The Outlook for Wholesale Distribution in 2018...The Outlook for Wholesale Distribution in 2018 A survey of key business objectives and challenges facing wholesale distribution companies

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The Outlook for Wholesale Distribution in 2018A survey of key business objectives and challenges facing wholesale distribution companies

Distributors are bullish on 2018 – the most optimistic they’ve been in recent years and for good reason. The industry finished last year on a strong note, with nearly 5 percent revenue growth in the fourth quarter following a steady rise throughout 2017.

The expectation is for a similar trajectory in 2018, according to the distributors who responded to this year’s industry outlook survey from NetSuite in partnership with Modern Distribution Management.

In this year’s survey, 47.1 percent expect sales growth of 5 percent to 10 percent (up from 41.3 percent a year ago), while 16.6 percent expect growth of up to 5 percent (down from 28.9 percent in 2017) and 28.4 percent expect growth of more than 10 percent (up from 19.3 percent in 2017).

For a second year in a row, most sectors are projecting strong growth or at least moderate growth.

However, companies have business- and industry-specific concerns ranging from uncertainty over how long the upbeat economy will last to whether or not new legislation will help to when customers will start migrating sales over to Amazon.

Talent remains a top concern for most distributors, but how much companies have improved on their recruiting and retaining efforts from this time in 2017 remains to be seen. With each passing year, more baby boomer employees retire – especially in the sales departments – heightening the need for companies to get their HR act together.

Digitization is another key issue, as companies struggle to improve their technological capabilities not only within the organization but also up and down the supply chain as both suppliers and customers get savvier and more expectant of their distributor to keep pace.

For an industry that doesn’t change at a rapid pace, many of the same trends hold true in 2018 as they did last year or even five years ago. Distributors are looking to build revenue and cut costs, but they’ll do it in much the same fashion that they always have. They want to become digital distributors, but they’re slow to act.

A strong economy might bode well for revenues in 2018, but the distributors who take aggressive steps to meet customer demands, engage the next generation of workers and adopt new technologies will be the ones that surge ahead of their competitors.

Executive Summary

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The 2018 Distribution Industry Outlook | Sponsored by NetSuite

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The results presented in this whitepaper are the result of an online survey of readers from Modern Distribution Management (www.mdm.com) and NetSuite in December 2017. Modern Distribution Management is the premier source of research on the wholesale distribution industry and offers news, blogs and premium newsletters to executives in either wholesale distribution businesses or companies that sell through or to wholesale distribution businesses.

A record number of respondents (350) in wholesale distribution and manufacturing responded to the survey. More than 90 percent identified as a manager or above in their companies, with 53.6 percent being the owner or the executive of their companies.

Size distribution of respondents was diverse with 7.5 percent of respondents with less than $2 million in annual revenues; 16.1 percent with $2 million to $10 million; 30.2 percent with $10 million to $50 million; 14.7 percent with $50 million to $100 million; 17.8 percent with $100 million to $500 million; and 13.8 percent with more than $500 million in annual revenues.

By employee count, 36 percent had 0-49 employees; 16.1 percent had 50-99 employees; 32.9 percent had 100 to 999 employees; and 15 percent had more than 1,000 employees.

Sector representation was also diverse, with Industrial the largest at 54.7 percent of respondents. Other sectors represented include Safety Products (30.1 percent); Electrical & Electronics (24.6 percent); Building Materials & Construction Products (23.4 percent); HVACR/Plumbing Products (18.9 percent); Oil and Gas Products (18.9 percent); Jan-San (17.5 percent); and Power Transmission/Bearings (16.6 percent). Others included Jan-San, Chemicals and Plastics, Consumer Products, Electronics, Pulp and Paper, Pharmaceutical, and Grocery and Foodservice. Respondents could name more than one sector, so totals exceed 100 percent.

Methodology

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The growth outlook for distribution remains strong in 2018. More respondents have a positive outlook for 2018 than they did at this time last year, with 47.1 percent expecting sales growth of 5 percent to 10 percent (up from 41.3 percent a year ago).

Growth Outlook

Growth Outlook by SectorUp more than 10%

Up 5%-10%

Up less than 5%

Flat Down less than 5%

Down 5%-10%

Building Materials 35.3% 42.7% 14.7% 2.9% 2.9% 1.5%Chemicals & Plastics 26.8 48.8 14.6 2.4 4.9 2.4Consumer Products 45 35 5 5 10 0

Electrical/Electronics 36.4 37.9 13.6 6.1 4.6 1.5

Grocery/Foodservice* 35.7 28.6 7.1 14.3 14.3 0HVACR/Plumbing 33.9 46.4 12.5 3.6 3.6 0

Industrial 29 45.8 15.5 2.6 3.9 3.2Janitorial Supplies 30.6 44.9 14.3 4.1 6.1 0Oil & Gas Products 34.6 45.5 10.9 3.6 3.6 1.8Pharmaceutical* 22.7 63.6 4.6 4.6 0 4.6PT/Bearings 38.8 34.7 18.4 4.1 2 2Safety Products 28.6 50 14.3 1.2 6 0

* Small sample: fewer than 20 respondents

Up less than 5%16.6%

Up more than 10%

28.4%

Up 5% - 10%47.1%

Flat4.2%

Down less than 5%2.1%

Down 5%-10%1.7%

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Business-Specific

Respondents’ business-specific concerns revolve around how quickly they’re adopting new technology and digitizing their operations, how well they’re recruiting new talent and how successfully they’re retaining customers. Amazon’s presence in the distribution space is another concern companies have as its threat grows each year.

