This is a part of the 2014 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.

2014 Distribution Trends Report

This article is a part of MDM’s 2014 Distribution Trends Report. The article analyzes the trends in vending, including more thorough evaluation of vending programs and implementation of new technologies.

Despite the hype over the last couple of years, most distributors are getting smarter about what they offer through vending services, rather than blindly rushing into offering a vending service. This has caused the explosive growth of the market to cool off a bit, says Steve Deist of Indian River Consulting Group.

“I think the whole vending thing has plateaued," Deist says. "At this point, customers are relatively well educated on the benefits. In a lot of cases it’s really good fit, in a lot of cases it’s not a good fit and most of the hanging fruit has been picked. So that’s why it’s peaked.”

For those that are continuing to pursue vending, it is important to get smarter about why vending is a good solution, and what benefits it provides to the customer.

The intense customer demand that drove many distributors into the vending space may have been a response to the hype from larger companies making the offering, not actual demand, says Brent Rakers of Wunderlich Securities. “By Fastenal and others pushing the vending premise and supporting this vending premise of customers, I think more of the customers were talking themselves into this vending solution as well,” he says.

"Fastenal is driving the market and literally driving demand and creating market category," says Floyd Miller, CEO of Supply Pro, San Diego, CA. "Their strategic investments and concentrated efforts are helping make vending a part of the manufacturer's solution and helping to evolve them into today’s McDonalds of vending."

Fastenal’s pull back and reevaluation of its vending offerings has led other companies to do the same, says Matt Cohen, president of Replenex, Eden Prairie, MN. “I think the supply chain has pulled back," he says. "At least in our territory, Fastenal was driving so much of that. Fastenal has pulled back. They were going into the wrong users, there wasn’t the pull-through that really was supposed to happen; people started to realize that… the ROI wasn’t there on all applications.”

It all comes down to being smart about what type of program you implement, and knowing how it fits into your company's business model, says Chester Collier, senior vice president of global distribution for manufacturer Walter Surface Technologies in Montreal.

“Vending is not a total solution, and it can’t be a total solution,” he says. If a distributor is considering including vending machines in its inventory management programs, it has to be a part of a well-thought-out package that includes many other options, he says.

“It is going in and listening to a customer on what they need inside their operation, and then responding with a customized solution for them," says Bill Scheller, CEO of BlackHawk Industrial, Broken Arrow, OK. "… Everybody will take a free vending machine. And then they collect dust and don’t provide a solution inside the plant.”

One way that distributors are being smarter about their vending offerings is through integration with internal processes, such as supply chain and ERP systems. This kind of shift in thinking is driving a new way of looking at vending.

“There has been this evolution from vending to looking at inventory control solutions, as they are required to integrate better and more robustly into the supply chain and ERP systems," SupplyPro’s Miller says. “From a trends perspective, there is an evolution from the machine being an island and literally sitting there as an individual element in the manufacturing process to being more integrated into the systems and the strategic infrastructure of the manufacturer.”

There is a growing gap between those who are truly invest in their vending programs and those who are just running a program because it’s a hot-topic item. “It is becoming a growing point of difference, as you see more strategic and sophisticated partners separating themselves from the more one off, more tactical partners,” Miller says.

One of the ways that these more strategic vending programs are being differentiated is through the use of sensor technology to help manage the inventory in the machine.

"When the limited quantity of an item falls beneath the minimum, the distributor is alerted so it can resupply the end customer, so that the end customer doesn’t begin to look at other suppliers of that product," says Rock Rockwell, CEO of eTurns.

Beyond quicker turnarounds, these sensors can also help track product sales information, providing better data to both the distributor and the customer, Rockwell says.

The machines can do a full physical inventory two to three times a day, a service that couldn’t previously be done due to the cost of labor that this service would require, says Rockwell. This technology allows monitoring of inventory in remote locations, where it may not be as viable to have a salesperson checking the inventory in-person.