As a pivot point in the flow of products from the point of manufacturing to end use, distributors have several key roles -scout, gatekeeper, product and solution provider, marketer, arbiter. Every successful distributor combines these roles into a unique set of skills that creates value for customers as well as suppliers. Distributors create the most efficient market system into highly fragmented industries and local economies by effectively managing these market relationships both upstream and down. It’s a fairly simple equation that is complex to execute well.
Not that most distributors have time to sit around and ponder their place in the universe. But that’s just it. The interview that leads this issue touches on a key differentiator that separates a relatively few …
Tom Gale
Every business tends to put on a full-court press to get customers in the door. Many have processes to build existing customer relationships into larger ones. Fewer businesses have a process for saying goodbye or retrieving ex-customers. But in tightening markets, distributors often see customers jump to a lower-price competitor. How often do you experience a customer returning after a year, or after they realize the better value your company delivers? What percentage of lost”customers return?
These issues came to mind following an unpleasant experience closing the account with our credit card processor. I switched to a more cost-competitive service after four-plus years (three-year agreement with automatic annual renewal) with an Omaha-based affiliate of my local banking …
The first two articles in this issue are indicators of how this industry is maturing. At the risk of oversimplifying, it wasn’t that long ago that success was often defined by getting orders translated accurately into invoices, then into envelopes in a timely fashion. A broken dot-matrix printer impacted cash flow! Pricing policy took shape in sales meetings, phone calls and split-second decisions on a case-by-case basis by each salesperson. When sales go up, get more order takers and processors to handle the increased volume. That model worked pretty well for many distributors until the downturn in the early part of this decade.
Today, more distributors are moving to electronic invoicing and ACH payments. Some dedicated niche applications, such as GPS-based delivery …
An engaged board of advisors can be a significant differentiator in how well a company performs. With that in mind, we invited MDM’s Board of Advisors to spend two days helping us in our planning process as we continue to expand our coverage of wholesale distribution. MDM is a relatively small company with six employees. Our meeting reinforced for me the need for outside perspective and strategic planning for any size company to grow to its potential.
In addition to our board, Brent Grover was a guest at this meeting, offering his unique perspective and insight. In combination with regular surveys and input from all our readers, our board is critical to help us develop editorial focus for the year ahead, as well as offer their deep experience and industry knowledge as we …
This issue includes an interview and articles on global market changes, private label strategy, a major international acquisition in the office products distribution sector, an analysis of ESOPs, and how one distributor is leveraging environmentally-friendly product offerings.
My first thought regarding this mix is how different distribution markets look today. Green”products were not part of the line card ten years ago. But like the happy lobster feeling the temperature of the water rising nicely, maybe my memory isn’t perfect when it comes to incremental changes. So I drew some help from the MDM Archives.
In 1998, suppliers and distributors were dealing with major structural changes in channels with the growth of integrated …
Is it a buyer’s or a seller’s market in wholesale distribution mergers &acquisitions? I think the answer is both, as there are a lot more variables on how value is being measured than even a year ago. If you run a tight ship and considering a sale, your value is still historically high. If you are a buyer with a clear strategy and view of current markets, there are great opportunities.
As this issue’s lead article details, the feeding frenzy of the past few years in wholesale distribution merger &acquisition activity is over. But note carefully that deal-making is not. Mega-deals with double-digit EBITDA valuations have cooled in risk-averse credit and economic climates. Well-managed smaller distribution companies are in some ways more marketable than ever, particularly as …
Distributors have ample opportunity to take the lead (and build stronger customer relationships) in creating leaner and more productive supply channels. Author Joel Roth says he wrote The 20% Solution, some of it excerpted in this issue, to address the frustration of purchasing professionals who have difficulty dealing with MRO procurement. He gives the following recent example of how corporate buyers can go amiss:
A well-known international manufacturer of building materials tried for 15 years to install an effective integrated supply program for MRO. Three costly attempts failed. Their fourth attempt led to the following Request For Quotation: Time allowed for bidders to respond -13 working days. Total corporate spend on miscellaneous mill supplies -$1.2 million …
Distribution associations, like most of their members, have been challenged to redefine and focus the value they deliver. Many associations have initiated a strategic planning process to address shrinking membership and participation due to industry consolidation, as well as new competition in the form of marketing groups and other alternate education resources, including trade publications.
