capital wrote down 35 percent of its investment in HD Supply to $617 million. Like many banks and other investors during the M&A boom period, Bain is now taking a hit on the value of its investment made in better times.
 
Home Depot sold its HD Supply wholesale distribution unit to a trio of private equity firms – Bain Capital, Clayton Dubilier & Rice, and Carlyle Group – in August 2007. The terms were as follows: Purchase price of $8.5 billion, The Home Depot to own a 12.5% equity interest for $325 million, and The Home Depot guaranteed a $1 billion senior secured loan. The acquisition included a portfolio of 11 businesses and HD Supply Canada, and total annual revenues of $12 …

Amazon.com surprised everyone in late January when it announced North American revenues were up 18 percent for the fourth quarter of 2008, and its earnings grew almost 10 percent compared to the year earlier fourth quarter. Worldwide sales of electronics and other general merchandise sales grew 31% to $2.89 billion for the quarter.
 
One aspect of Amazon’s success was that they had a successful new product that generated a lot of interest and did well: the Kindle electronic book reader.
 
What does that have to do with distributors? I think there are several important lessons for distributors when you start to look beyond the numbers. To start, last quarter was the worst holiday shopping season in decades for traditional retail across all categories. …

Companies of all types have made tough cuts in the past two months, and have focused on tightening the ship for 2009. Every business activity has to have a clear ROI this year and many entrenched business models are coming under fire. In a survey of the MDM audience on profitability earlier this month, distributors indicate primary investment areas this year will be in new market development, online sales capabilities, and in outside sales activities.
 
While some people might think hybrids are the hope of the automotive industry, I think we will see distributors increasingly build more efficient hybrid sales models. Resource-guzzling outside salespeople won’t make the cut this year. Companies will get much more strategic about assembling a combination of online sales …

While the lead article’s title – Manage the Panic of 2009 – might seem extreme, it’s important to clarify its real meaning. Reports we’re hearing from distributors in January indicate they are not in panic mode. On the contrary, every distribution company has become very focused by necessity on cost control, created by the panic and instability in financial markets.
 
I think that’s an important distinction. This isn’t a typical downturn, where a company just needs to reduce costs across departments by a certain percentage until the tide turns. This time a distributor needs to upgrade financial skills.
 
The traditional financing and cash flow models distributors have used for decades have changed significantly, with much tighter …

General Motors and Toyota both announced 2008 vehicle sales this week. General Motors said vehicle sales dropped 11% in 2008, with a 21% drop in North America and a 6.5% drop in Europe. Toyota saw its global sales drop about 5%. Distributors are feeling the ripple effect from automotive supplier customers far, wide and deep.
 
Automotive supplier musical chairs is in full effect from a distribution perspective. If your customer plant is still running, it might even be increasing production as work is shifted from other operations, now shut down.
 
As some automotive suppliers struggle and go under, some distributors are seeing tooling and production work shifted to other suppliers, again with some increase in business on that end. But the good news in January is …

Brent Grover was our speaker on an MDM Webcast this week, and as always with his background as a CEO and CPA, addressed a range of focus points for distributors to review as they manage the panic of 2009, the title of his talk. Brent is far from an alarmist, but he argues that this downturn is structurally different than others most business executives have experienced.
 
He covered the details, levers and pain points across several financial areas – financing, credit, cash flow, cost control – and how distributors can sharpen their focus in each. As moderator, I felt it offered some benchmarks and tools for distributors of all sizes to form the core of an executive team meeting on how to tighten the seams of the ship, even in the middle of a …

The above is shaping up to be the theme for 2009. It’s also the message so far from a strong response to a profitability survey MDM is conducting (see end of article for link if you haven’t filled it out). We will have a full survey report (with participants’ getting the first executive summary) in February, but I’d like to share a few early indicators, coupled with feedback on what we’re hearing from distributors.

This first full week of 2009 brought more bad news for manufacturing globally. In the U.S., wage and hiring freezes are starting to go into effect for 2009. Many distributors are targeting cost reduction of 5-10 percent this year, including headcount, to match anticipated revenue drops. With shaky indicators starting off the year, …

When it rains, it pours. Sometimes it sleets and snows, as well. With weather before Christmas hurting retail traffic in an already slow year, bad news is flowing freely.
 
