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 how distributors are approaching their product mix, including more strategic analysis of how well a potential product would fit within the company’s strategy.
As customers look to get more products from fewer distributors, the challenge of finding the perfect balance between product and inventory is becoming more challenging. “It’s a chicken or the egg thing. They need to expand the products they offer, but they also need to be leaner on the inventory side,” says Roger Woodward, president of Alliance Distribution Partners LLC, a master distributor in Gallatin, TN.
The result is that many distributors are taking a more strategic and balanced approach to making sure that where they expand makes sense for their companies.
“I’ve never found it productive to just jump into something new because it’s something new, that’s unrelated to what we already do. I think that diminishes the impact of our efforts, I think it distracts people from what they are good at,” says Phil Derrow, president and CEO of Ohio Transmission Corp., Columbus, OH. “While we are always looking to expand our reach with customers and add value to them in different ways, if we were selling soap, we wouldn’t be likely to suddenly start selling bearings. And vice versa. They’re not related.”
The perception that expanding a line card to include jan-san or safety products is easy often comes from focusing only on commoditized items, such as toilet paper or office products. While those may make sense for any distributor to include – “They have to buy their office products somewhere and they might as well put it on the same PO as their hammer and their respirator,” says Jessica Yurgaitis, vice president of sales and marketing for Industrial Supply Company, Salt Lake City, UT. Many of the higher-end products aren’t a fit for that type of commoditization, says David Gordon of Channel Marketing Group.
Some items require specialized knowledge or training, he says. For safety items, it’s not just about a product; people’s lives could be on the line.
And just because a distributor can carry something doesn’t mean they should, says Steve Deist of Indian River Consulting Group. If companies approach product expansion from a “Hey, let’s find more stuff to sell” approach, “you’re typically not going to be very successful,” he says. “If you approach from the customer angle and say, ‘What are some things that the customer would love us to be able to offer, one stop shopping or all-in-one package or all together?’” That’s where companies can succeed.
For one, commoditized products are often more susceptible to price wars, says Ted Stark, president of Dalco Enterprises, a distributor of facilities maintenance solutions based in New Brighton, MN. If everybody has the exact same thing, customers are logically going to go where they can get the best price, he says.
Secondly, because many of the other products, such as safety gear or automation products, require specialized knowledge, distributors have to recognize that they will have to invest in training to be truly effective in those markets. It’s not just about providing the product.
“Safety’s now about 30 percent of our overall business and growing," Yurgaitis says. “It’s a place where we can be a real value to our customers and help them with OSHA requirements standards, so there’s a human element in why safety is growing for us.”
Product line expansion will continue as more distributors keep looking for ways to get more of the customer’s spend, but taking the time to really evaluate how the expansion will proceed will be the key to success, Deist says.