Industrial wholesalers still add value: study
Zank cited the results of a study sponsored by the American Supply and Machinery Manufacturers Association and the Industrial Distribution Association and conducted by the research team at Texas A&M.
"There may be a point where people move toward buying direct over the Web," Zank said, "but I'm not sure it will give them the value they want. Distributors add value. End users perceive that distributors provide them with local inventory, on-time delivery, product knowledge and technical support."
The study was to determine how extensively integrated supply contracts and technology are being implemented. Separate surveys were mailed to distributor members of IDA, manufacturer members of ASMMA, and MRO end users from various industries and different parts of the country.
"Everyone saw that technology would change and the Internet probably would have an impact on how end users did their purchasing," Zank said. "I was somewhat surprised both IDA and ASMMA members were so in alignment in terms of their expectations to be more involved in technology."
End users, distributors and manufacturers expect the diffusion of technology to occur fairly quickly, she said. Expectations for the growth of technology discussed in a 1998 study by Frank Lynn & Associates have been met or exceeded, she said.
In the earlier survey, 20% of the general line distributors projected that they would be visiting Web sites for product information in the next few years.
The latest study finds that 57% of those distributors use Web sites to get product information. About 31% of specialty distributors surveyed two years ago said they expected to be using the Web site for product information in the year 2000; the reality is 69% of specialty distributors are doing that today, according to the Read Center study.
"If that rate continues, what people projected for technology in the next two years in our study might be underestimated," she said. "Obviously, product information is a little more simplistic than some of the other areas where we saw increases. Technology provides a convenient, easy way to obtain product information."
Increased usage of the Internet for order placement and processing was also projected.
Just in time - or is it?Performance metrics was another area in which perceptions differed among end users, distributors and manufacturers, Zank said. On-time delivery was rated as extremely important by end users, and a large percentage said they measured on-time delivery of their distributors. Distributors also said they measured on-time delivery, but at a lower percentage than end users were.
"Maybe distributors need to look more closely at how their customers are evaluating them," she said. "If the end user cares most about on-time delivery, distributors should track their own performance as well as that of their manufacturer or supplier, because that probably will impact the distributor's ability to meet the end user's needs."
In addition, distributors need to better understand how end users are evaluated by their customers because it probably drives many of the things that the end users care about, she said.
The study found that end users and distributors both expect the percentage of purchases through integrated-supply contracts to increase dramatically in five years. About 45% of distributors and end users are currently involved in integrated supply contracts, including large, medium and small distributors, according to the study.
A major finding was a need for improvement in integrated-supply relationship. One such area is compensation for the distributor partner, she said.
"Cost-plus is still the most common form of compensation but when you separated out how people were compensated, those companies that identified integrated supply as their primary business were more likely to use alternative forms of compensation," she said. "For example, sometimes they also used a share of customer's cost savings or charged a management fee in addition to cost-plus compensation."
A better definition of the best level of compensation that can be beneficial to all parties would be helpful, especially for the long term, she said.
The Read Center hopes to do this type of study every two years to track industry participation in integrated supply and technological developments, Zank concluded.