Wholesale Sector
Description
Companies in this sector distribute nondurable or durable goods, typically specializing by product category. Major US distributors include Avnet (electronics), McKesson (drugs and medical supplies), and Sysco (foods); top companies based outside the US include Brenntag (Germany, chemicals), Medipal (Japan, drug and household products), and WPG (Taiwan, electronic components).
The wholesale distribution industry in the US includes around 410,000 establishments (single-location companies and units of multi-location companies) with combined annual sales of about $9 trillion.
COMPETITIVE LANDSCAPE
For most distributors, demand is closely linked to local economic activity. The profitability of individual companies depends on efficient inventory management and order fulfillment operations. Large companies can supply customers with a wider range of goods and in more markets, but smaller distributors can compete successfully by carrying specialty products or providing add-on services. In the US, the industry is fragmented: the 50 largest firms generate about 30% of industry revenue.
Computer and communications technology have had a major effect on the industry by improving the efficiency of warehouse and distribution operations. Automation may significantly improve industry labor productivity.
Supply chain efficiencies allow some manufacturers and retailers to bypass independent distributors. Large retailers like Walmart operate their own distribution systems, often taking delivery of products directly from producers.
Imports have become a more important source of supply for distributors, as more US manufacturers have foreign factories, and as more foreign-produced goods have cost advantages over US-made products. Foreign sources of supply have become especially important for distributors of electronics, steel, car parts, textiles, electrical and plumbing products, and furniture.
PRODUCTS, OPERATIONS & TECHNOLOGY
The US wholesale sector's major segments are nondurable goods (more than 40% of industry revenue) and durable goods (about 50%). Leading categories of nondurable goods are petroleum products, groceries, and drugs. The largest durable goods categories are motor vehicle and parts, household appliances and electronic goods, professional and commercial equipment, and machinery.
Operations typically consist of merchandising decisions, purchasing from manufacturers and other suppliers, warehouse inventory management, product transportation and distribution, and providing various types of customer services. Operations vary widely according to the type of product. For example, food distributors not only deliver products to individual customer stores, but also arrange them on store shelves; steel distributors often have fabrication operations to make semi-finished goods for their customers; some auto parts distributors also operate retail stores.
Deciding what merchandise to carry determines the types of customers a distributor can sell to. Many distributors carry a broad range of goods to satisfy all of their customers' needs. A distributor of fasteners may stock some 100,000 items (stock-keeping units, or SKUs) bought from 1,000 manufacturers. Customers often ask distributors to carry new products. Trade shows are a major source of new products.
Distributors may have contractual arrangements with manufacturers or may order products as needed. Large distributors frequently have annual supply contracts with manufacturers, under which they commit to taking a certain volume of product in exchange for a discounted price. In some segments - especially those with a few large manufacturers, such as beer - distributors may hold exclusive sales territories as long as they meet volume requirements. Distributors may also have "authorized distributor" agreements with manufacturers, which typically require that they maintain a certain level of service to customers. Some distributors receive some or all of their product as imports, and may have exclusive distribution rights.
Big distributors may operate a network of warehouses, but the majority operate a single warehouse. For many products, warehouse operations consist of receiving products at a loading dock, storing them on shelving systems, and assembling loads to be delivered to customers. Warehouses may cover hundreds of thousands of square feet. Managing inventory is a major activity. Incoming product is typically moved on pallets by forklift trucks.
The complexity of warehouse and order fulfillment operations depends greatly on the type of product. In general, the smaller and more numerous the product, the more complicated the operations. Distributors of farming machinery, for example, can park an inventory of tractors in a lot, see each item from the office window, and drive one off on a trailer when an order comes in. Distributors of electrical supplies, on the other hand, may stock tens of thousands of different items, of which a customer may need only a dozen; quickly finding those items requires a sophisticated location and retrieval system.
Another general rule about warehouse operations is that the faster the inventory must move, the fewer the items that can be stocked. Distributors of fresh foods, for example, typically specialize in just a limited line of goods, whereas distributors of canned or frozen foods carry a wider selection.
Distributors may own or lease a fleet of delivery trucks. In many cases, special trucks are required - such as for gas, beverages, or refrigerated foods. Some distributors contract with transportation companies to deliver their products. The operation and maintenance of a delivery fleet can be costly. Depending on the product, distributors may make deliveries to customers several times per day. Fuel costs are a major concern. Many distributors have a sales territory that extends several hundred miles from their warehouse.
The additional services that distributors most often provide are spare parts, repairs, maintenance, and training. Some distributors provide logistics to customers, including inventory management and just-in-time delivery. In many cases, customers rely heavily on distributors to advise them on how to use existing products and information about new products.