• Digitization becomes more imperative: Efficiency, cost control, productivity, analytics, better warehouse management, better customer service – these are all listed as objectives for ramped-up investments in digital capability heading into 2018.

• Amazon’s threat increasing in distribution: Amazon was one of the most consistent common denominators in the top-three concerns in this year’s survey. A chief concern was summed up by one respondent: “Amazon (and other web catalog companies) picking off the high-margin, low-technical-expertise products and decimating our profitability.”

• Talent acquisition and retention continues to confound companies: Identifying, hiring and retaining qualified employees is again a top concern for businesses, and while many are looking at new ways to recruit, most said staffing shortages remain an issue.

Industry-Wide

Respondents’ answers here varied greatly, as they do most years with such a broad topic, but common concerns included:

• Will the economy remain strong or taper?: Though distributors are bullish on their prospects for 2018 – much more so than a year ago – respondents to MDM’s annual Industry Outlook Survey said fortunes could change in the second half of 2018 and into 2019 as tailwinds subside.

• Legislation’s impact – for better or worse – on business: Recently passed tax legislation holds the promise of increased capital investment, while renegotiated trade deals such as NAFTA could provide an economic stumbling block. Either way, distributors will keep an eye on Washington as the year wears on.

• M&A across the supply chain: Distributors again shared concerns about M&A among their competitors, but also with their customers, “which leads to national contracts with large multi-location distributors,” according to one respondent.

Top Concerns for 2018

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The top pain points distributors project for 2018 are similar to last year’s – costs, talent, developing e-commerce capabilities – but there was a sharp increase in the number of respondents who cited Amazon and other online players as the No. 1 pain point in their business.

Here is what many distributors expect to deal with – and struggle with – throughout the year.

• Increased online competition: It’s not just Amazon threatening to take your customers away – although its plans to displace distributors should be alarming enough and one respondent listed his top three pain points as 1) Amazon; 2) Amazon; 3) Amazon. But the “encroachment of internet competitors” in general is a broad concern for the industry, according to the survey.

• Harder to leverage relationships: Because of the increase in online competition and customers’ desire to order B2B products the way they order B2C products in their homes – with Alexa or Google Home, for example – they no longer want a salesperson to call on them but instead prefer omnichannel ways to shop and order. How distributors respond to this change is critical.

• Growing talent gap: A lack of qualified candidates and growing talent gap continue to worry distributors in spite of 2018’s overall positive outlook, according to survey respondents. When asked about their top three business-specific concerns for 2018, distributors cited a host of staffing concerns from “hiring skilled workers” to “finding capable people” to “recruiting new talent.”

• Rising costs: Survey respondents said costs are going up across their businesses – benefits, recruiting efforts, labor, materials, logistics, freight, etc. – and they are weighing the best ways to adjust their operations to this new reality while remaining profitable.

Pain Points

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Revenue growth once again was the top business priority for companies – though slightly below last year’s total – with 60.2 percent of respondents including it among their responses. This was followed by increasing profitability (50.4 percent), customer retention (45.9 percent), better inventory management (37.2 percent) and employee training (30.8 percent). Reducing business costs and reducing paperwork, better visibility into company performance and better transportation/freight/logistics management were also top priorities for many of this year’s respondents.

Key Business Priorities

Revenue growth

Customer retention

Better inventory management

Employee training

Reducing business costs

Reducing paperwork, data entry and redundant processes

Better visibility into company performance

Improving cash flow

Better transportation/freight/logistics management

Employee support

Increasing profitability

More mobility for key employ-ees/managers on- and off-site

Improving supply chain communication and integration

60.2%

50.4%

45.9%

37.2%

30.8%

22.2%

19.6%

16.9%

15.0%

10.2%

12.8%

9.4%

1.9%

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The most common way survey respondents plan to grow revenue in the next 12 months is from existing customers (51.7 percent), although this number is down from 58 percent a year ago.

“We always look to expand our footprint with existing customers as our experience tells us it is the least costly way of growing,” according to one survey respondent.

Adding new products or product categories was second again this year with 46.4 percent of respondents hoping to grow revenue this way, down slightly from 2017. One respondent noted, “We have never stood pat on what we offer and by expand the offering have grown at above 10 percent yearly.”

