The results have been tabulated for the 68th annual Survey of Distribution Operations. This report is crucial in determining the direction in which the distribution business is headed. By identifying the most pressing concerns in the industry, the survey provides statistics and conclusions which the distributors can use to help maintain their business evolution in our technology based world.
Consistency has always been at a premium in the distribution industry. This year the trend continues, as 83% of the surveyed group reports as MRO (maintenance, repair, and operations) carriers. Also expected, almost half of the companies have been in business for over 50 years. The percentages taper down with the length of ownership, with the smallest percentage of distributors reporting being in business less than 10 years. 37% of operations report a Midwest base, and 21% headquarter in the Northeast. These numbers have remained relatively stable for the last decade. The big change that we see this year is in the number of family owned distributor operations. In 2005, 73% of distributors were family owned. 58% now report as such, and it is commonly accepted to be due to the recession. Finally, the trend seems to be moving toward expansion instead of specialization. 66% of respondents reported an expansion of business when asked if they had contracted, expanded, or stayed constant with the inventory they distribute.
Objections, Direction, and Economics
Concerns this year among respondents include price competition, distribution operations competition, the state of the economy, and finding qualified people to hire. Some of the ways the plan to battle these issues are growing sales to existing customers, adding to their customer base, and taking business from competitors. Internet sales is still trending upward, up over 7% since 2013. In terms of mergers and acquisitions, most polled agree that there will be about the same number of mergers as we have recently seen. 22% of respondents would be open to a buy-out and 35% are actively looking to buy another distributor. This builds on the trend of developing larger manufacturers who focus more expansion and less specialization.
The Balance Sheet
Only 10% of distribution operations reported a decrease in sales, and 70% reported an increase. This is a direct relation to the growing construction and stable manufacturing markets. This did not translate directly to revenue, however, as only 61% of business showed increased profits. Confidence and spirit is high, as 77% expected to increase revenue this year. Some of the ways they plan to do that are by focusing on sales and marketing, revamping their company website, and generating more sales on the internet.
The number one factor when analyzing suppliers was quality, but the numbers have been trending down consistently for the last 3 years. On-time delivery was second, but finished less than 1% higher than service and support. These two factors continue to grow closer every year, as the former is down 3% and the ladder is up 8%. In terms of the relationship with suppliers, almost 90% of respondents claim it has gotten better or stayed the same. This is despite the fact that 88% report increased prices over the last year. Many of the companies polled recognized the suppliers for helping offset high prices by helping with introducing new products, cooperative advertising, and other methods.
Technology Use and Investments
E-commerce as a priority is up by 7%, and almost 65% of distributors polled are generating business online. The reason a third of the segment is not making use of the digital age seems to be because almost 90% of the group reports less than 20% of their revenue come from online business. About a third of the respondents report using cutting edge technology like warehouse and transportation management systems, demand forecasting, and ERP. Despite a chunk of the distributors not generating revenue from the internet, 87% use the web for purchasing. Also, the market seems to be trending toward e-commerce, as 75% of respondents expected increased internet sales this year.
The high rate of mergers and acquisitions are forcing many distribution operations to include value-adding services to stay competitive. These can include product training, on-site repair, or any other niche the company can offer as a caveat to their shipping services. Relationships and product availability rank as the the top reasons respondents felt customers did business with them. Technical support and delivery time both scored at over 60%, as well. Shipping, at 69%, remains the front-runner in terms of what services distributors offer for a fee. Design consultation, fabrication, and installation all fell close together between 23%-27%. These numbers have changed little over the last few years.
Over 50% of companies report hiring new staff in the last 12 months. When compared to 2009, when 68% reported having to reduce the size of their staff, these numbers are very encouraging. The majority of this growth is coming from adding sales staff. Aside from bulking up their sales forces, respondents also reported added a number of warehouse and support positions. Of the segment that did reduce staff, almost a third of the laid-off employees were warehouse workers. This is certainly due to the increased automation of the industry. In terms of developing career longevity, 93% of distributors claim to offer health insurance. 79% offer an investment package and 63% offer an bonus plan. All three of these incentive programs are reporting at higher numbers than last year.
If you own your own distribution operations or work for a distributor, what are you seeing as the greatest forces affecting your business? Let us know in the comment section below.