Progressive Distributor - Being small has advantages

Being small has advantages

Study shows small distributors may have potential marketplace advantages over larger competitors

by Rich Vurva

Whenever large distributors go on a buying spree, it raises fears about the viability of small distribution companies. A recent survey conducted for the Industrial Supply Association may help put those fears to rest. The survey indicates small distributors have potential marketplace advantages that larger companies don’t. The key is for the smaller companies to understand how to exploit their opportunities.

The study, “The Future Impact of Size and Value Content on Industrial Distribution,” was conducted by industry consultant Bill McCleave. It was a follow-up to McCleave’s similar study for the Industrial Distribution Association in 1998. McCleave defines small distributors as having sales of less than $7.5 million a year.

One of the key findings of the survey shows that small distributors may have some potential marketplace advantages over the next five years, and can have the biggest marketplace impact by focusing their attention on supporting smaller manufacturers.

The greatest advantages that small distributors offer include product application expertise, speed, intimate knowledge of their local markets and customers, and their ability to offer customized services.

McCleave offers the following advice to small distributors: Think about what you know about your local marketplace, your customers and your own capabilities and decide how best to serve the marketplace.

“Assess what you know, be deliberate in forming your intentions for the future, and take specific actions that will allow you to get there,” he says. The biggest mistake small distributors can make is to try to be all things to all people.

Disadvantages facing small distributors include their ability to service integrated supply and national contract customers, the cost of technology, access to financial capital and access to product lines. Distributors can overcome some of the disadvantages by participating in buying and marketing groups or by purchasing products from master distributors. Both solutions provide small distributors with greater access to product lines and increased buying power.

“Smaller distributors have to leverage as much as they can off of other potential allies. Buying groups might help. Software companies can help them. Community resources like the local Chamber of Commerce might help,” McCleave says. Survey respondents did not believe buying from a master distributor gives them a competitive advantage in the marketplace, but it can help level the playing field with competitors and provide access to a broader selection of products.

While distributor size will continue to impact the future success of North American distribution companies, fewer than 5 percent of the survey respondents believe only large distributors will survive. Still, more than three-fourths believe that a distributor’s size will have either some impact or a significant impact on future survival.

McCleave says small distributors need to pay close attention to what customers require and determine if their capabilities are in sync with those needs. For example, asked how customers would rate the importance of a variety of services that distributors provide, survey respondents said the following value points were most important to customers:
       • On-time delivery
       • Service
       • Product availability
       • Quality
       • Total cost
       • Technical assistance

One way small distributors can remain viable in the future is to align themselves with smaller manufacturers, the study suggests. In the future, respondents believe smaller distributors should seek to strengthen relationships with manufacturers that have tightly focused product lines that require local technical support and value-added content in more exclusive territories.

“In some cases, larger distributors have started vendor reduction efforts to pare down the number of manufacturers they represent. That leaves some excellent lines that can’t get access to larger distributors. That creates an opportunity for the small distributor to do a lot of good,” McCleave says.

Can you compete?
Can your company consistently provide the service levels and support that customers desire? Which services are you best at performing? For which customer segments?

Those are some of the questions companies of all sizes need to ask themselves. The chart on page 18 indicates how survey respondents believe distributors of various types and size are positioned to provide the services that customers value most.

“When you’re small, you have to pick your battles and pick the action plan that you’re going to implement,” McCleave concludes. “It’s all about constrained resources. You have to decide how to allocate them and utilize them where you can get the biggest bang for your buck.”