Perspective Archives

We are at a point again in the business cycle where the national media hold a powerful tool and heavy responsibility when it comes to accurately reporting on economic trends. The danger is that one-line headlines and sound bites about recession can spook U.S. consumers into their shells and create the proverbial self-fulfilling prophecy.

The first three articles in this issue offer a few different viewpoints from economists on the state of the economy, the impact of the credit crunch,” and what our readers might consider based on the current climate. We do not predict the falling of the sky. And as economist Alan Beaulieu notes in the cover story: “The U.S. economy is in better shape than most people think it is.”

That’s not to discount the very tough conditions …

September 10, 2007

Free

Commentary: In Private Label, Look for the Sweet Spots

Even if you don’t intend to add private label products to your product mix today, pay attention to what competitors are doing and how they position private label against your manufacturer brands.

As our lead article in this issue points out, private label really took off in consumer packaged goods when the industry consolidated. As retailers created national footprints, they gained the scale to effectively build out private label programs.
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And it certainly requires a certain amount of scale to support the investment into private label – to source, develop and market effectively while not damaging your current lines.
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In distribution channels, it’s important to note that it’s not just the national chains that are building private label brands. …

August 25, 2007

Finance

Commentary: Consolidation Can Provide Opportunity for Smaller Distributors

The lead article in this issue offers an interesting example of how private equity has been changing the course of consolidation in independent distribution channels. Would a family-held company such as McJunkin try to execute a deal of this size if not for the new ownership?

In any given sector of distribution, you can often identify one or more market leaders who are so locked into their paradigm of success by their own competitive and cultural history that they may not see emerging growth opportunities. Or the risk/reward equation appears too severe when they look at how their model could change. That may not be the case here, but it points out the competitive outlook outside investors can bring to company.

At the same time, you often find smaller distributors who …

August 10, 2007

Free

Commentary: It’s Time to Shed Your Unprofitable Business

Despite pressures from commodity price increases the past few years, many distributors are finding it hard to raise prices. The traditional method of price increases has too often been to throw five percent (or another guesstimate) against the wall to see if it sticks.

The authors of the article in this issue argue that there is a better, more profitable approach. The solution is to develop products and services that target unique segments with very specific offers. For most distributors, this involves developing a range of offers from the high end (with all the bells and whistles) to the low end (no frills).

The key, the authors say, is to segment the market and build specific offers based on your unique ability to drive economic value (e.g. revenue growth or cost …

July 25, 2007

Free

Commentary: Look Beyond Sales

The three Ps of process, productivity and profitability separate companies that are doing OK from ones that perform in the top tier of peers. That will continue to be the key differentiator.

The performance analysis reports many distribution associations sponsor offer a wealth of benchmark data about how well your company is doing in a range of financial performance metrics. Historically, a relatively low percentage of distributors participate in these data aggregation programs. Yet these types of tools are critical to make any kind of real change stick in your business. How else can you create realistic goals and then the specific short- and long-term steps to get there?

The report card in the area of productivity is better. Several studies have shown that distributors …

July 10, 2007

Companies

Commentary: Dust Won’t Settle on HD Supply

Be careful not to get a sugar high from the HD Supply spin-off announced this past week. After a deal of this magnitude, it’s easy to get excited about what it means once the dust settles. But the dust won’t settle on HD Supply. If anything, the non-contributing or distracting units will be shed and a leaner, more focused business will emerge. It was not purchased to be gutted or dismantled. The remaining entity, while smaller in size, will likely continue as the lead consolidator in a narrower band of distribution verticals.

The deal will have a large impact in a few sectors, and virtually no impact in others beyond the perceived valuation halo effect. Some had anticipated the price for HD Supply might cool slightly due to the weakness of residential markets in North America. …

June 25, 2007

Management

Commentary: Fine-Tune Your Company’s Value Offering

Defining and selling value is a critical skill set in markets where customers have a range of sourcing options. Yet how well does your company analyze its market position in terms of value? How well are your associates trained in communicating and delivering this key differentiator that keeps you ahead of competitors?

The article on page 4 of this issue explores how manufacturers, distributors and sales representatives view the state of&nbsp ; value-add.” It offers some tools to analyze your company’s ability to perform extended value activities in key customer segments.

Survey results indicate that value-add definition and communication is just as tough a battle as five years ago. But there seems to be a broader recognition of its importance to staying competitive. …

June 10, 2007

Economic Trends

Commentary: Prepare for Market Turns With Better Visibility

The mainstream media is poised to shout recession” from the rooftops, particularly as June tends to be a slow news month. We have heard consistent reports of flat to slowth growth, but no one is talking about cliff diving in manufacturing sectors. Some markets have stayed strong into May.

Even distributors into the tough automotive sectors are not exactly surprised, and have seen strong orders in other areas such as heavy equipment and aerospace. And while residential markets remain bleak, those distributors with commercial or industrial construction customers have seen those markets stay strong.

No one likes volatile market conditions, but if there is any consistency, it is that while some traditional markets are down, others are emerging to temper the damage. And …

May 25, 2007

Management

Identifying core value a core competency

When a distributor loses focus on its relationships with core customers and suppliers, the company opens a door to competitors, new and old. It’s often not a case of mistreatment as much as benign neglect or not keeping up with shifting needs at the customer.

Increasingly, new competitors from different product sectors have found some good growth in other distributors’back yards with tangential products. And in some cases they can pick up some of the longstanding business that wasn’t in their core by packaging a better value proposition. But too often distributors tee up those opportunities and don’t recognize that it’s happening.

