By Jan Niehaus
Mergers and acquisitions top the list of distribution industry trends according to Norm Clark, associate professor in the Industrial Distribution program at Texas A&M University. “Companies not willing to change with the times may find it easier to sell than invest or get left behind,” he said. In addition to growth, purchasers’ motivations sometimes include the acquisition of talent and exclusive-territory supplier agreements.
Two underlying drivers implicit in Clark’s observations are the skilled labor shortage and rampant technology.
“The competition for skilled labor, especially drivers and warehouse workers, is intense,” reported Rich Passmore, vice president of operations for Minneapolis-based Viking Electric Supply. “A wave of retirements industry-wide, especially among manufacturers and reps, raises concerns about the loss of knowledge and institutional memory. Together, these two factors impact everything from wages to output quality to the timeliness of delivery.”
One of the labor shortage strategies employed by the Mayfield Village, Ohio-based Mars Electric is an internship program coordinated with John Carroll University. Student interns work in Mars’ warehouse year-round, part-time during the school year, learning about inventory, the warehouse, logistics, and fleet operations, explained Alex Spinos, director of warehousing and logistics. Another strategy: Temporary employment agencies provide warehouse workers to both Mars and Viking, temp-to-hire in Mars’ case.
Would a workforce discussion be complete without talking about Millennials? Clark offered: “Millennials are looking for work that is meaningful, communication with supervisors, professional development, and a career path.” This necessitates training, as he explained: “Things are changing so rapidly. Executives can make decisions, but if the decisions can’t be communicated throughout the organization, they won’t be effective. Soft skills development is most important.” Managers with soft skills relate more effectively to their direct reports and colleagues, and salespeople with soft skills build stronger customer relationships. “It’s been my experience,” Clark said, “that the most dynamic sales organizations are spending more time training on the sales process than on products. Their salespeople are learning to be resources to their customers.”
Technology: An Opportunity and a Threat
Technology permeates every aspect of distributions operations, from the customer interface to new electrical products to data analysis.
“Technology is a huge threat for distributors that aren’t embracing social media and the Internet, especially for selling commodity items. Companies like Amazon are driving this trend. When customers know what they want, a lot of them, especially Millennials, prefer to go online, rather than listen to salespeople,” Clark said.
Passmore sees technological advance on every front, e.g., demand forecasting; warehouse automation; dynamic slotting; digital tools, especially mobile; and innovative products. He noted: “As new, technical products enter the market, product training is critical, for distribution employees and their customers. Meanwhile, manufacturers are cutting staffing and expertise, with distributors picking up the slack with new product introductions and training.” This technical product training is not only critical but also urgent, as he explained: “Since the new product life cycles are dramatically shorter, we have narrower opportunities for growth.”
Despite the myriad challenges, distributors are thriving. “The distribution industry is very dynamic. It continues to grow,” said Clark. In northeastern Ohio, where Mars serves primarily contractors, Spinos reported, “Our business was up significantly in 2017, driven by the broader U.S. economy. It all rolls downhill, and we’re the recipients. A number of large projects are underway in the immediate area, and some of our local contractors have projects 200 miles outside of Cleveland. We’re serving a significantly wider geographical area and an expanding customer base with our new distribution center. We’ve become a tier-one player in the marketplace.”
This strong economy enabled Mars to double their space, moving to a renovated, 108,000-square-foot, state-of-the-art warehouse and corporate offices. Capitalizing on the additional space, Mars has added equipment, expanded existing high-demand services, and added new services. Spinos described some of the improvements: “We added four-color feeder wire, a unique offering in our market. It has allowed us to penetrate deeper into more customers and has opened relationships with customers who previously shopped elsewhere for this product. We’ve also added a dedicated prefab center and doubled our VMI program with some customers, managing day-to-day supplies for job sites. Customers can order today via a mobile app for delivery tomorrow. With our new crane truck, we can deliver to the third floor inside a building if that’s what a customer needs. The crane truck has set us apart in the marketplace. Customer response has been very positive.”
Like Mars, Viking is growing and expanding services, e.g., just-in-time delivery, project layout and design, project staging and management, jobsite- and facility-managed inventory, job-site material-handling solutions, and demand forecasting. Viking intensifies its innovation and customer education efforts to counter customers’ temptation to buy direct from manufacturers, as Passmore explained: “It’s on the distributor to educate customers on the value-added services we provide, services they’ll miss if the transaction is handled directly—credit terms, for example, and all our logistics services, including receiving, inspection, freight claims, breaking down case and pallet packaging to reduce onsite packaging, warehousing, delivery, job-site logistics, shipping products in carts or racks to the exact locations where they’re needed. It’s also on the distributor to innovate and bring additional services to the mix to make the value equation even stronger.”
According to Clark, Mars and Viking are doing exactly what they need to do to remain competitive: “Distributors need to determine what’s important to customers and what value-added services customers are willing to pay for. The more progressive companies are continually moving the bar. They understand it won’t take other distributors too terribly long to catch up. What’s innovative today will be table stakes tomorrow.”
Regarding Amazon and similar competitors, Clark advised, “Amazon won’t stage a delivery. They won’t design hydraulic systems. They won’t deliver material to particular floors in a multistory building. Amazon is not in that business.” Electrical distributors need to innovate services that only distribution experts can provide.
Passmore agreed: “We need to look both within and outside our industry for game-changing innovation. We need flexibility to quickly adapt to the innovations, to educate ourselves and our customers about the opportunities these innovations present to address productivity and cost-management challenges, and also to respond quickly to the competitive threats that these same innovations could pose.”
Jan Niehaus, LEED GA, is an instructional designer and writer and the president and founder of Communication by Design (communicationbydesign.net). Reach her at 314-644-4135 or Jan@CommunicationByDesign.net.Tagged with acquisition, economy