If the worst of the recession is a thing of the past, so is doing business as usual. Wholesalers realize they must continue to adapt their companies to changing conditions.
In part 1 of this article, a panel of leading distributors addressed issues ranging from rapidly evolving computer technology to improving relationships with industry manufacturers. The wholesalers met during NetworkASA 2011, the American Supply Association’s annual convention, last September in Las Vegas. The group that gathered Sept. 15 consisted of:
David Finkel, president and CEO, Davis & Warshow, New York;
Reggie Hickman, president and COO, Brock-McVey, Lexington, Ky.;
Patrick Hughes, vice president of purchasing, Jabo Supply, Huntington, W. Va.;
Joe Poehling, president, First Supply, Madison, Wis.;
Rick Schwartz, CEO and chairman, WinWholesale, Dayton, Ohio; and
John Strong, president, Economy Plumbing Supply, Indianapolis.
In part 2, topics range from what keeps wholesalers awake at night to social media to changes coming in the next five years, including health care reform.
Topic: What daily business issues keep you awake at night?Issues that worry wholesalers mostly can be divided into external and internal categories. The government falls into the first group and employees into the second.
“Government’s inability to lead is one of my issues,” Strong said. “And it’s all governments, not just one of them. That results in uncertainty, and that uncertainty affects everything. It affects our inability to borrow money.”
The uncertainty creates a ripple effect, Schwartz said. It influences the sentiment of WinWholesale’s contractor customers and that, in turn, has an impact on the attitude of end users.
Other panelists had more specific complaints about governmental agencies. Hughes sees regulations from DOT, EPA and OSHA increasing their presence in the distribution market “with no checks and balances with which to ‘regulate them.’”
“The EPA is still hammering the coal market, and that’s something we’re watching closely,” he said.
“Hiring and finding highly qualified people is another issue,” Hughes added.
Finkel called people a company’s most important asset. Finding, hiring and training quality people to become the next generation of wholesale distribution employees is his biggest issue.
“Effective leadership and the future management of our industry is one of the biggest problems we face, and I lose a lot of sleep over it,” Schwartz added. “This is a really respectable and fun industry, and it’s a great place to make a career. But our career path is almost invisible. People just don’t look at our industry as challenging or sexy.”
Strong told a personal story about his 23-year-old son who received his undergraduate degree and got a job in environmental science.
“He does not find our industry sexy, and I encouraged him to do what he wants to do,” Strong said. “Now he is in grad school and all his classes are wastewater management and fluid dynamics of waste. I tell him: ‘You’re doing all you can to get away from our industry and you’re still coming back to it.’”
Topic: How have the Internet and social media affected your business?While wholesalers worry about the distribution industry’s future leaders, they see the younger generation stepping into leadership positions at their customers’ businesses. These new leaders are driving the industry’s use of the Internet and social media, Schwartz said.
“Just like we have an instant need to respond to our customers, they have an instant need for information,” he explained.
WinWholesale recently conducted focus groups for its customers who are plumbing, HVAC and electrical contractors. The wholesaler was surprised by how many of its customers are using the Internet specifically as a business tool.
“We were underestimating how much they were using it,” Schwartz said.
Hughes added: “The Internet has become a vital part of searching and researching products and services for ourselves and our customers.”
Both First Supply and Davis & Warshow maintain separate areas on their websites for their showroom customers and trade customers. Poehling said the wholesaler needs to vary the conversation depending on who the audience is. Davis & Warshow, however, is rethinking its strategy of keeping the areas separate.
“I’m leaning toward the side of keeping the site unified,” Finkel said. “I want to let the customer know that behind the beautiful showroom storefront location there’s a huge organization that’s an industrial company, which can deliver product and has hundreds of employees. We’re an employee-owned company, and we’re also trying to convey that message.”
A website that Schwartz recommends distributors visit is www.plumbingzone.com. It’s a forum for plumbing contractors.
“You can find out what your customers think of you because they blog each other, and ask each other what they think of this or that supply house,” Schwartz said. “A contractor will go into a city to do a job and get a review of the different supply houses in town. You read it and say, ‘Wow, that’s a pretty frank comparison.’”
Blogs are just a part of it. Ready or not, social media is taking hold in the wholesaling business, the panelists agreed.
“We see it happening,” Schwartz said. “It’s really gaining steam, and we’re doing a lot in all the social media areas: Facebook, Twitter and some YouTube videos to explain our organization. We’re using LinkedIn to get people connected.
“It’s interesting to see the momentum building. One of our key manufacturers, Charlotte Pipe, has a Facebook page. Who would think a piping manufacturer could drive interest on Facebook?”
WinWholesale assigns employees to tend to its social media sites, Schwartz said. They get what he calls “critical feedback” from customers and can respond instantly as needed.
