Does a PAR Win?

Last month NAED released the results of the most recent PAR report, which highlights distributor performance for 2010.  For many this becomes the "Bible" of distributor benchmarking and profitability.  It is also frequently cited to manufacturers as the reason why distributors need better rebates or other financial considerations.

But is PAR the benchmark that privately-owned distributors should use to measure their performance?

According to PAR, distributor net profitability before tax increased from 1.1% in 2009 to 2.4% in 2010.  Doubling profitability in a year of growth, especially after 2009, is admirable.  Unfortunately, rebate as a percentage of sales for distributors in 2010, according to PAR, was between 2.5-2.7% (depending upon size of distributor.)  So rebates = net profitability?

And remember, these are privately-held companies.  Many are sub chapter S companies. But they are privately owned and can do what they want within their company.  In fact, the proper measurement is for each company to aspire to stretch net profit objectives or set an objective with excess funds being reinvested back into the business (or shared with employees).

So what's feasible? There are two companies in the industry that are publicly held ... Rexel and Wesco.  And remember, everyone's business is different ... different market focus, different margins, different objectives.  Wesco just released its Q2 earnings.  They reported a 5.6% operating margin.

Given the breadth of PAR, about 125-150 distributors, and the fact that 33-35% of distributors are in either A-D or IMARK, perhaps a better benchmark would be for each group to conduct its own PAR study and share the results.  Suspicion is that A-D's affilitates would be higher given their industrial weighting (at least over the past couple of years.)

Now for some of us shooting a par would be great on the golf course.  But is striving for PAR good enough for your business?

What do you think about PAR? Is PAR level performance what you strive for or do you set internal goals?

Who Should Be Carrying Product ... Reps or Distributors?

Over the past few months we've been talking with a number of reps throughout the country as we work with an electrical manufacturer to review their reps and, in some instances, recruit new reps.  Because of their product type we've inquired about their warehousing capabilities, solely because their competition has a number of reps with warehouses.

In many instances we've had reps tell us that the had had a warehouse but closed it a number of years ago, frequently to positive reaction from medium to large size electrical distributors... and have seen their business grow.

Which then led to a thought, and some conversation about reps as an inhibitor (today) and possibly a contributor (tomorrow), especially for larger markets, of distribution consolidation.

Now you may ask why but consider, whom does a rep warehouse benefit?  In reality it benefits those who don't want to carry inventory ... either due to logistical reason or financial reasons.  Typically this is a small distributor or a small branch.  What would be the impact on small distributors, or small branches, if they couldn't send a truck to a rep warehouse, sometimes multiple times a day, to pick up material?

And couple this with manufacturers increasing pre-pay shipments to cover increased freight fees?

A major role of a distributor is to carry inventory to support their customers' needs.  This can be at a location or through a distributor-owned redistribution system.  Well run medium to large distributors can invest in systems and inventory to bring value to manufacturers and their customers.  The smaller companies frequently don't want to carry the inventory (they can't afford carrying the inventory).

So, could reps be helping small distributors stay in business (and are they getting a premium for it)?  Should reps have warehouses or should product go directly from the manufacturer to the distributor (or customer if it is a drop shipment)?

Would you prefer to work with a rep that has a warehouse and enables your competition (and puts them on a level playing field with a distributor that carries stock) or with one that supports distribution / end-users and you are responsible for your inventory management?

It also makes one wonder if NEMRA has done a study to identify which model is more profitable for a manufacturer and for a rep?

Thoughts?

Gas Beyond $4.00. Impact on Your Business?

I was returning from a meeting with a client this morning and needed to put gas in the rental before the return.  While gas has been creeping up, today was the first time I paid $4.00 per gallon (and yes, I know that there are 5 states that are averaging over $4.00 for regular unleaded).


As we know from the last couple of times that there were gas spikes, typically distributors start to think of how they can reduce costs, shift costs or increase revenues (margins, fees) to minimize the incremental expense, especially with the concurrent erosion in margin over the years (and other increasing operational costs).


This time, while we've heard some comments, there haven't been many nor are we hearing of many distributor surcharges, service revisions, minimum orders requirements, etc.  Is it that we've become used to the increases, the pain isn't enough, you don't think anything can be done because you don't think your competitor will make a change, or we feel this is just the "cost of doing business"?

In 2008 and late 2005 we conducted distributor surveys to ascertain how distributors are responding to soaring fuel costs (click here for some of our 2005 findings).  Should we do it again?

What are you doing with $4.00 unleaded regular gas (and expected to go higher for the summer) and more for diesel?  Will this eventually change an industry business model? What happens if we see $5.00? $6.00? Are manufacturer minimums increasing? Are your's?