Bill Wade


Distribution Matters (13) December, 2009 Industrial Distribution

Even After the Last Ten Years ... Lots of Distribution Opportunities

By Bill Wade

Dow JonesBusiness cycles are funny things. Defining elements just appear, but are usually recognizable only after the fact, when patterns can be ascertained and analyzed. A real pattern in the distribution business for the first decade of this century seems elusive. Consider that since 2000:

  • The Dow Jones Average skyrocketed from 11,500 to 10,500 with a brief stop at 6,500, a chance to loose 40% or make 60% in the same market.
  • Oil sold between $20 and $140 per barrel. Gold went from $255 to $1220.
  • In 2000, we sold 16.4 million vehicles and GM was king of the car world. In 2009, its closer to 10 million and bankrupt GM isn’t even in the DJ Thirty.
  • Less than ten years ago, we were still dealing with Y2K, hanging chads and the unprecedented bust. Tiger Woods was newsworthy for his nine tour victories.
  • Over the decade, real US GDP rose by about a third, while distribution grew at a rate only one third of that.

Oh yeah, a banking crisis suddenly destroyed 40% of the world’s wealth.

Of course, the events of 9/11/01 constitute the ultimate "black swan" event, but one which our country and economy were able to survive.

In distribution, trends thought at one time or another to be certain and game changing mostly came and went without much long term disruption. These included:

  • Consolidation: Funded by the blossoming stock market or by the new private equity players, left a mark but involved fewer than 1% of firms.
  • Internet based disintermediation: e-commerce hubs would control everything from pet food to nuclear fuel rods. But wait. The January 1, 2005 lead editorial in Industrial Distribution advised that “the Internet is no longer a threat!”
  • Buying Groups would devalue supplier/distributor relations and create an econometric nightmarish, reverse auction world with perfectly efficient pricing.
  • Chinese goods (counterfeit or not) would cause a price structure collapse.

In short, distribution has weathered these Cat 4 commercial and general economic storms with little permanent damage. However, I am very concerned that distribution continues to slip as a percent of GDP, and that the growth rate is only a fraction a of the growth of the economy as a whole.

I feel that distributors looking ahead must recognize a strategic trap. This is the apparent inability of other logistics ideas to replace the current branch format. All business is local, and it looks like the familiarity of the branch presence still trumps online solutions.

Data reveal, however, a rapid increase in consumer confidence that Fedex or UPS can replace the local store. The same can happen in parts distribution. Online sales already represent nearly a quarter of Grainger’s revenues.

This then is the very best time to create active strategy that includes new directions. At a moment of inflection like this, old sources of competitive advantage weaken and new sources appear.

This is a perfect opportunity for scale to recede in importance. The swift and agile can leap ahead of seemingly entrenched players, obviously a point that should be ignored by neither.

During this time, industry is emerging as a higher tech tangle of constantly morphing end users, product sources and regulations. Consider as you draw up a battle plan:

  • Product life cycles are the briefest in history, while the shortage of trained personal ... both in the shop and at the counter ... has hit extremely troubling levels.
  • Technology has gone on a tear, forming the basis for the fastest evolutionary phase since distribution really got organized in the ‘50s.
  • Independent parts and service organizations will migrate into two distinct channels: ESystem/Service Specialists and Legacy Parts (and service) Centers.
  • Federal licensing/certification will soon become mandatory for technicians servicing emission, energy or safety related systems, training for which will come from for-profit tech schools and community colleges.
  • Training on legacy, low tech maintenance will be provided through a guild-like, service industry supplier-supported distance learning model.
  • Combinations of parts and component suppliers will operate complex common supply chains that allow "virtual logistics consolidation" for smaller (and foreign) suppliers and force traditional distributors to look downstream for margin improvement.

Agree? Disagree? The distribution concepts outlined above are neither necessarily good nor bad for anyone reading this, unless you simply dismiss these possibilities as futurist hogwash.

These may not happen exactly as described, but they will happen.
Business cycles are funny things, easily recognized in the rearview mirror. The real trick is to see them coming.

What's happening in the trucking industry?

Check out Steve Sturgess' Blog

Test Your Skill

A game for everyone who thinks it's easy to drive a semi.

Invisible Words

How to waste thousands of advertising dollars.

Service Weapon White Paper

Service as a competitive weapon for heavy vehicles.

The White Paper White Paper

How to write a marketing white paper.