The No. 3 plan for building revenue in 2018 is again improving e-commerce (38.1 percent, up from 35.6 percent a year ago), followed by expanding sales team (32.8 percent) and adding new sales channels (31.3 percent).

Plans for Building Revenue

Growing revenue from existing customers

Improving e-commerce capabilities

Expanding sales team

Adding new sales channels

Adding new geographies/territories

Improving product availability

Adding new locations (greenfield or acquisition)

51.7%

46.4%

38.1%

32.8%

31.3%

17.7%

17.7%

Adding new products or product categories

12.1%

8.3%Expanding internationally

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Improving employee productivity again topped survey respondents’ primary means for cutting costs this year, again at a lower response rate – 59.2 percent – than the previous year. Streamlining or automating processes came in at No. 2 for the seventh consecutive year, at 48.9 percent.

Plans for Cutting Costs

Improving employee productivity

Reducing product costs

Minimizing inventory investments

Reducing overhead

Reducing transportation costs

No plans yet

Laying off staff

59.2%

48.9%

25.2%

24.1%

23.7%

18.7%

16.8%

3.4%

9.5%

Streamlining/automating processes

3.1%

0.8%

Cutting IT budgets

Outsourcing

Cutting salaries

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For the third year in a row, e-commerce was distributors’ top priority for technology with 42.7 percent of respondents saying they anticipate exploring it in the next 12 months, down slightly from last year. CRM was again second at 34.4 percent. Pricing was third this year, replacing mobile for sales, at 22.9 percent.

Technology Plans

E-commerce

Mobile for Sales

Pricing

Cloud computing or SaaS

Warehouse Management Software (WMS)

EDI

Demand Planning

42.7%

34.4%

22.9%

21.7%

18.6%

18.6%

14.2%

12.3%

13.8%

Customer Relationship Management (CRM)

11.1%

6.7%RFID

None

Finance/accounting software

Other

12.3%

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Slightly less than half of survey respondents (49.4 percent) said their technology upgrade plans are already in process, while close to a third (31.2 percent) said they plan to upgrade technology in the next two years and another 4.1 percent said they will upgrade in more than two years. Surprisingly, 13.8 percent of survey respondents said they had no plans to update any business technology, up from 12.3 percent last year.

Timeframe for Upgrading Technology

Already in Process 49.4%

In the next 2 years31.2%

No plans13.8%

More than 2 years4.1%

By the end of 2017

1.6%

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Smartphones again dominated the list of the most-used business device among survey respondents, with 94.1 percent of respondents saying they use it, up slightly from 93.9 percent. The use of laptops (91 percent) was second, followed by desktops, up slightly to 83.6 percent.

Slightly fewer respondents are using iPads – down to 57.8 percent from 61.2 percent last year – while the “other tablets” category also dripped, to 27.7 percent from 31.1 percent a year ago.

Business Devices

Smartphones (iPhone, Android, etc.)

Desktop computers

iPad

Other tablets

94.1%

91.0%

83.6%

57.8%

27.7%

Laptops

Other 3.9%

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About the Survey Sponsor

NetSuite Global Business Unit, a wholly-owned subsidiary of Oracle, empowers tens of thousands of fast-growing wholesale distributors with software to transform and accelerate their businesses. Using NetSuite, distributors can run their businesses on a single, unified platform reducing IT costs and gaining comprehensive, real-time visibility across their organizations.

NetSuite gives your company customer-facing sales force automation and B2B e-commerce, as well as marketing and customer service capabilities that link seamlessly with back-office inventory management, fulfillment and accounting. In delivering NetSuite for Wholesale Dis-tributors, NetSuite has leveraged experience and lessons learned from thousands of wholesale distribution customers, complemented with a best practice professional services implementa-tion methodology and customization services.

NetSuite for Wholesale Distribution

NetSuite’s Wholesale Distribution Edition is designed specifically for wholesale distributors. NetSuite offers distribution businesses a complete, web-based solution, allowing them to:

• Engage their customers everywhere with omnichannel commerce, reaching them online, by phone, over email, in person and exceeding the evolving expectations of 21st century consumers.

• Monitor and manage their businesses with the ultimate customizable business dashboard, featuring built-in best practices for wholesale distribution.

• Convert leads to orders, orders to shipments and shipments to revenue with NetSuite’s advanced warehouse management, inventory management and order fulfillment capabilities.

• Gain a real-time, 360-degree view of customers and provide better customer service through NetSuite’s seamless integration of CRM with financials and other back-office systems.

• Grow revenues, enter new markets and improve channel partner engagements with tools for partner relationship management (PRM).

• Leverage demand planning to manage inventory optimally and seamlessly.

For more information, please visit netsuite.com/wd

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The Outlook for Wholesale Distribution in 2018...The Outlook for Wholesale Distribution in 2018 A survey of key business objectives and challenges facing wholesale distribution companies