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As banks have cut back on lending to businesses - especially small business - the role of trade credit has become more important to the channel. This article explores how distributors are balancing the risk of economic uncertainty with the need to use trade credit to grow sales.

Having up to 90 percent of a company’s customers reliant on distributor financing is not uncommon in the wholesale distribution space.

“Around the world, as commercial lenders have cut back on lending money to business, we’ve seen companies step forward to make up that gap,” says Abe WalkingBear Sanchez, founder and president of A/R Management Group, a consulting firm focused on cash flow management and credit sales.

In some sectors, such as those that serve construction end-markets, distributors have seen an even greater need these services from their customers.

This article looks at buying and marketing groups’ value propositions and how they have evolved to draw and retain new members. The second part of this article will appear in the Aug. 25, 2010, issue of MDM and will focus on challenges buying and marketing groups face in today’s markets.

Dozens of organizations in the distribution industry exist with the sole goal of leveling the playing field for independent distributors. At their core, these organizations want to leverage volume through pooling distributor member purchases with a group of preferred vendors.

These buying and marketing groups continue to grow revenues to compete with the purchasing power of large national distributors. For example, NetPlus Alliance, founded in 2002, has 388 distributor members with $5.2 billion in combined annual sales. Affiliated Distributors has 530 distributor members, with a combined $27 billion in sales across six product categories. IMARK Group in the electrical sector has more than $15 billion in combined sales.

“The groups keep the independents independent,” says Susan Vinson, president of Consolidated Distributors Inc., a buying group for distributors of foodservice disposables with combined sales of $2.5 billion. “We have a lot of large chains operating in our industry. For the independents in our group to have the same advantage, they need a group affiliation.”

Many in the industry say that if these groups want their model to be sustainable, they must continue to add value that goes beyond just pricing and rebates. Adding value to the entire channel – manufacturer, distributor and end-user – is the key.

The latest recession has introduced a new buzzword: the “new normal.” In this uncertain environment, how distributors have traditionally done business has been challenged, including the sales process.

“The key thing here is that the old distribution sales model broke back in the 90s,” says Mike Marks, managing partner at Indian River Consulting Group. “Asset and economic bubbles just hid it until now.”

Marks, along with partners Steve Deist and Mike Emerson, provided suggestions for improving your sales team in a recent MDM Webcast, “Understanding Territory Coverage Economics,” part one of a three-part series available at www.mdm.com/effective-sales-webcast. This article is an exclusive summary for subscribers.

How does a distributor adapt to the new reality? A good starting point, according to Marks, is by looking more closely at your current sales structure.

This is an exclusive summary of Part 2 of the recent MDM Webcasts strategic pricing series, "How to Implement Strategic Pricing with Your Sales Team."

The theory behind strategic pricing is simple – streamlining the pricing process to identify and eliminate outliers. But implementation can be difficult, especially if you neglect to include your sales team in the conversation, according to Brent Grover, managing partner at Evergreen Consulting.

"You really cannot have an adult conversation about pricing if you're not going to talk about the salespeople," Grover said in the recent MDM Webcast, "How to Implement Strategic Pricing with Your Sales Team," part of a two-part series available at mdm.com. …

These select product groups provide a snapshot of inflation trends based on the Producer Price Index from the U.S. Bureau of Labor Statistics. Second quarter 2010 is compared with second quarter 2009, and first quarter 2010 with second quarter 2010. To access, premium subscribers should ensure they are logged-in to download the pdf below.

The product groups in this report:
Abrasives
Adhesives & Sealants
Cutting Tools & Accessories
Hand & Edge Tools
Fasteners
Power-Driven Hand Tools
Ball & Roller Bearings
Mechanical Power Transmission Equipment
Valves, Except Fluid Power
Pumps, Compressors & Equipment
Electrical Machinery/Equipment
Industrial Material Handling Equipment
Industrial Gases
Welding Machinery/Equipment
Fluid Power Equipment
Plumbing Fixtures & Fittings
Hardware
Sanitary Paper Products
Plastic Resins & Materials
Specialty Cleaning, Polish & Sanitary Products
Industrial Safety Equipment
Softwood Lumber
Metal-Forming Machine Tools
Metal-Cutting Machine Tools
Hardboard, Particleboard, Fiberboard Products
Hardwood Lumber
General Millwork
Plywood
Construction Products from Plastics
Gypsum Products
Air Conditioning & Refrigeration Equipment
Tools, Dies, Jigs, Fixtures, Industrial Molds
Fluid Power Valves

A pdf of these graphs is linked below for premium subscribers. If you do not see the link to Download pdf, log-in to mdm.com first.