“We do the same thing at our company,” Finkel said. “It was a long-term process to engage in Facebook and Twitter. Until we had someone who was going to monitor it and actually use it, we didn’t want any part of it.”
While Finkel said social media may not affect his business significantly in the short term, he does believe companies need to establish a foothold.
“You have to control the message that’s going out there,” he said. “You just can’t have a bunch of employees posting and tweeting things that don’t follow your corporate policy. You have to have a unified set of goals and use these tools to meet them.”
Panelists see other uses for social media. Hickman said social media may be a good way to communicate with employees. Although Brock-McVey is not using it for this purpose today, the company will look at ways to do it.
Strong sees social media as a competitive tool. “You ‘Friend’ your competitor on Facebook and find out what’s going on and who their best employees are,” he said.
Topic: What issues do you see coming down the road in the next five years?Technology will continue to change the way wholesalers interact with their customers in the next five years.
“The relationships we created and fostered in the past are going to be different with the next generation of contractors,” Schwartz said. “We have to make sure we stay on top of that change. We’re going to manage those relationships differently with technology, and we can’t do it the way we’ve always done it. It will be very important that we prioritize our investments in technology correctly to address that change, or we’ll have a problem managing those relationships.”
Having the right people in place is the key to managing change, Finkel said. He already can see relationships developing between younger contractors and Davis & Warshow’s younger employees.
“These new customers are texting their orders - forget email because emailing takes too long,” he said. “These are the types of things our people need to be prepared for. You can deal with it in training but the most important thing is to get people who can handle change and people who can keep up with it.”
For wholesalers to realize true efficiencies, they’ll have to find a way to integrate that texting technology directly into their operating systems, Poehling said. All the technology changes will increase the need for education and certification. ASA U - the association’s educational program - will help wholesalers accomplish these goals, he noted.
Finkel foresees a day in the near future when contractors will use apps on their smartphones and tablets to get product information.
“Our manufacturers have to be forward thinking,” he said. “Our customers will gravitate toward the manufacturers and wholesalers who can support those apps and technology.”
Jabo Supply is preparing for the growing demand for oil, coal and gas products, Hughes said. This demand is in the forefront of the PVF distributor’s focus and business plans.
“The energy markets will be the dominant factor for years to come,” he said. “Coal and natural gas, specifically the Marcellus shale gas reserves, are having a huge impact in our region.”
Topic: How far along are you in planning for health care reform?Health care reform is another issue coming down the road, although none of the panelists knows exactly what the program will eventually require.
“It’s wait and see,” Hickman said. “Even when we find someone who we think can give us trusted information, that person says at the end of the conversation, ‘Here are Options 1, 2 and 3, but the truth is we don’t know.’”
Hughes agreed: “There remain way too many uncertainties. We will be in a ‘wait and see’ mode until things really start to heat up beginning in 2014.”
Poehling expects numerous legal challenges and changes to the health care reform act before it goes into effect. First Supply will continue to track the changes and do what it needs to do to maintain its grandfather status.
“Economy Plumbing Supply is very small and would fall under the 50-employee category,” Strong said. “So, it’s really wide open what they will require of us. We’ve historically maintained our benefits but they have declined, unfortunately, with our contributions and such. You have to monitor it because the final beast is going to be so much different than it is today.”
Strong believes new requirements will increase his company’s health care costs.
“The government is mandating that private insurers provide this package, and they have to be able to make money,” he said. “The cost will rise with all the additional insured people on their books who perhaps were not on there before. You’re taking on all the uninsurable people with pre-existing conditions and putting them on there.”
Finkel took a different view. Companies will no longer be able to opt out of providing health care coverage for their employees. This could have the dual benefit of stabilizing Davis & Warshow’s health care costs as well as leveling the playing field with some of its competitors, he said.
“Every September, and the two months prior to, we’re waiting to see how much the health care insurance company is going to hike our rates,” Finkel said. “I looked back and costs for family coverage have tripled in the past decade. That’s unsustainable. This whole process, whatever comes out of it, will slow down that escalation.”
One area where all the panelists found common ground is the value of providing preventive health care to their employees. Finkel and others believe wellness programs could make the biggest impact on lowering their costs.
“We need to get on the proactive side of health care,” Schwartz said. “I think the younger generation likes that, and it’s a good return on our investment.”
First Supply began its wellness program Jan. 1, and it is mandatory for all employees, Poehling said. Jabo Supply has had its wellness program for a couple years, Hughes said.
“We’re seeing benefits as far as people quitting smoking, losing weight and taking better care of themselves,” he said. “Employees are buying into that. They really are.”
NetworkASA 2012 will take place Oct. 17-20 in Orlando. With the next presidential election just three weeks later, wholesalers will have more to talk about what lies ahead.