The wholesale distribution industry in the US includes around 410,000 establishments (single-location companies and units of multi-location companies) with combined annual sales of about $9 trillion.
COMPETITIVE LANDSCAPE
For most distributors, demand is closely linked to local economic activity. The profitability of individual companies depends on efficient inventory management and order fulfillment operations. Large companies can supply customers with a wider range of goods and in more markets, but smaller distributors can compete successfully by carrying specialty products or providing add-on services. In the US, the industry is fragmented: the 50 largest firms generate about 30% of industry revenue.
Computer and communications technology have had a major effect on the industry by improving the efficiency of warehouse and distribution operations. Automation may significantly improve industry labor productivity.
Supply chain efficiencies allow some manufacturers and retailers to bypass independent distributors. Large retailers like Walmart operate their own distribution systems, often taking delivery of products directly from producers.
Imports have become a more important source of supply for distributors, as more US manufacturers have foreign factories, and as more foreign-produced goods have cost advantages over US-made products. Foreign sources of supply have become especially important for distributors of electronics, steel, car parts, textiles, electrical and plumbing products, and furniture.
PRODUCTS, OPERATIONS & TECHNOLOGY
The US wholesale sector's major segments are nondurable goods (more than 40% of industry revenue) and durable goods (about 50%). Leading categories of nondurable goods are petroleum products, groceries, and drugs. The largest durable goods categories are motor vehicle and parts, household appliances and electronic goods, professional and commercial equipment, and machinery.
Operations typically consist of merchandising decisions, purchasing from manufacturers and other suppliers, warehouse inventory management, product transportation and distribution, and providing various types of customer services. Operations vary widely according to the type of product. For example, food distributors not only deliver products to individual customer stores, but also arrange them on store shelves; steel distributors often have fabrication operations to make semi-finished goods for their customers; some auto parts distributors also operate retail stores.
Deciding what merchandise to carry determines the types of customers a distributor can sell to. Many distributors carry a broad range of goods to satisfy all of their customers' needs. A distributor of fasteners may stock some 100,000 items (stock-keeping units, or SKUs) bought from 1,000 manufacturers. Customers often ask distributors to carry new products. Trade shows are a major source of new products.
Distributors may have contractual arrangements with manufacturers or may order products as needed. Large distributors frequently have annual supply contracts with manufacturers, under which they commit to taking a certain volume of product in exchange for a discounted price. In some segments - especially those with a few large manufacturers, such as beer - distributors may hold exclusive sales territories as long as they meet volume requirements. Distributors may also have "authorized distributor" agreements with manufacturers, which typically require that they maintain a certain level of service to customers. Some distributors receive some or all of their product as imports, and may have exclusive distribution rights.
Big distributors may operate a network of warehouses, but the majority operate a single warehouse. For many products, warehouse operations consist of receiving products at a loading dock, storing them on shelving systems, and assembling loads to be delivered to customers. Warehouses may cover hundreds of thousands of square feet. Managing inventory is a major activity. Incoming product is typically moved on pallets by forklift trucks.
The complexity of warehouse and order fulfillment operations depends greatly on the type of product. In general, the smaller and more numerous the product, the more complicated the operations. Distributors of farming machinery, for example, can park an inventory of tractors in a lot, see each item from the office window, and drive one off on a trailer when an order comes in. Distributors of electrical supplies, on the other hand, may stock tens of thousands of different items, of which a customer may need only a dozen; quickly finding those items requires a sophisticated location and retrieval system.
Another general rule about warehouse operations is that the faster the inventory must move, the fewer the items that can be stocked. Distributors of fresh foods, for example, typically specialize in just a limited line of goods, whereas distributors of canned or frozen foods carry a wider selection.
Distributors may own or lease a fleet of delivery trucks. In many cases, special trucks are required - such as for gas, beverages, or refrigerated foods. Some distributors contract with transportation companies to deliver their products. The operation and maintenance of a delivery fleet can be costly. Depending on the product, distributors may make deliveries to customers several times per day. Fuel costs are a major concern. Many distributors have a sales territory that extends several hundred miles from their warehouse.
The additional services that distributors most often provide are spare parts, repairs, maintenance, and training. Some distributors provide logistics to customers, including inventory management and just-in-time delivery. In many cases, customers rely heavily on distributors to advise them on how to use existing products and information about new products.
Table of Contents
- Industry Overview
- Quarterly Industry Update
- Business Challenges
- Business Trends
- Industry Opportunities
- Call Preparation Questions
- Financial Information
- Industry Forecast
- Web Links and Acronyms
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