This is a part of the 2013 Distribution Trends Report. The annual report was researched and written by MDM editors based on interviews with dozens of wholesaler-distributors, as well as industry experts and manufacturers. MDM also conducted a survey of its readers to uncover the trends outlined in this report.

2013 Distribution Trends Report

The Fastenal Company’s rapidly expanding FAST Solutions industrial vending program has surprised some with its aggressive approach. The distributor aims to sign 30,000 machines in 2013, or 2,500 a month. According to the distributor’s first-quarter earnings report, the company is on pace to hit that goal.

Fastenal is far outpacing its national competitors with its industrial vending program, but others, including MSC Industrial Supply and Grainger, have also integrated vending into their inventory management programs. Vending allows distributors who do it well to embed themselves at customer locations, growing loyalty and sales with existing customers.

Fastenal’s aggressive push has affected distributors in the U.S. and Canada even if they don’t compete directly. It has changed customer expectations and sparked requests for vending and other VMI services. “Anytime a competitor of that size does anything, it certainly affects your business,” says Mark Levac, president of industrial distributor Levac Supply Ltd., Brockville, ON.

With Fastenal increasing the rate of vending machine placement and other national distributors following, albeit at a slower pace, how will smaller independent distributors compete?

The response is mixed as to whether vending is a viable, long-term solution. But distributors who are going after vending, either reluctantly due to customer requests or enthusiastically with their own customized solutions, agree that care must be taken to ensure the offering is profitable. As a result, they are getting smarter about vending.

Fastenal has acknowledged challenges with profitability in its vending programs. The distributor plans to fine-tune the products available in the machines and centralize order-picking for vending. 

“If you don’t have a reputation for near-perfect service, you are reduced to selling your services based on price,” says Jon Schreibfeder of Effective Inventory Management Inc. If done right, the cost to the customer of any VMI solution, including vending, is not as important, he says. “It’s my experience that once you establish a VMI relationship with a customer, if you perform well you will have that customer forever.”

Levac, whose company has a long history in vendor managed inventory for its customers, says that in the case of VMI and specifically vending, customer expectations need to be met for providers of those solutions to be successful and profitable. “The value of VMI still rests with the people who are managing it for you. In many cases a simple cabinet with product in it is as effective as a vending machine for a customer. It’s really about what a customer needs,” he says.

Customers are also getting smarter about vending. Industrial distributor SB Simpson, Burlington, ON, expects to place more machines this year than last year. But customers are not as eager as they once were. “They’re learning more about the true purpose of vending machines and not expecting them to be the solution to all their problems,” says Scott Simpson, president.

Sal Longo, CEO of safety distributor Northern Safety & Industrial, Utica, NY, says vending will continue to be a part of the industry, but “it’s not one-size-fits-all or the solution that it was kind of being made out to be a year ago.”

And some sectors don’t lend themselves well to vending. In fasteners, for example, vending isn’t a good fit, according to several in the sector, but bin stocking and other VMI services are gaining in popularity.

Challenges remain. Many distributors say they’ve heard of plenty of failed vending initiatives. Because vending can be a big investment, if product price is low, it can be a challenge to make it a profitable venture. And many customers want the machines for free.

But some smaller distributors are finding ways to more effectively and efficiently serve customer demands for vending. Safety and industrial supplies distributor Mallory Safety & Supply, Longview, WA, developed a solution called SnapVend in partnership with VendNovation.

Tim Loy, president, says the machines offer distributors a low-cost alternative to Fastenal’s vending program. They are already being used at some of Mallory’s customers, as well as by a few other distributors. The machine is lower-cost because the operating system runs in the cloud, reducing maintenance. “If the customer doesn’t have to put much skin in the game, and you make it easy on them with a free machine, I think it does allow customers to shift business,” Loy says.

While Brent Grover of Evergreen Consulting says Fastenal is far ahead in the industry when it comes to vending, “their competitive advantage won’t last forever.” Distributors who are interested in trying out vending services but don’t want the capital outlay should test it with critical customers, especially those that may be more vulnerable to competitors’ vending programs, Grover says. See if there is a way to expand the sale of your products with those customers, and “don’t give it away,” he says. He says if the service brings value, the customers should be willing to share the cost.