Industrial Distributor: Are You “Following the Money” or Truly Addressing a Need?
by Chip Schramm, President of Turner Supply Company
Industrial distribution is a fragmented, competitive landscape where even the largest national firms only command a single-digit market share. But it’s still a growing industry: most of the big players are seeing increased sales, some even upwards of 10 percent. That’s because opportunities are ripe for creative companies to create value through innovations, both large and small. As buyers and sellers of MROP (maintenance, repair, operating and production) supplies, successful distributors must always balance the commodity-driven nature of our business with the need for value-added offerings for customers, the latter often being the difference between an impressive ROI and a disappointing result.
Rushing into vending for vending sake, or for a quick uptick in steady revenue, has proven to be a disastrous approach.
For instance, in recent years, programs like industrial vending, in which vending machines stocked with products track and manage inventory, have transformed from an emerging trend to a commonplace practice amongst all competitors in the market. For customers, the perks are clear. Vending solutions help lower cost of ownership. Manufacturers will always know which employees have supplies, who is seeking them, and what supplies are running out, helping to reduce loss and theft and limiting the amount of stockouts. With just-in-time delivery — of just the right products — customers can focus on their primary function: manufacturing quality goods.
Rightfully so, that’s the pitch of most distributors. And while industrial vending provides a practical service, distributors also receive their share of advantages. By passively vending items, most of which don’t require much customer engagement, distributors can focus on other efforts. It also bodes well for demand forecasting, and (perhaps the most advantageous) serves as a Trojan horse; with a distributor’s products constantly stocked in a machine on a work floor, customers become accustomed to buying those distributor’s products.
Many distributors report increased sales from vending, and it has been described as “a huge runway for growth.” But rushing into vending for vending sake, or for a quick uptick in steady revenue, has proven to be a disastrous approach. Companies that offer a cookie-cutter, one-size-fits-all service are misapplying the technology that has transformed the industry. Distributors with a customer-centric approach, offering tailored solutions, are reaping the rewards.
In this market, the ability to cater to the customer will allow you to stand out. The successful distributor asks, “What individual customer needs am I serving? What customer pain points am I solving?” In vending, maybe it’s supplying a narrower machine for those with limited floor space or one that can withstand harsh environments and is temperature-aware. Does the customer use fragile supplies, needing a drawer dispenser instead of coil dropping? Or maybe your customer has a strict hierarchical structure and only certain user profiles should have granted access. Supplying the wrong products alters expectations, leading to disappointed customers with poor perceptions.
Successful distributors will be able to help lower a customer’s total cost or ownership or suggest the best way to outsource supply chain management.
Value-added offerings foster strong business relationships and partnerships in ways mass-market e-commerce sites are currently struggling to replicate. For instance, a few years ago Amazon jumped into the market with AmazonSupply, an online store for industrial and business products. Earlier this year it closed, with stories reporting the business failed to produce results (Amazon expanded the shuttered endeavor into Amazon Business, which it says offers a broader range of products).
What AmazonSupply and other unsuccessful organizations are missing are the three pillars of success for industrial distribution:
- The ability to clearly document and identify cost savings
Cost savings is not only about product prices but the process as well. Many will tout the ability to provide lower prices but automation and raw numbers cannot work with customers to find better and more efficient ways to do a job. Successful distributors will be able to help lower a customer’s total cost of ownership or suggest the best way to outsource supply chain management.
- Personalize technical support
Medium to large customers have an expectation of face-to-face, or phone-to-phone, customer support. They expect to connect with their representative, building professional rapport. Traditional distributors can provide this customer-facing support.
- Being the first to market with new products
Large “big box” and e-commerce distributors are becoming more determined to sell their own private labels or commoditize the entire supply chain. Traditional distributors can provide manufacturers with the most qualified and efficient product for a specific need.
WHAT’S IN STORE FOR THE FUTURE?
It will be interesting to see how industrial distributors handle emerging technologies. Technologies like bar code management of inventory still exist but in some cases are becoming superseded by RFID tracking of assets for more real-time visibility across all points of the supply chain. It’s a pricey investment but sometimes needed especially for high-valued assets.
3D printing, also known as additive manufacturing, is gaining momentum but it’s too early to say if it will replace existing metalworking. In the future, 3D printers could be deployed onsite to repair and/or replace material parts. For industrial distributors, 3D printers could decrease the need for material removal tools but they could also increase the number of inputs that goes into 3D printing.
Which option will distributors recommend? Which will address a need? The choice will guide the result.
Please note: This article contains the sole views and opinions of Chip Schramm and does not reflect the views or opinions of Guidepoint Global, LLC (“Guidepoint”). Guidepoint is not a registered investment adviser and cannot transact business as an investment adviser or give investment advice. The information provided in this article is not intended to constitute investment advice, nor is it intended as an offer or solicitation of an offer or a recommendation to buy, hold or sell any security.