Valve and actuator end users are operating with tighter budgets and deadlines than ever before, which means increasing challenges in the distribution channels.
The last time a panel of distributors spoke before the Valve Manufacturers Association board (in 2005), the worldwide recession had not yet hit. However, the next few years were rough ones, and the need for tighter purse strings has since created a new set of challenges for distribution channels, according to a panel of experts from leading distributors who spoke at VMA’s annual meeting in October 2011.
The immediate effect of the economic recession was that “people pulled back—no one was stocking much,” explained Shelly White, division president of Baro Companies, a division of FCX Performance. When business picked back up, it was more difficult to fulfill orders. That situation will quickly right itself, but new pressures have arisen on the distribution channels that may stay around for awhile, panelists pointed out.
White, along with fellow panelists Andy Brown, president and owner of Mid States Supply, and his colleague, Ben Hurst, vice president for Mid States, as well as Gary Ittner, executive vice president for McJunkin Red Man Corporation (MRC), explained what their companies do today, how that has changed over the years, and the current challenges in the distribution field. (See sidebar, last page.)
DISTRIBUTOR AS BRIDGE
White said that one of the main trends she sees today in the distribution channel is that lead times “are really compressed.” The recession created a situation in which end-user customers have to do more with less resources, she pointed out.
These users remain under a lot more pressure, and as a result, they want distributors to do more of the work of finding the right product while taking on more of the risks inherent in that situation. At the same time, they have new sources of information such as what can be found on the Web.
Today, end-user customers “often pull out numbers for what they think a product should cost,” White said, which can be completely unrealistic or misunderstood.
End users also want a much wider range of products from a distributor than in the past.
“For example, a distributor may have just sold ball valves [in the past], but now the customer wants every possible thing that could go on that ball valve,” White says. More than ever before, end users also expect their distributors to be knowledgeable about the latest technology and to take responsibility for specifications and selecting the right equipment for applications while enabling those users to maintain a competitive edge.
Many users today require a distributor to manage the sub-vendors of the manufacturer such as foundries and companies that do the testing or provide machining, welding, assembly or packing.
Meanwhile, on the manufacturing side, a main trend is that the companies that make the products are increasingly asked for more severe service products, White said. This requires the distributors to keep up with what’s available.
FOR THE FUTURE
The calls for quicker delivery and reduced lead times are only going to increase going forward, according to White, and this situation will continue to be the main challenge for distribution channels.
Additional future challenges include:
- Competitive pressure from lower-end manufacturers will increase.
- Customers are getting more tech savvy, using e-sourcing and shopping online for products, which creates an uncertain situation for distributors of engineered, sourced products.
- Contract orders are getting larger and larger as big end users such as the giant oil companies want broader supply agreements.
- End users want to pass on more of the risk. “Whether it’s in the form of a letter of credit, performance guarantee or extended warranty through the startup period, the end user is applying more pressure on all sub vendors to perform until the plant starts up. There is more and more risk for suppliers with reduced reward. This has been happening for about five years, but it’s really coming to a head,” White said.
- There will be higher demands for response at all levels of the sales cycle, which is hampered by reductions in people and resources from within the manufacturing industry.