The good news that attendees heard from one economist at last month's NAW 2008 Executive Summit, was that the economy won't fall into recession this year. The bad news is that the recession will start in 2009 and that it could linger for more than a year.
“The reality is we are not in a recession,” said Alan Beaulieu, principal, Institute for Trend Research, Concord, N.H. “We will grow at a tepid pace in 2008, and you have one more year of growth. In January 2009 you will be in recession. You have a year to plan for it. Recessions are like a forest fire. No one likes them, but they clear out the dead wood and allow for new growth.”
At the Jan. 29-31 conference, held at the Fairmont Washington, Washington, D.C., Beaulieu said one indicator that signals a recession is on the way is an “inverted yield curve.” This means interest rates of long-term bonds are lower than short-term bonds because so many investors want to protect their investments in the safe havens that long-term bonds offer. This demand means sellers can offer lower interest rates for the bonds. Beaulieu says this yield curve has “accurately predicted six out of the last six recessions.” Despite the dour economic picture he painted for 2009, he urged NAW members to take control of their own business destinies. “Don't let politicians or the media affect your future,” he said. “As business leaders, you can make the future.”
To help distributors plan for this economic scenario, NAW called on several members to participate in panel discussions on customer focus, operational efficiencies and leadership culture. These distributors shared their expertise in these areas with distribution industry consultants who moderated the sessions. The panels offered some insight into the diverse NAW membership, where electrical distributors can learn from other wholesalers in businesses such as dental supplies, balloons, natural foods, electronic MRO equipment, stationery and paper products, propane gas and several dozen other lines of trade. NAW members manage companies anywhere from relatively small regional distributorships, mid-sized companies with $100 million or more in sales to the largest distributors in the world. Companies of all sizes were represented on the panel.
During the panel on leadership culture, Chip Hornsby, group executive Wolseley PLC, Theale, England, and NAW's incoming chairman, said Wolseley's leadership development programs have helped fuel the company's growth in the past, and that he believes they will help the company's managers guide their operations through the tough economic times in the residential market. In the United States, Wolseley has been hiring on average 1,000 college graduates per year for Ferguson Enterprises, its $11 billion, 1,300-locaton plumbing business, and 300-plus location Stock Building Supply, its distributor of construction supplies. The company frequently sends senior managers to MBA programs at the University of Virginia and other well-known universities. In Europe, the company's leadership development program is on a smaller scale, and in some Eastern European countries still learning about free markets, part of training includes the basics of capitalism, said Hornsby.
With so much exposure to the residential construction market in the United States, Wolseley's business in this country is off significantly. He estimates that total housing starts (single-family and multi-family) will drop from more 2 million in 2005 to about 750,000 in 2008. According to its latest financial statements, Stock Building Supply's business is off 25 percent for the five months ending Dec. 31, 2007, largely because of this decline. “When two-thirds of the business disappears, you have a challenge,” he said. Wolseley is one of the largest distributors in the world, with $32 billion in international sales, 5,300 locations and 80,000 employees in 28 countries.
At Hisco Inc., a Houston-based distributor of MRO supplies to the electronics assembly industry with $190 million in revenue, 30 locations and 320 employees, Bob Dill, the company's president, looks for leadership of a different sort from employees who participate in HISCO's ESOP (employee stock ownership plan). He said the ESOP environment fosters a leadership culture where employee-owners share the same corporate vision and are constantly trying to improve operations, sales and profits because it directly affects their ownership stake. Dill said he knows an employee has bought into the ESOP culture when they have the same high expectations for the company as the management team. “People will support a world they help create,” he said.
Dill said one of his most productive management strategies is taking trips with his senior management team to visit key suppliers. During these two-day meetings, which he has held for approximately five years, he says his employees get “to touch suppliers at levels they ordinarily would never reach.”
Think you have problems with dead inventory? Try being a flower distributor. As soon as your products are harvested at the farm, they are literally dying. On the surface, it may not seem that a distributor of fresh-cut flowers and floral supplies would have much to teach electrical distributors. But John Wilkins, vice president of logistics, Delaware Valley Floral Group, Mullica Hill, N.J., has many of the same concerns as electrical wholesalers. He is constantly trying to improve his inventory turns (which already average an astounding 2.5 times per week) and simplify operating processes.
To serve florists in the mid-Atlantic states, the 39 year-old company with $130 million in annual sales and a fleet of 85 refrigerated trucks must manage the logistics of flying 900,000 boxes of fresh flowers from flower farms in South America through customs into Miami and trucking them up to its New Jersey distribution center on 53-foot refrigerated trucks. From there, the company makes more than 600 deliveries each day to floral shops.
In the conference's final panel, Tom Gale, executive editor and publisher of Modern Distribution Management, Boulder, Colo., discussed the takeaway points from the distributor panels with the four consultants who moderated those discussions: Adam Fein, president, Pembroke Consulting, Philadelphia; Neil Gholson, global segment leader, wholesale distribution, Deloitte Consulting, Chicago; Brent Grover, managing partner, Evergreen Consulting, Cleveland; and Mike Marks, managing partner, Indian River Consulting Group, Melbourne. Fla. Gholson said many of the distributors on the panels were working on continuous improvement programs and used technology as an enabler. He also said distribution business software is much more manageable and user-friendly than it was five years ago.
Grover said distributors need to manage their pricing strategies better because they “leave a lot of money on the table with less price-sensitive products and services.” He also urged distributors to analyze their tax strategies because of the possibility of increasing tax rates with the potential change in White House.
Several of the consultants said that while private labeling is becoming more common in the wholesale-distribution industry, distributors need to understand the added responsibilities they take on if they decide to blend privately labeled items into their product offering. Fein of Pembroke Consulting said distributors must realize that if they private label a product line, they take on the role of a manufacturer, with the same responsibilities for product liability and returned goods programs. Grover said wholesalers that private label become brand managers and that this sometimes exposes a lack of marketing expertise common with many distributors.
NAW staffers were delighted with the turnout at this year's conference and said attendance was up 35 percent over last year. The 2009 NAW Executive Summit will be held Jan. 27-29, 2009 in Washington, D.C.