I recently attended the Fluid Power Distributors Association (FPDA) annual meeting, where they unveiled the results of a three-year strategic planning process. The fluid power industry has been particularly challenged as new electro-mechanical technologies have rapidly developed. In a nutshell, they are aiming to elevate the networking and education value the association can offer, while …
The economic outlook in our lead article notes that the link between industrial distribution revenues and manufacturing activity has weakened as traditional industrial distributors have diversified into more general commercial facility supply.
I have certainly seen distributors push hard into new product sectors and customer segments in the past five years with great success. You could argue that this trend is the natural outcome of how industrial channels have matured since the 1980s. Systems contracts emerged as the first step to manage MRO industrial supply procurement from a process versus product focus. Yes, there were clearly some similar models in the first part of the 20th century, but manufacturers held a different position in controlling distribution channels. …
I recently spoke with the three panelists who will be on the third annual MDM Distribution M&A 2008 Update call on May 22 -Brent Grover, Jim Miller and Jon Skelly. They all described how radically things have changed in less than 12 months in merger and acquisition activity in distribution. Here are a few quick takeaways from that call.
A year ago, financial buyers were driving the market with still-high EBITDA multiples and a lot of deal activity. Activity and pricing have dropped significantly in 2008. Debt markets have tightened, and private equity has its hands tied with very different capital structures. Strategic buyers could not compete a year ago with the multiples; this year they are competitive …
Yesterday’s numbers weren’t surprising to most distributors, but they reinforce that this year is about doing some hard work to position and strengthen the business. GDP rose at a 0.6% annual rate in the first quarter of 2008 to mirror the fourth quarter of 2007. The Federal Reserve lowered its key interest rate by one-quarter percentage point to 2.0 percent, the lowest since November 2004.
What the numbers aren’t saying: Certain markets are beginning to soften in the last 30-60 days for some industrial distributors, but sales levels still exceed expectations set last fall. Products bound for end-use markets in energy, export and infrastructure are staying strong.
Of the 142,000 attendees the CONEXPO/IFPE show last month drew to Las Vegas, about 19% were …
Why have three investors been raising the price for Industrial Distribution Group (IDG), the traditional whipping post of the investment community?
Last year, when IDG’s board pursued an exit strategy to free itself from the constraints of public ownership, the M&A market in distribution was still near its peak. In a year’s time, we have shifted dramatically from a financial frenzy to a quieter, more strategic buyer’s market. In today’s risk-averse debt markets, show me the money has taken on new meaning in the bidding war for IDG.
The three bidders active in this deal -Platinum Equity (owns Strategic Distribution), Luther King Capital Management (owns 15 percent of IDG stock), and WESCO (owns Bruckner Supply) -know the strengths and weaknesses in IDG. Based on …
UPDATE: IDG to Accept Luther King Capital Management Bid
UPDATE: WESCO Drops Bid for IDG
WESCO’s last-minute catch of Industrial Distribution Group is a good fit with its Bruckner Supply business, focused on integrated supply, together with its strong electrical distribution business into industrial accounts. It’s also a good fit from a broader perspective in terms of where WESCO is positioned with international competitors in North American markets.
Most industry observers look at IDG’s checkered ten-year history as a public company, specifically its sluggish earnings reports, and see an …
You’ll notice a few minor changes in the print version of MDM this issue, as well as some upcoming changes online, in an effort to make our information services more user-friendly. This column, which has been on the front page of the yellow section for a few years, will now appear on this page.
