Is Building Materials Distribution Alive and Well--Or Ailing?

Adam Fein, the President of Pembroke Consulting, recently said, "distribution as a whole is still a stable and pretty substantial part of the U.S. economy." To that I ask, "Then why was I and 124 other former colleagues at a wholesale distributor displaced when our major vendor set up their own distribution?" (I have no grief over the fact that this happened--as it was a natural evolution of our supplier's progress. But nevertheless, could we have avoided it?)

The answer to the question of what contributed to this happening is that the tipping point was reached. My company was unable to offer a SIGNIFICANTLY greater amount of value faster and more completely than the manufacturer was able to do on their own. As they developed their own capabilities, it became too attractive for them to expand and better utilize their growing distribution function. Things reached the tipping point. And we were gone.

So it's a precarious statement to say that distribution is alive and well. It is if it evolves and constantly adds value that far surpasses that which key vendors would be able to do themselves. In fact, distribution needs to provide service at such a high level, and with low cost--that vendors and customers alike could not IMAGINE using the product unless that particular distributor was the company providing it.

For the majority of distribution functions, such as inside customer support, field sales, light assembly and manufacturing, delivery, credit, etc. --the manufacturer in many instances is quite capable of performing those very same functions. And while there is a cost associated with whomever provides the services--many manufactures enjoy exerting their own control over the entire supply chain and selling function--to ensure the customer experience is pure delight. It may or may not be more profitable, but it allows them to exert control.

So to prevent reaching this tipping point, if I were to run a wholesale distributor organization, I would ensure I had these strategies in place:

1. A value proposition for the end-user that is built a) on the customers' greatest needs that (they will pay for), and b) those that my vendors and I agree are best-of-class and give us a sustainable advantage to obtain, protect, and grow market share.

2. Strategies to move either up or down the supply chain. For example, to move up the supply chain, I would manufacture and/or source materials for myself to limit my reliance on my suppliers. Or to move down the supply chain--I would develop services that are performed at lower levels in the channel (closer to the end user). This last step can be considered as encroaching or competing with services that my customers or down line providers do themselves for the ultimate end user. However, which would I prefer? To have more involvement in the supply chain and have a sustainable function and reason for existence, or less involvement and play a smaller and smaller role in the supply chain with each coming year? (This is one sure way to make yourself obsolete)

3. A “source and process” mentality, as opposed to a “product” mentality. We’re not in the product business. We’re in the solutions business, and we do it with being a complete source for our customers with processes that ensure mutual success.

Taking orders, warehousing products, and making deliveries is NOT the game we’re playing. Ask yourself, “Could my major supplier perform the functions on their own that I do as their distributor?” If the answer is yes, your leadership had better go away for a long offsite meeting and reinvent your company—before you get “tipped over.”