Why Are We Still Here?

Another Look at an Essential Question and a Great Industry Conversation

You may not be aware of this, but your business, regardless of whether you are a distributor or an American manufacturer, is at risk. To borrow military terms, I would say we are at “DEFCON 2,” which means that the next step (DEFCON 1) is nuclear war.

Maybe I am just paranoid, but I believe that some paranoia is a good thing for a business person. It motivates us to stay ahead of the innovation curve and allows us to survive. We have to keep asking ourselves “Why are we still here”?
If you aren’t a little paranoid about your business operations, you might just end up like Kodak. At one time, that company was making money at every step of the photographic process. You used a Kodak camera that employed Kodak flash cubes and Kodak film. Then you had those pictures developed on Kodak paper using Kodak chemicals. It was an incredible business model—for some time.

Then a disruptor came into the picture. Ironically, this disruptor was a Kodak employee. Steven Sasson was a 23-year-old Kodak engineer who invented the digital camera. When he pitched his new invention to the firm’s upper management in 1975, their response was less than welcoming. The Kodak brass were convinced that no one would want to see pictures on a television set. They reminded themselves that print had been around for the past 100 years and that no one was complaining. So they sold off the camera’s patent rights. Kodak went bankrupt in 2012 — in part because the company failed to ask: “Why are we still here?”

We may not have a Steven Sasson in our midst in this industry, but we are at risk due to what some are calling the third industrial revolution — the digitization of manufacturing and distribution and the emergence of intermodal transportation.

Viewing The Risk Foundation

I examined the foundation of that risk a couple years ago, in an article published in this magazine. (If you are a Babyboomer, you can find that article in the stack of magazines that you’ve got randomly piled up in your office. Titled, “Rethinking The Relationship,” it is on page 40 of the Fourth Quarter 2014 edition. If you are of a more contemporary nature, you can find it online at: www.weldingandgasestoday.org/index.php/2014/09/rethinking-the-relationship/ .)

If you don’t have time for a full read of that article, I’ll revisit its key points here by providing this executive summary. I contended then that:

  • Brick and mortar distributors once clearly represented the lowest cost logistical path for a manufacturer’s products to reach the end user. Our trucks represented an almost exclusive means to deliver small quantities of products at a low cost.

Now, we are using UPS, USPS and FedEx to drop-ship everything that we can in order to minimize our transactional costs. Those same methods are available to our manufacturers to move products directly from their web-based stores to our customers.

  • Distributors no longer have exclusive product offerings. We are no longer compelled to learn a single product line inside and out, knowing that if you did not educate the customer that your product was the best choice, the customer purchased a different brand from a competitor who was able to convincingly present their case.

You knew that you did not get a second chance to offer another brand, or perhaps a lower price, if your customer rejected your first offering.

  • Distributors are no longer seen as the fountainhead of product knowledge today. Too often, distributors are allowing the exit of their technical staff, only to replace them with web-based stores that merely move products.
    What is the value of a distributor to a manufacturer if the distributor requires the manufacturer to set up the equipment and educate the end user?
  • Distributors no longer have exclusive knowledge of who are and where are the end users. Armed with the proper NAICS code, any kid with a computer can quickly identify potential end users, their number of employees, their revenue stream and their primary points of contact.
  • Manufacturers are no longer exclusively using traditional brick-and-mortar distributors.
  • Manufacturers have set up alternate channels with Lowes, Home Depot and Tractor Supply, just to name a few other non-distributor outlets.
  • Manufacturers are opening up their own online stores that compete directly with distributors.
  • Manufacturers are worried that they are losing touch with the end users as distributors are not effectively delivering the manufacturer’s message.
  • Manufacturers are worried about the ease with which foreign-made product flows to the distributor and end user.

There is little to no conversation between the distributor and manufacturer on the options to resolve the issues mentioned above.

Since I made my GAWDA regional presentation in 2014, none of these situations has changed — which has allowed everything to change.

Unfortunately, no meaningful conversations have emerged or been arranged between distributors and manufacturers. Distributor Advisor Council (DAC) meetings continue to be devoid of true opportunities as forums for understanding and the exploration of future possibilities. Distributors and manufacturers each seem to be determined to go their own way; perhaps that’s due to the lack of conversation.

The trouble is, if you don’t know where you are going, any road will get you there.

A Tough Downward Spiral

Meanwhile, distributors continue to face tough marketplace conditions. Distributors’ margins on hard goods, particularly machines, have continued to deteriorate. (Some of the downward spiral of margins is due to the increased pressure from the distributors’ online stores.)

More concerning is the pressure from manufacturer’s online stores. Their investments in their stores are increasing and they are pushing for a return on those investments. As examples:

  • Recently, one manufacturer began offering free ancillary items, such as filler metals or circle cutting kits, with the purchase of machines, on which they had established Minimum Advertised Pricing (MAP).
  • Another manufacturer released a reduced-price promotion to their biggest online distributors—putting it out on the Internet more than two weeks before the manufacturer released the same promotional discount to their brick-and-mortar distributors.
  • Some distributors are now asking themselves why they are being pushed by manufacturers to provide information about the end user when a machine is sold. Is it to help the distributor make more sales to the end user, or to load the manufacturer’s data base so that they can directly pursue sales with the end user?

These kinds of situations only serve to degrade the trust between the manufacturer and the distributor.

A Call For Conversation

Perhaps if there is more conversation between the distributor and the end user, we could back down our feelings of paranoia and keep the industry risk warning to a DEFCON 4 level — in order for us to figure out how to best serve the end user. Both manufacturers and distributors in our industry still need to have a clear vision of “Why we are still here” in order to remain sustainable. Or maybe I am just paranoid.

As you may know, I’m fully vested in this topic of manufacturers and distributors working together, and I’ve been working to be a catalyst to lead this discussion. I welcome any comments or suggestions on how the distributors and manufacturers could work together to formulate a high-value proposition that the end user cannot refuse.

Perhaps if we work together, we can avoid becoming the next Kodak.

Gases and Welding Distributors Association
Meet the Author
Jim Earlbeck is president of Earlbeck Gases & Technologies with locations in Baltimore and Beltsville, Maryland and in York, Pennsylvania. A past vice president on GAWDA’s Board of Directors, he can be reached at www.earlbeck.com; jearlbeck@earlbeck.com; and by phone at 410-687-8400.