New Realities Challenge Wholesale

Distributioh

Between today and the year 2000, the wholesale distribution industry faces the most challenging period in its history. The outlook for the indusry has changed radically, according to Patrick f,)olan, Arthur Andersen Co.

A recent study by his company shows a fundamental disagreement between wholesaler-distributors and manufactuers on fu[re Eends and their relationship in the distribution channel. Another significant change exists in leveraging which is now thought to be too high, with fe0lrns too low to attract new capital.

The maturing of the U.S. economy forced extensive changes such as consolidation, shrinking rrargins in some commodity lines and declining profitability on the wholesale distribution industry in late 1980s and early 1990s. Some companies are tbriving, flffiy are struggling, others are on the verge offailure.

Many companies have seen relationships with manufacturers deteriorate to dangerous levels. Some distributors have improved productivity, but failed to adopt technology and quality movements. Many have not taken new channels of competition such as warehouse clubs seriously. Significant excess capacity exists in the industry, according o Dolan.

Because the changing business climate undermines assumptions wholesaler-distributors have operated under, companies must base decisions on new realities to regain and maintain a competitive posture. Dolan recommends considering:

(1) Relationships with manufacturers are no longer working.

(2) Potential competitors are no longer easy to identify.

(3) Failing to assurc maximun quality and productivity is no longer acceptable.

(a) The channel will no longer tolerate redundancies.

(5) Growth can no longer be taken for granted.

(6) Size is no longer a benefit unless channel partnen value it.

(7) The sales force can no longer merely baby-sit the customer.

(8) It can no longer be assumed that a business ciilr generate enough cash.

(9) Serving market niches is no longer good enough.

(10) Reacting to change, even quickly, will no longer protect market share.

(11) Employees can no longer be viewed as the largest cosL

Wholesaler-distributors will have to compete with other industries for available skilled labor. They will need to rely on employees to implement new technology and initiatives in quality and productivity. Therefore, the best strategy will be to retain and retrain the current work force, Dolan points out.

Oppornrnities exist for those who anticipate change and seize the moment, Dolan emphasizes. He recommends the following strategies to meet today's and tomorrow's challenges: .using strategic planning, adopting technology, practicing Total Quality Management and continually measuring products, services and processes against those of companies recognized as world leaders.

There will be winners and losers in the remaining years of the decade, he concludes. Those who surface as the winners in 2000 will be those taking action now.