Many manufacturers and distributors are making tough decisions as the New Year approaches. But it’s important to keep a healthy perspective, manage what you can control, and focus on the future. With that in mind, it seems appropriate to end this year with a few thoughts of what we have to look forward to in the many niche distribution markets that make this industry strong, flexible and resilient. Let us hope and work to grow in the next few quarters!
 
Demand will build. Even as we hear continued dismal monthly reports on housing starts and car sales, demand is in fact starting to …

Some distributors have been reluctant to deploy and train their employees on email because it carries technical and management issues with how to use it appropriately and effectively.
 
It’s time to rethink email as a tool. Email does not Spam people; people Spam people. Your competitors are using email to not only reach your customers, but they are using it as the most efficient and cost-effective way to reach your customers. Can you say the same? If you argue that your customers don’t spend time online, it may be true that they don’t visit your Web site to shop for their supplies. But do they use email? Do they have mobile devices?
 
Email marketing expertise and tools are evolving at a fast rate. Some distributors are able to segment their email database into key …

For many distributors, the first thought about what the Internet can do for the business is negative. After all, if someone comes to your Web site to check inventory in real time only to find you are out of stock, that customer will likely go to the next source, right? Or if you put pricing out there, then you may be more vulnerable to point-and-click comparisons.

In both regards, the desired result is a phone call to your salesperson to gain deeper information to provide the best solution. Two-day delivery may in fact be adequate. A lower price out in cyberspace can include a lot of unknowns (service, delivery, quality, reliability).

But instead of thinking how the Internet might damage the relationships that your company has built over the years, consider how …

Last week produced more economic bad news: chain store and vehicle sales down, a labor market in self-reinforcing decline. The data is dismal. Our lead article in this issue on construction markets indicates that many expect a tough year ahead before improvement. The severity holds parallels to what industrial distributors went through eight years ago.
 
So this is where I have to say the sky is not falling. The feedback we are hearing, including at the recent Power Transmission Distributors Association meeting, doesn’t match the TV chatter regarding the economy.
 
The general consensus across industrial sectors is this: Most distributors and manufacturers expect a flat to 5 percent decline in sales for 2009. The only sector falling off a cliff so far is …

Alan Greenspan has gone from irrational exuberance in his description of the stock market boom of the 1990s to a once-in-a-century”credit tsunami in 2008. The subject lines of my Wall Street Journal news alerts daily look increasingly like tabloid magazine headlines -“Dow Plunges!”But as we are seeing, wait a day and the news is reversed.
 
Sometimes a wake-up call is healthy; panic never is. Anyone who experienced the media’s lack of understanding and coverage of the last recession at the beginning of this decade have a large and healthy degree of skepticism about what we see on TV and read in newspapers about the current crisis. But the reality gap is at its greatest right now. Fear and speculation are driving sound bites about how bad it might get.
 
As the lead …

Results from the 2008 3PL Provider CEO Perspective”surveys were presented recently at the Council of Supply Chain Management Professionals Annual Global Conference in Denver. The findings offer some interesting parallels to what distributors are experiencing.
 
Incorporating insights from 20 CEOs in North America, 10 in Europe and nine in the Asia-Pacific region, this year’s research showed some of the lowest industry revenue projections in the history of the surveys. Sponsored by Penske Logistics, the surveys found the “greening”of supply chains and the 3PL industry, as well as continued pricing pressures among the top industry trends, and cited rising fuel prices and a slow-growth economy as key challenges facing the industry. A trend toward reverse globalization was also …

Some of us attended Gordon Graham seminars in the 1990s. He is widely regarded as the father of distribution inventory management principles and the driver for getting those principles built into most of the first- and second-generation distribution software packages. He helped define state-of-the-art in information technology for distributors for more than a generation. What a new world today by contrast.
 
Consider that in the mid-1990s, only a few providers had revenues more than $10 million. The three biggest were Prophet 21, NxTrend and Eclipse. Prophet 21, estimated to be the largest, reported 1996 revenues of $36 million. By 2005 when it was sold to Activant, its revenues were pushing $90 million. Today it is part of a company several times larger (and includes …

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