Industry Supply Chain Partners Join The Conversation

The McGladrey Manufacturing and Distribution Monitor Report provides an annual update on the state of middle-market companies in the industrial sector. Respondents to the 2014 survey included 1,147 executives from small and mid-size U.S. manufacturing and distribution companies: 50 percent manufacturers; 33 percent distributors; 16 percent both manufacturing and distribution. Below are some highlights of the report that touch on the relationship between manufacturers and distributors. The report can be read in its entirety at www.mcgladrey.com.

→ Knowing your vendor and developing a risk assessment and monitoring program to examine outcomes leads to stronger vendor performance. ‘Thriving’ companies know the importance of the vendor relationship; nearly three-fourths of ‘thriving’ survey participants found that working with suppliers to improve processes and lower costs is an effective means to maintaining or improving profit margins.

→ Many distributors will invest in IT because their company’s current technology environment can’t support current operations requirements—or growth. 30 percent of executives say their current IT is not effective at sharing information with suppliers—hampering their ability to coordinate customers’ demands back to the supply chain.

→ Plans to maintain or improve profit margins among U.S. manufacturers and distributors show that executives are actively trying to manage the front end of demand (such as focusing on more profitable customers) and demand fulfillment (lowering costs through operational efficiencies).

→ Innovation—in new products, line extensions, processes, sales channels, markets—is the engine of growth. But the problem for most companies is in finding what customers want—or what they want but don’t know it yet. As Henry Ford said, “If I had asked people what they wanted, they would have said faster horses.” Only 11 percent of participants described their company’s operations as “innovation-focused.” Unfortunately, many firms focus their innovation efforts solely on products—not on evolving customer needs.

→ Competition from online e-commerce entities is increasing, driving many distributors to enhance their e-commerce capabilities. Distributors are connecting digitally with customers through the internet and social media, and then using CRM and business analytics tools to understand and leverage customer buying habits. More than two-thirds of distributor respondents use social media to some extent, most commonly for company Facebook pages, YouTube product demos, LinkedIn posts, and Twitter.

→ Nearly three-quarter of participants expect employee training costs to increase (median increase of 5 percent). Workforce education and training as well as leadership and management development were cited as among the top factors contributing to improved productivity.

→ A first step taken by many executives developing improved supplier relationships is to precisely determine what they are spending with whom. In the lean manufacturing lexicon, this is called a “plan for every part,” where management clearly understands what and why they buy from each supplier. The aim is to establish a “total delivered cost” perspective, rather than focusing solely on unit price. Consideration is typically given to factors such as inventory carrying costs, transportation charges, cost of potential delays, and staff and management labor and training.

Gases and Welding Distributors Association