MDM recently conducted its annual Reader Survey. On that survey, MDM asked questions about top business concerns for 2011 and what distributors, manufacturers and others have done to adapt to changing business conditions over the past two years. This article is a synopsis of those responses and provides insight into the mindset of the distribution industry as we move into the new year.
In the 2010 MDM Reader Survey, not surprisingly, the economic recovery and uncertainty that has accompanied it was one of the top three business concerns for many respondents.
Some readers are concerned the economy will decline again, while others are just not sure what’s coming next for their markets – despite mostly positive economic indicators.
Outside of the economy, the following issues or concerns floated to the top:
- Pricing and margin pressure
- Inventory and A/R management
- Retaining and attracting good employees
- Uncertainty over government policies, including health care
- Competition from national distributors and due to consolidation
- Currency swings
Asset Management & Profitability
A key focus for many survey respondents for 2011 was asset management. Building inventory back up after a couple of years of lean inventory management has been a focus to ensure they can meet growing demand.
One reader wrote: “We had to adjust our inventory, but we didn’t ‘panic’ and have been ready to handle all the growth we have experienced in 2010.”
More recently, vendor lead times have been a concern for about half of the respondents to the survey.
MDM posed the question about top business concerns on its LinkedIn Group forum. A group member wrote that suppliers in some sectors are keeping inventory at “very low levels” and that back orders have been common.
Cash flow continues to be top of mind, in part due to slower-paying customers; profitable sales are also a concern. Many are focused on maintaining current business levels, which has been difficult over the past couple of years.
As a result, price wars have erupted in many markets, putting downward pressure on margins and moving pricing front of mind for many distributors looking to be more strategic about their approach to getting paid for the value they provide.
Pricing was noted by many respondents as a very important issue over the next 12 months. Many distributors continue to face margin pressure, and competition for new business continues to be steep.
MDM’s question on its LinkedIn Group forum sparked a conversation about margin pressures. One participant wrote that many distributors in the market are lowering margin to increase volume, in an effort to survive.
And while “smart distributors” are staying focused on customer service and improving their businesses, lowering margins hurts the entire market, he said. One respondent said that even customers with whom they have strong relationships are looking around for better prices.
Commodity price fluctuations in some sectors are making this issue more pressing for some, forcing them to fight rising COGS and falling prices. This has made defining and documenting customer value even more important for many readers.
Another critical issue for many readers was the retention and recruitment of good employees. If and when to hire again was one question.
A second: redesigning compensation and incentive plans to keep valuable employees in place.
Also, distributors and suppliers are facing a growing number of employees who are near retiring, and they recognize the need to recruit younger and “eager” employees, making effective training another concern for the new year.
How Have Readers Adapted?
In the second business conditions question asked on the survey What changes have you had to make in your firm to be successful in the economic environment of the past two years? many named aggressive pricing and better cost management, as well as, “tightening the budget until it cannot breathe.” Reduction of bank debt was also noted.
But outside of cost cuts, approaches included becoming more aggressive on the sales and marketing front by using market information to identify growth market opportunities and staying closer to key customers.
“We have had to be more focused than ever before at driving our brand at the end-user,” wrote one reader.
Another wrote: “We’ve had to become more entrepreneurial, and we’ve had to look beyond our traditional markets and methods.”
One reader established an inside sales team. Others increased their focus on application-based selling and broadened their service offerings.
New product offerings have also been in the mix. One reader said he has focused on products that “immediately save customers money,” and has expanded rental offerings.
Readers are increasing their focus on margins in the selling process, as well as revising their compensation programs to “place more emphasis on growth and goal attainment.”
Technology investments have been important to many readers in the past two years, not only in new systems, but in making sure they use all of their current systems. Many have also increased their investment in online capabilities.
One reader is “using technology to improve customer profitability using data analytics and instituting a strategic pricing model.”
In contrast to the above more forward-looking actions, last year’s MDM Reader Survey seemed to highlight more defensive action. Some of the more common comments last year included cutting wages, reducing budgets, furloughs, inventory reductions and hiring freezes.
But this year readers seemed more proactive.
While we are certainly not out of the woods yet, this shift in mindset bodes well for smart distributors looking to gain an edge in a highly competitive environment.