Brent Grover, managing partner for Evergreen Consulting, discussed how to optimize strategic pricing processes in a two-part MDM Webcast. Part 1 addressed how your ERP system can help with the process. This is an exclusive summary of that webcast for premium subscribers. A summary of part 2, focused on providing the best training for your sales team, will appear in the July 25 issue of Modern Distribution Management.

This article provides a series of short case studies MDM gleaned from its interviews with dozens of distributors for its recent 2010 MDM Market Leaders and Distribution Landscape Report. Topics covered in this article: Tapping leaders for growth market development; creating a formal process for stimulus opportunities; developing a lean initiative to better manage and understand costs; and partnering with other distributors to take advantage of new opportunities.

MDM interviewed dozens of distributors for its recent 2010 MDM Market Leaders and Distribution Landscape Report, which is being published throughout the summer in the pages of MDM and online at mdm.com.

As part of this research, we heard many stories about how distributors …

According to the MDM/Industrial Market Information MRO Market Analysis, the U.S. market size in 2009 for the 126 MRO industrial product groups is $xxx billion. (Some prior-year data available at www.mdm.com/databank are not directly comparable due to slight variations in product groups included, as well as recent updates to the U.S. government database.)

Estimates are based on data compiled by Industrial Market Information, Minneapolis, MN, and analyzed by MDM. Definitions for the 126 individual product categories used to estimate the market size are including the pdf that may be downloaded …

While the unemployment rate continues to hover at just under 10 percent, the fear that this recovery may be jobless appears to be subsiding a little. With the exception of April when it edged up slightly, the U.S. unemployment rate has held steady at 9.7 percent according to the U.S. Department of Labor Statistics.

While much of the positive news is related to temporary workers hired for …

Distributors need to consider new approaches to doing business and differentiating themselves in what's been referred to as the "new normal." As Publisher Tom Gale wrote in a recent issue of MDM, market-leading distributors are rethinking their models for 2010 and beyond. They are focused on building a leaner, productive operation, built on the strengths and the values that made them successful in the first place.

"If you want to get back to 2007 revenues, you have to identify where that business will be because the drivers of 2007 will …

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 In part 1, MDM's editors look at growing demand after a rough 2009, inventory challenges and labor trends. This report is based on interviews with dozens of distributors in different sectors. Part 2 along with the 2010 MDM Market Leaders lists of top distributors will appear in the June 10 issue of MDM.

A theme has emerged in our conversations with distributors over the past few months in preparation for the 2010 Distribution Landscape Report: For most, January through March sales picked up dramatically, and that sales trend seemed to be continuing into April and May.

While those increases were dramatic relative only to the steep declines in the first half of 2009, and sales levels for most are not even close to the peak levels of a few years ago, distributors' …

HD Supply, Atlanta, GA, will appear on four of the five major sector lists that MDM will publish in its MDM Market Leaders report online June 1. Though still a leader in many of its markets, HD Supply recorded steep losses in the past year. HD Supply CEO Joe DeAngelo and Executive President John Stegeman recently spoke with MDM about the plans to reposition and prime HD Supply for growth in 2010 and 2011. Stegeman, former CEO of Ferguson Enterprises, is a new addition to the HD Supply team.

MDM: How is the year going so far for HD Supply?

Joe DeAngelo: I think it's going really well. All our businesses are delivering on their commitments, and that's really the result of our associates' continued dedication and passion for serving our customers. And I think we've made some awesome additions to our team, with John (Stegeman) coming on board as executive president, Joe Izganics as the senior vice president, and Ronald Domanico as our CFO.

It allows us to continue to focus all of our associates on growing profitably faster in our markets, saving as we grow, and …