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We’ve written before how most distributors believe they deliver more value than their competitors for a comparable price, and how most distributors’ messaging is centered on the same features.
In the latest episode of MDM’s Executive Briefing, Deloitte’s Sanjay Agarwal addresses the challenges distributors have in differentiating in a busy market. He says that distributors need to be more strategic about driving value.
His firm recently completed a study, Driving Enterprise Value in Wholesale Distribution.
The firm studied gross margin, inventory turns and return on operating capital for about 25 to 30 distribution companies where financial information was public. He spoke about the results with Associate Editor Jenel Stelton-Holtmeier.
Agarwal says the research uncovered some surprises. He says that the difference in performance across companies was larger than expected, some of which could be attributed to different lines of trade. But, he says, “within the cluster there was significant dispersion driven by strategic choices companies make based on their operating model.”
The group also found that the gap between top performers and those at the bottom of the pack was widening. For example, the top three performers in one category increased gross margin 400 basis points over the past decade, while the average increase in gross margin by the remaining distributors was just over 100 basis points.
“What we find is that people who have prioritized revenue quality over pure operational excellence have delivered breakthrough value,” Agarwal says. He says distributors need to focus on what drives increases in gross margin: product mix, the right geographies, value-added services and providing a better customer experience, using technology to do so.
The latest episode of Executive Briefing also features 7 Minutes With … John Wiborg, CEO and president of Stellar Industrial Supply.