McGladrey/NAW Institute for Distribution Excellence Monitor Shows Cautious Optimism among Middle-Market Distributors
CHICAGO, IL – Middle-market distributors are growing, but that growth – and the optimism that accompanies it – is tempered by a number of influences including faltering economies in Europe and elsewhere, rising commodity prices, competition from low-cost-country vendors, the continued housing crisis, health care law and uncertainties over which administration will lead the country following the November election. These are the findings from a newly released Monitor Distribution Report, sponsored by McGladrey LLP, the nation’s fifth largest provider of assurance, tax and consulting services, and the NAW Institute for Distribution Excellence.
“Despite their concerns, distributors are generally optimistic about their own business prospects in the next 12 months, with 95 percent reporting that their organizations are thriving or holding steady,” said Karen Kurek, manufacturing and distribution lead for McGladrey. “Distributor sales generally are growing (81 percent increased sales over the past 12 months), although they are expected to grow at a much slower rate in the coming year.”
Most distributors expect costs in many categories to increase in the next 12 months, particularly in areas such as transportation and fuel costs, equipment and machinery, and energy and fuel. Some expect transportation and fuel costs to increase by more than 10 percent. To combat those rising costs, distributors are implementing a number of tactics to maintain profitability, including lowering their costs through operational efficiencies (81 percent) and improving processes within their supply chains. Many distributors (approximately 90 percent) also plan to increase prices in the coming months – an average of 5.1 percent for goods and 3.8 percent for services.
Other key findings include:
- Employment – A majority of organizations are planning to increase U.S. employment in the next 12 months, and a majority of those with international employees will also increase their ranks overseas. Finding new hires though, could pose issues for some distributors. Approximately one-third report that they find the skilled talent they require only some of the time or rarely. Many are launching their own training and development programs to address skills gaps. Nearly half will focus on adding personnel to customer service/support functions. With a growing workforce, of course, comes an expected rise in costs for wages, benefits and other variable compensation.
- Process Improvements – Distributors will increase investments in process improvements this year compared to last. Thriving organizations are more likely to increase these investments than firms that are holding steady or declining. Thriving firms also are more likely to have increased productivity in the past year. The primary objectives cited for improvement initiatives are to reduce costs as well as to improve quality, customer satisfaction and speed.
- Customer Satisfaction – Customer satisfaction is a primary objective of process improvement, with 83 percent of respondents ranking it at the top of the list. Cost reduction, quality improvement, enhanced speed/timeliness, and other objectives were mentioned, as well. Customer service will be an area of focus for improvement initiatives over the next 12 months, as distribution is a customer-focused industry, and distributors are looking to improve activities that affect those functions.
- Inventories – Inventories will increase at nearly one-half of distributors, with seven percent expecting inventories to be increased by more than 10 percent. Yet despite these cost pressures and more inventory, the overall health of the industry is reflected in plans by most distributors to increase capital equipment spending in the next 12 months. That is being influenced by low costs of capital and respectable bottom lines at many companies.
- Information Technology – IT is critical as distributors grow their organizations and broaden their supply chains. Two-thirds of distributors report at least moderate use of business analytics companywide and/or among senior leadership. Business analytics is most likely to be used to forecast customer demand and identify market opportunities. More than half of distributors use social media, and slightly less than half use cloud computing. And while these and other IT applications can pose new security concerns, surprisingly few distributors believe their information or data is at risk.
- Value-Added Services – Virtually all distributors now offer value-added services to customers, but the industry as a whole is still focused on products for driving revenues – almost half of distributors report that new products/product lines are extremely important or important to company growth. Distributors that rate new products/product lines as extremely important will spend much more annually on research and development, although the average is only 2.4 percent of annual sales.
In addition to the key findings outlined above, results from the 2012 Monitor provide a wealth of key data on middle market distributors, including predictions on sales increases for the coming year, projected increases for transportation, energy, raw materials, and other costs, and additional data on hiring plans for the next 12 months. Detailed breakdowns of industry segments, including automotive; food and beverage; chemicals, oil and plastics; industrial machinery, biotech and medical; metal fabrication; and more are incorporated. View Monitor distribution results.
The Monitor surveys industry leaders of distribution organizations to assess the current state of the industry and to determine what steps CEOs, CFOs and other executives are taking to grow their businesses and stay competitive. All data is collected online in response to invitations from McGladrey and the NAW Institute and from partnering associations and chambers of commerce across the United States.
The 2012 McGladrey /NAW Institute Distribution Monitor was conducted using an online questionnaire promoted by McGladrey LLP and the NAW to principally U.S.-based distribution organizations. There were 370 total valid respondents to the Monitor. Responses were submitted in May and June 2012. The MPI Group, an independent research firm, received and analyzed the data. All respondent answers to the Monitor are confidential. As an incentive to complete the Monitor, participants receive a customized benchmark report.
About the NAW Institute for Distribution Excellence
The NAW Institute for Distribution Excellence is the research arm of the National Association of Wholesaler-Distributors (NAW), Washington, D.C. NAW is composed of direct member companies and a federation of international, national, regional, state and local associations and their member companies, which collectively total more than 40,000 firms. The NAW Institute for Distribution Excellence sponsors and disseminates research into strategic management issues affecting the wholesale distribution industry. The NAW Institute aims to help merchant wholesaler-distributors remain the most effective and efficient channel in distribution.
The NAW Institute for Distribution Excellence and McGladrey entered into a formal alliance in 2011. The Distribution Monitor report constitutes the initial output from that partnership
McGladrey LLP is the fifth largest U.S. provider of assurance, tax and consulting services, with more than 6,500 professionals and associates in 75 offices nationwide. McGladrey is a licensed CPA firm, and is a member of RSM International, the sixth largest global network of independent accounting, tax and consulting firms. For more information join our Facebook fan page at McGladrey News, follow us on Twitter @McGladrey and/or connect with us on LinkedIn.