Many of our readers are seeing direct impacts from the wrenching transformation taking place in the U.S. auto industry. While it is easy to focus on the negative and sensational news our national media regurgitates constantly, there are some important takeaways from this situation for distributors and manufacturers who sell through independent distribution channels.
First: The recent financial meltdown did not cause the downfall of the Big Three. The financial crisis precipitated what arguably was more than two decades in the making. Remember the ghost of Ignacio Lopez, GM’s purchasing chief in the 1990s?
In the 20-plus years I have been covering industrial distribution channels, the supply-chain relationship between these manufacturers and their …
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If you still think the Web is mainly for kid games, sports scores and ordering the cheapest possible airline tickets, watch out! According to a multi-year tracking survey by the Pew Internet & American Life Project (www.pewinternet.org), the Web continues to be populated by younger generations – over half the adult internet population in the U.S. is between 18 and 44 years old. But today 72 percent of Americans age 50-64 use the Internet; 82 percent of those between 30-49 years old do.
Those older than 44 are using the Internet more and doing more activities online, the survey says. Not surprisingly, older generations use the Internet less for socializing and entertainment, and more as a tool for information searches, emailing and buying …
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. …
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 …
In a short time, we have grown accustomed to reading (and in my case, writing) articles and headlines filled with words like, decrease, “decline” and “fall.” That’s why when, as reported this month, housing starts saw a slight increase, and new orders for durable goods went up, the words “unexpectedly” and “surprising” started to appear. Confidence went up, at least a little – badly needed in our battered economy.
That said, as soon as the word “increase” and all its synonyms came back, however briefly, there were plenty of economists and analysts ready to moderate our excitement that things might finally be hitting rock bottom. “The modest signs of stability in the U.S. economy are …
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 …
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. …
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 …
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 …
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 …
When I started as editor of MDM in 2005, I was consistently writing news articles each quarter on double-digit sales increases. It’s no surprise, given current economic conditions and financial market turmoil, that double-digit growth has been a rarity in recent quarters.
Most distributors focused on North American markets are recording single-digit growth. Those focused solely on construction-related markets have recorded steep declines and net losses -a fundamental change. Manufacturers with business abroad have seen double-digit growth, but when they break it down, North American sales are low single digits, flat or negative. As a result, many distributors and manufacturers are focusing on profitability.
As we wrote recently in MDM, distributors should make up …
