Distribution Monitor Report Shows Optimism among Middle-Market Distributors
Wednesday, September 26, 2012
Middle-market distributors are growing, but that growth – and the optimism
that accompanies it – is tempered by a number of influences including faltering
economies in Europe and elsewhere, rising commodity prices, competition from
low-cost-country vendors, the continued housing crisis, health care law and
uncertainties over which administration will lead the country following the
November election. These are the findings from a newly released Distribution Monitor
report, sponsored by the NAW Institute for Distribution Excellence and
McGladrey, the nation’s fifth largest provider of assurance, tax and consulting
services. The NAW Institute is the research arm of the National Association of
concerns, distributors are generally optimistic about their own business
prospects in the next 12 months, with 95 percent reporting that their
organizations are thriving or holding steady,” said Karen Kurek, distribution
lead for McGladrey. "Distributor sales generally are growing (81 percent
increased sales over the past 12 months), although they are expected to grow at
a much slower rate in the coming year.”
expect costs in many categories to increase in the next 12 months, particularly
in areas such as transportation and fuel costs, equipment and machinery, and
energy. Some expect transportation and fuel costs to increase by more than 10
percent. To combat those rising costs, distributors are implementing a number
of tactics to maintain profitability, including lowering their costs through
operational efficiencies (81 percent) and improving processes within their
Other key findings
- Employment – A majority of distributors
are planning to increase U.S.
employment in the next 12 months, and a majority of those with international
employees will also increase their ranks overseas. Finding new hires though,
could pose issues for some distributors. Approximately one-third report that they
find the skilled talent they require only some of the time or rarely. Many are
launching their own training and development programs to address skills gaps.
Nearly half will focus on adding personnel to customer service/support
functions. With a growing workforce, of course, comes an expected rise in costs
for wages, benefits and other variable compensation.
- Process Improvements – Distributors
will increase investments in process improvements this year compared to last.
Thriving organizations are more likely to increase these investments than firms
that are holding steady or declining. Thriving firms also are more likely to
have increased productivity in the past year. The primary objectives cited for
improvement initiatives are to reduce costs as well as to improve quality,
customer satisfaction and speed.
- Customer Satisfaction – Customer
satisfaction is a primary objective of process improvement, with 83 percent of
respondents ranking it at the top of the list. Cost reduction, quality
improvement, enhanced speed/timeliness, and other objectives were mentioned, as
well. Customer service will be an area of focus for improvement initiatives
over the next 12 months, as distribution is a customer-focused industry, and
distributors are looking to improve activities that affect those
- Inventories – Inventories will
increase at nearly one-half of distributors, with seven percent expecting
inventories increase by more than 10 percent. Yet despite these cost pressures
and more inventory, the overall health of the industry is reflected in plans by
most distributors to increase capital equipment spending in the next 12 months.
That is being influenced by low costs of capital and respectable bottom lines
at many companies.
- Information Technology – IT is
critical as distributors grow their organizations and broaden their supply
chains. Two-thirds of distributors report at least moderate use of business
analytics companywide and/or among senior leadership. Business analytics is
most likely to be used to forecast customer demand and identify market
opportunities. More than half of distributors use social media, and slightly
less than half use cloud computing. And while these and other IT applications
can pose new security concerns, surprisingly few distributors believe their
information or data is at risk.
- Value-Added Services – Virtually
all distributors now offer value-added services to customers, but the industry
as a whole is still focused on products for driving revenues – almost half of
distributors report that new products/product lines are extremely important or
important to company growth. Distributors that rate new products/product lines
as extremely important will spend much more annually on research and
development, although the average is only 2.4 percent of annual sales.
In addition to the key findings outlined
above, results from the 2012 Distribution Monitor provide a wealth of key data
on middle market distributors, including predictions on sales increases for the
coming year, projected increases for transportation, energy, inventory, and
other costs, and additional data on hiring plans for the next 12 months.
The Monitor surveys industry leaders of
distribution organizations to assess the current state of the industry and to
determine what steps CEOs, CFOs and other executives are taking to grow their
businesses and stay competitive. All data is collected online in response to
invitations from McGladrey and the NAW Institute and from partnering
associations and chambers of commerce across the United States.
A copy of the complete Distribution Monitor
report is in the articles archive in the Members-Only section of www.nfda-fastener.org
the NAW Institute for Distribution Excellence
The NAW Institute for Distribution Excellence is the research arm of the
National Association of Wholesaler-Distributors (NAW), Washington, D.C. NAW is
composed of direct member companies and a federation of international,
national, regional, state and local associations and their member companies,
which collectively total more than 40,000 firms. The NAW Institute for
Distribution Excellence sponsors and disseminates research into strategic
management issues affecting the wholesale distribution industry. The NAW
Institute aims to help merchant wholesaler-distributors remain the most
effective and efficient channel in distribution.
NAW Institute for Distribution Excellence and McGladrey entered into a formal
alliance in 2011. The Distribution Monitor report constitutes the initial
output from that partnership
McGladrey LLP is the fifth largest U.S. provider of assurance, tax and
consulting services, with more than 6,500 professionals and associates in 75 offices
nationwide. McGladrey is a licensed CPA firm, and is a member of RSM
International, the sixth largest global network of independent accounting, tax
and consulting firms. For more information, visit www.mcgladrey.com, join our Facebook fan page at McGladrey News, follow
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