One thing Kreischer Miller’s Distribution Industry Group knows for sure: While all manufacturers distribute, distributors do not manufacture. Distributors are a specialized group in our eyes. Throughout our conversations with distribution company executives over the past year, we have heard a lot about what is driving their businesses, their plans for the future, and what keeps them up at night.
Here is a summary of what we heard:
Chief Executive Officers are:
- Changing how they plan for demand. CEOs learned a great deal during the recession. They now have a better ability to anticipate economic downturns to avoid being caught with excess inventory. They also are broadening product offerings to reduce dependence on demand for any particular product category.
- Developing a complementary services strategy. As they continue to seek ways to differentiate themselves from competitors and grow revenues, many distributors are adding logistics services, order fulfillment, and product packaging or assembly services to customer specifications.
Chief Financial Officers are:
- Renegotiating supplier contracts. CFOs have been negotiating more favorable contract terms with suppliers to improve margins and minimize inventory carrying costs. The new contract terms focus on incentives tied to fill-rates or stock-outs to reward distributors for performing well.
- Managing foreign exchange risk. Increased volatility of global financial markets has heightened the need for foreign exchange management. Using forward currency purchases is a common strategy to mitigate currency risk.
Chief Information Officers are:
- Improving operational systems. The automation of business processes between 2003 and 2013 enhanced labor productivity by 20 percent. And ongoing advances in technology promise further gains in productivity and improved customer service.
- Expanding online capabilities. Distributors have an opportunity to expand beyond traditional markets by enhancing their online experience. Although many use their website for marketing, only a few currently offer the ability for customers to order online.
Human Resources is:
- Training employees on products. Selling more complex products, or products that change frequently, is forcing companies to invest in product training to keep employees abreast of the latest innovations.
- Improving safety training. Injuries in distributor warehouses are about 50 percent higher than for the average U.S. worker. So companies are implementing additional safety training programs and making safety part of the performance evaluation process.
Sales and Marketing are:
- Focused on retaining customers. Companies are tailoring services to specific customer needs by becoming more solution-oriented and measuring delivery performance through surveys or other forms of feedback.
- Ramping up training. Introducing new services and capabilities necessitates training on features and benefits, as well as more solution-oriented selling skills.
These are the key issues for planning and strategy development, as identified by executives in the distribution industry. As the New Year rapidly approaches, we strongly recommend taking this opportunity to identify and begin the planning process for addressing the key issues that will impact your business.
If our Distribution Industry Group can help you as you plan for 2016, please contact us.
Robert S. Olszewski can be reached at Email or 215.441.4600.
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