Wholesale Distribution in the Economy
Happy New Year!
As you know, I’ve been on vacation and have not been blogging. Unfortunately, there was no wi-fi access on the beach and our hotel did not subscribe to Modern Distribution Management or Industrial Distribution. You can surely see my disappointment in the photo on the right.
I want to start off 2008 with a key point from my recent Wholesale Distribution Economic Outlook presentation: Distribution as a whole is still a stable and substantial part of the U.S. economy.
Many people are surprised by this point because they think “the middleman is dead.” Yet more than $4 trillion dollars in products flowed through wholesaler-distributor warehouses in 2007. Plus, wholesale distribution’s share of the U.S. economy has not changed much in the past 50 years. In the 1950s it was about seven percent. Today it’s still about seven percent. Lindsay Young picked up on this point on the MDM blog in Distribution's Part in the Economy.
The key to understanding this surprising factoid is that regardless of where manufacturing takes place, distribution is a local service business. Naturally, the specific products that are distributed today are much different than what was distributed 50 years ago. There are fewer distributors of industrial products but many more distributors of products that sell into service industries such as food service, commercial office buildings, MRO supplies, construction, healthcare, entertainment, recreation and lodging.
Despite some poor economic news over the past few weeks, the future of wholesale distribution looks solid.
5 comments:
Nice Picture... see yoiu in a few weeks Dave G
If, as Adam Fein says, "distribution as a whole is still a stable and pretty substantial part of the U.S. economy," then why was I and 124 other former colleagues at a wholesale distributor displaced when our major vendor set up their own distribution?
The answer is, that the tipping point was reached. My company was unable to offer a SIGNIFICANTLY greater amount of value faster and more completely than the manufacturer was able to do on their own. As they developed their own capabilities, it became too attractive for them to expand and better utilize their growing distribution function. Things reached the tipping point. And we were gone.
So it's a precarious statement to say that distribution is alive and well. It is if it evolves and constantly adds value that far surpasses that which key vendors would be able to do themselves. In fact, distribution needs to provide service at such a high level, and with low cost--that vendors and customers alike could not IMAGINE using the product unless that particular distributor was the company providing it.
For the majority of distribution functions, such as inside customer support, field sales, light assembly and manufacturing, delivery, credit, etc. --the manufacturer in many instances is quite capable of performing those very same functions. And while there is a cost associated with whomever provides the services--many manufactures enjoy exerting their own control over the entire supply chain and selling function--to ensure the customer experience is pure delight. It may or may not be more profitable, but it allows them to exert control.
So to prevent reaching this tipping point, if I were to run a wholesale distributor organization, I would ensure I had these strategies in place:
1. A value proposition for the end-user that is built a) on the customers' greatest needs that (they will pay for), and b) those that my vendors and I agree are best-of-class and give us a sustainable advantage to obtain, protect, and grow market share.
2. Strategies to move either up or down the supply chain. For example, to move up the supply chain, I would manufacture and/or source materials for myself to limit my reliance on my suppliers. Or to move down the supply chain--I would develop services that are performed at lower levels in the channel (closer to the end user). This last step can be considered as encroaching or competing with services that my customers or down line providers do themselves for the ultimate end user.
However, which would I prefer? To have more involvement in the supply chain and have a sustainable function and reason for existence, or less involvement and play a smaller and smaller role in the supply chain with each coming year? (This is one sure way to make yourself obsolete)
3. A “source and process” mentality, as opposed to a “product” mentality. We’re not in the product business. We’re in the solutions business, and we do it with being a complete source for our customers with processes that ensure mutual success.
Taking orders, warehousing products, and making deliveries is NOT the game we’re playing. Ask yourself, “Could my major supplier perform the functions on their own that I do as their distributor?” If the answer is yes, your leadership had better go away for a long offsite meeting and reinvent your company—before you get “tipped over.” Jeff Wedge, www.TheWedgeEdge.com
Thanks, Jeff. I was describing wholesale distribution as a part of the US economy, not the fate of an individual company. As always, YMMV.
Adam
Adam,
Good looking picture.
Distribution as it relates to the U.S. economy is in good shape.
As with any changing economic period of time, there will be distributors who loose focus and others who have kept their eye on the goal.
Some will have to re-invent portions of their business.
Some distributors will have to change and some won't.
We see a fairly large group who are re-looking at their business model. But the important thing is that they are opting to stay in distribution.
Adam, Look forward to seeing you in the future.
Regards,
Allen Ray
The stability of the US economy affects the wholesale distribution not only in USA, but also in many European countries. Many EU sellers has a great market in USA.
-mark
usa wholesalers
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