That model is at full force as more cross-channel competition grows, and consolidators look to package as much volume as possible into their …

May 10, 2007

Management

Commentary: Channel Conflict Appears When Visibility Disappears

Channel dynamics, as our lead article explores, have arguably never been more complex or more fluid. One of the core concepts as this article came together was the need to have a clear line of visibility from manufacturer to end-user customer. With so many variables at play, visibility seems to be one of the few constants.

Channel conflict appears when clarity disappears, whether in communication, policies, discount structures or behaviors. There is no right answer, yet there are great examples of consistent and clear approaches that are working.

Ten years ago, the hot issue was how integrated supply was radically altering traditional channel relationships. Power was shifting to the customer. The redundancies and inefficiencies of traditional channels were ripe for …

April 25, 2007

Management

Commentary: The Slippery Subject of Channel Management

Channel management is a slippery subject. The most jaded observers might argue the term has largely become an oxymoron, as stories of mismanagement and dysfunctional practices seem like commodities.

But as the lead article in this issue outlines, distributors and manufacturers are finding ways to leverage the current shifts in markets to focus and define their value. Channel participants are grappling with many complex issues -converging channels, private label brands, new product programs, new discount models.

The key emphasis today is active management. One size can’t fit all. Those who gain some understanding of how customers are shifting in their sourcing needs and problems, and then build programs and policies to meet those needs, find a competitive differentiator …

April 10, 2007

Perspective

Commentary: Fill the Information and Service Vacuum

Many if not most distributors measure product fill rates, and often report to customers in order to document their value. But how many distributors measure information fill rates? How well do you meet customer information needs, from a speed and quality standpoint?

A recent panel discussion on changes in distribution touched on a key observation. An astute panel member observed that velocity is a critical skill for a distributor today. Some may argue that hasn’t changed. Customers have always demanded high fill rates and on-time deliveries. But there is a difference.

Velocity is defined by speed and direction. Direction is all about how your company is positioned to meet customer needs. Customers expect and demand fast when it comes to logistics and product delivery. But …

March 25, 2007

Management

Commentary: Time to Review Your Review Process

As this first quarter comes to a close, it’s a good time to evaluate the annual plan created in September, or in January for those who subscribe to JIT strategic planning. This is when most plans start rotting on the shelf. The end-of-quarter flurry is too hectic to perform a disciplined review. Then a new cycle starts.

Perhaps you know where you are on the most important scale – your own internal sense of behind, on or ahead of plan year-to-date. Your sales force is crystal clear where they are. Most of the time that’s good enough. But with as volatile as current markets, customers, competition and the economy are, your company might benefit from a more formal review process with your entire executive team. Consider a different approach to the typical rearview mirror …

March 10, 2007

Finance

Commentary: The Let’s-Make-A-Deal Decade in Distribution

Last week saw a feeding frenzy of rumors in distribution, with action on both sides of the Atlantic. The biggest hunters suddenly became the hunted.

The history of independent distribution channels has repeatedly provided pointed lessons that size, more often than not, is the real giant slayer. It is tough to institutionalize flexibility and strong service levels – the hallmark of local distribution – across states, much less international borders. The next few years may tell whether there is an opportunity to create a global platform that doesn’t self destruct on its own growth plans.

Some might say too much money is overheating valuations and expectations. The surprise is that the M & A market in distribution (and overall) remains hot in 2007, with most expecting …

February 25, 2007

Companies

Commentary: Don’t Count Out HD Supply for the Long Haul

As reported by The New York Times this week, it did not take long for private equity firms to call the new HD CEO and wave some serious money (some analysts estimated $9 billion for a division doing about $12B in revenue in 2006) to take the HD Supply distraction off his hands. That is how the mainstream media and some analysts are painting it.

At one level, it wasn’t surprising based on the departure of the chief exec last month and the arrival on the board of an activist investor none too happy with the company’s wholesale foray into distribution.

For many independent distributors with some memory, it sounds eerily like another lesson in the properties of oil and water. There have been multiple failures of manufacturers trying to run profitable distribution …

February 10, 2007

Economic Trends

Commentary: Don’t Look in the Rear-View Mirror

As the lead article in this issue illustrates, the inflation threat largely driven in 2005 by energy price hikes has moderated, particularly the last few months of the year. Wholesale prices rose 1.1 percent in 2006, compared to 5.4 percent in 2005. But wholesale prices except food and energy – the core inflation rate – moved up 2 percent in 2006 following a 1.4 percent gain in 2005.

Distributors need to look more closely at the stats in their own sectors, as there are a lot of mixed signals. Materials for durable manufacturing increased 13 percent in 2006; prices for materials/components for construction increased 4.3 percent.

But as these pages pointed out (Adam Fein article in Nov. 10, 2006 MDM), distributors really need to watch steroid revenue growth produced …

January 25, 2007

Free

Commentary: HD Supply Strategy Bigger Than One Guy

Hype and speculation tend to follow an industry consolidator. The announcement last week that Home Depot CEO Bob Nardelli was ousted from his position over pay issues and lagging stock gains generated an inordinate amount of buzz. Some even claimed it is a repudiation of the Home Depot model itself and its relatively recent strategy to aggressively grow the wholesale distribution division.

Hardly. All we know versus a week ago is that HD has $210 million less to fund acquisition activities that instead went to Mr. Nardelli’s severance package (Wouldn’t you like to be chastised like that?). Now that will really slow the acquisition pace of HD Supply….

What’s lost in the shock value of the pay deal is that Home Depot’s net income in the most recent quarter, ended …