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Editorial: A cup more than half full

While wholesalers and manufacturers gripe about each other, reasons for optimism get obscured.

It's not hard to manufacture bad news. Take, for instance, a recent study by Industrial Performance Group of Northfield, Ill., whose research found that 82% of manufacturers and 92% of distributors say deteriorating working relationships are eroding sales performance and profitability. It was an update to a 1997 "Report Card on Manufacturer-Distributor Relationships" that reached the same conclusions.

IPG's research does not distinguish among commodity lines, but it's safe to say the attitudes uncovered apply at least as well to the PHCP industry as anywhere else. Who hasn't heard manufacturers and wholesalers play the blame game for real or imagined shortcomings?

Studies like this make for titillating headlines, but attitudinal surveys are as squishy soft as research gets. Asking questions along the lines of "How are your supply partners treating you?" is an invitation to a gripe session. Even in the best of times, long before consolidation and merciless price cutting came to dominate conversation in this industry, PHCP wholesalers and manufacturers were accustomed to barking at one another. When things go well, it always seems to be despite your trading partners. When they go bad, it's convenient to find the reasons on the other side of the sales desk. So it goes with human nature.

You can find an executive summary of IPG's work at www.indusperfgrp.com. Check out their findings if you wish to wallow in despair.

A better idea

I have a better idea, though. Spend the time instead in the "Articles" section of Pembroke Consulting's Web site, www.pembrokeconsulting.com. Under the "Business Strategy" heading, click on the article titled "Wholesale Distribution's Bright Future." Give it a read.

"Despite dire predictions, wholesale distribution is thriving as we enter the next millennium," reads the lead sentence. Instead of relying on subjective and provocative inquiries, author Adam Fein draws from hard data and documentable trends to make his case. "(Wholesaling) continues to account for roughly one in every 20 jobs in the United States, as it has throughout the past century," he writes. Causes for optimism include:

New capital continues to flow into wholesale distribution; even as the luster has been removed from public roll-ups, private equity is readily available.
Integrated supply relationships are a trend resulting in more sales through the distribution channel.
The big boxes have gone as far as they can with the retail channel. Changing demographics favor distributors that deal with trade customers. (Fein's article does not address Home Depot's quest to capture more trade business by buying up PHCP wholesalers. Surely this is a competitive threat, but no more so than any other big chain's market activities.)
The threat of e-commerce by outside intermediaries has largely proven false. E-commerce will likely emerge as something that works to the advantage of wholesalers who learn to utilize it.
Global markets are opening up more than ever before to distributors.
"Wholesale distribution has been growing faster than overall economic growth during the recent economic expansion," says Fein. And there's no reason to expect that to change in the years to come.

None of this is to say that the PHCP industry doesn't face some genuine challenges. But when you look at all the data, along with the demographic, economic and political landscapes, you see a cup that's more than halfway full.