Challenges Facing the Industrial Distributor Today

By John Sonnhalter, Rainmaker Journeyman, Sonnhalter

Every year, Industrial Distribution magazine puts out their annual survey of distributor operations. Here are some highlights from the 69th version and my opinion as to where they should be spending their time and effort.

While the economy is their biggest concern, it’s one they have little control over. Truth be known, I don’t believe the industrial segment of the market ever got back to levels pre-2008. Sales and margins are down (show me a business that doesn’t have similar issues) and that’s a natural reaction when sales drop, you try to protect existing business and the easiest way of doing that is lowering prices. Distributors can sometimes be their own worst enemies. Sell value not price.
Here’s my view of what these distributors should be concerning themselves with:
  • Specialize – if you’re a general line distributor, I wish you luck as you won’t be in business too much longer. If the only thing you have to sell is price and availability, the big guys are going to eat you alive. The cutting tool, power transmission and other specialized distributors who add value to the sale will and can be more competitive. If you have a  cutting tool problem on a CNC machine, Grainger or Amazon aren’t going to be sending anyone out to help you solve the problem.
  • Promote value-added relationship selling – they are the local guys and should be selling themselves as the guys who have your back (assuming you have value to add). If not, look for a buyer.
  • E-Commerce – Get in or you won’t be long for the world. We live in front of a computer screen and the “I want it now” mentality that we find on the consumer side has trickled over to ours. Let’s face it, some people would like to place orders after hours and they would like to know if you have it available and can have it delivered the next day.
  • Buying groups – If you’re not in one, get in one. They are the easiest way for you to stay price competitive, and many offer other services in the day-to-day operations.
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What’s the Future of the Independent Distributor?

By John Sonnhalter, Rainmaker Journeyman, Sonnhalter

I’ve addressed this issue in the past, and as time goes on, but I’m afraid the independent distributor may be following the way of the corner hardware store. Distributors need to step it up a notch!

Long before Grainger, Fastenal, Home Depot and the thing they call the Internet, the local industrial distributor was the backbone to local manufacturers and businesses. My, how things have changed over the past several decades.

I believe the small guy still has a chance to compete on a local level, but they need to change the way they do things. They need to know what their value proposition is, and most importantly, know their customers and what they want.

Source: Industrial Distribution magazine

Source: Industrial Distribution magazine

If they can’t add value, then what’s the point? At the 2015 ISA Convention in Cleveland, one of the breakout sessions, “Looking Ahead at Distribution: The Future Impact of Size and Value Content 2015,revealed some interesting issues. Mike Hockett, Associate Editor of Industrial Distribution magazine, did a good job summarizing both the results of the study, as well as the subsequent panel discussion.

Here are some highlights:

  • Service sales represented only 5% of their total sales.
  • Buying groups represented the best support.
  • Manufacturers relied on small local distributors for customer loyalty and technical expertise.

It’s no surprise that cutting tools and abrasives remain the top two product categories that industrial distributors sell. Both require technical knowledge to support and troubleshoot problems. The question is, are the distributors going to charge for this expertise and are their customers going to be willing to pay for it?

So what do smaller industrial distributors need to do to stay in the game? Here are some thoughts:

  • Embrace Technology – get an online sell site, integrated supply services and electronic billing for customers to order easily.
  • Value Proposition – need to define so they can focus on the things that matter most and where they make their money.
  • Buying Groups – need to get in one or more so you can stay competitive and make more money.
  • Technical/Engineering Expertise – set yourself apart from the pack.

What others can you add to the list?

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