This Perspective column is often either related to the cover story or about broader distribution-related issues, so page 2 of our print edition is a more logical place for it to live than in the Industrial &Construction Markets Update yellow section. This page also gives us more space to explore issues than the single-column format in place for the past 40 years. More space also gives us some flexibility to address, when warranted, more than one topic.
The Industrial …
In the movie Groundhog Day, the main character wakes up each morning doomed to repeat the exact same day, until he realizes he can change his life and do better.
That movie might be a useful management tool as we move through the current downturn in the economic cycle. As noted in an upcoming interview in MDM, Al Bates has been conducting financial performance surveys of distributors for nearly three decades. He has a wealth of data on how distributors have done across multiple business cycles. So is this cycle any different? We are going to come out of this recession the same way we came out of 2001-02, he said. Distributors will give up the same ROA they have in every cycle, then rebuild sales, add too many people and overhead, then cut when the next downturn …
You wouldn’t know the troubles in U.S. residential construction markets if you were at the CONEXPO-CON/AGG and IFPE expositions last week in Las Vegas. From what I heard and saw, people were buying and shopping hard. The two biggest impressions I came away with were the quantity of international exhibitors and attendees, and the increased focus of energy-efficient and hybrid technology, both on the construction side as well as hydraulic and motion control products.
Without question, the vitality of the show indicates there are some growth markets even while the national focus is on the housing markets. Manufacturers and distributors at the show said their industrial sales were strong. Those selling into energy-related sectors and any markets with export were reporting …
A funny thing happened on the way to a recession. Data keeps getting in the way, at least in certain markets that the mass media don’t pay a lot of attention to. Case in point: January trend data by the Power Transmission Distributors Association shows an uptick in sales for the month in the U.S. and Canada.
So while broad-based needles continue to point down, it’s important to keep the market niches, customer segments and top ten customers that define the long-term health of your business front and center in your perspective.
The MDM Survey on the Economy in this issue offers a few interesting indicators within wholesale distribution. Nearly a quarter of those who responded are planning an acquisition in the next six months. More than a third expect to have …
When one of my mentors in this industry emailed in December to say he just left his office for the last time at the company he had been with for 48 years, it struck me how much impact he has had on so many people in this industry.
I first met Roy Otto, former owner of Machine Tool Supply in Eagan, MN, 25 years ago. He has been a teacher to many people in this industry and beyond. He has been generous in sharing his knowledge and enthusiasm for the industry, and has been a strong role model for hundreds of employees, peers, suppliers and competitors.
Roy started in the warehouse of in 1959, worked hard and moved into inside and outside sales. It was natural that he ended up with an equity stake. Roy built a well-planned exit strategy, sold his business a few years …
When one of my mentors in this industry emailed me in December to let me know that he had just left his office for the last time at the company he had been with for 48 years, it struck me how much impact he has had on so many people in this industry. Those who know him will appreciate that he included the exact minute of his departure, not because he couldn’t wait to bust out, but because of the well-known attention to detail he brought to running and growing his business over several decades.
I first met Roy Otto, former owner of Machine Tool Supply in Eagan, MN, about 25 years ago, when he was the chair of a publications committee for the state’s tooling and machining association. He has been a teacher without seeming like one to many people in this industry and beyond. He …
The recent National Association of Wholesaler-Distributors Executive Summit in Washington drew one of the largest audiences of wholesale distribution executives together in years. I have attended nearly every annual NAW meeting since 1993, and this one can best be summed up by one word: Focus.
My key takeaways from sessions and conversations: The executives at this conference weren’t obsessed with economic news they can’t control. Rather, they were focused on collecting great ideas on how to get leaner, improve profitability and finetune strategies. They were benchmarking their performance against the case studies they heard, and probing to find ways to improve internal processes.
Economist Alan Beaulieu got everyone’s attention as the first speaker when he …
