Industrial Supply Wholesalers
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Industry Overview
The US industrial supply wholesalers industry includes about 8,000 companies with combined annual revenue of $60 billion. Major companies include WW Grainger, Applied Industrial Technologies, MSC Industrial Direct, McJunkin Red Man, and Industrial Distribution Group. The industry is concentrated: the 50 largest companies generate more than 50 percent of revenue.
Competitive Landscape
Demand is closely tied to the level of US manufacturing production. Because many operating costs are fixed, profitability depends on operational efficiency, particularly inventory management. Smaller companies can compete effectively by providing specialized supplies or superior service (delivery service and product expertise). Large distributors with a network of warehouses and outlets can maintain a lower inventory/sales ratio. The industry is highly automated: average annual revenue per worker is close to $775,000.
Products, Operations & Technology
Industrial supply companies sell a large number of products that industrial customers use for maintenance, repair, operations, and production (the industry refers to itself as the MRO supply or MROP supply industry). Examples include tools, pipe, and valve fittings; electrical products; fluid handling equipment; pumps, motors, fasteners, instruments; and safety and cleaning equipment and supplies. Large distributors may carry 500,000 different items (stock keeping units - SKUs). Products are grouped into product lines. Wholesalers are often referred to as either "general line," meaning they carry a mix of items from multiple product lines, or as "specialty line," meaning they carry a large variety of items from a single product line.
The operations of industrial supply wholesalers revolve around inventory management, including order taking and fulfillment, delivery, billing and collections, and inventory replenishment and control. A typical wholesaler must track thousands of orders because the average customer order consists of a few items and is valued at several hundred dollars. Computer systems are vital to wholesaler operations, both for processing customer orders and reordering products from suppliers. A typical local distributor may process well over 100 orders per day.
A typical industrial supply company has more than 1,000 customers and may buy materials from hundreds of suppliers, either manufacturers or other wholesalers. Companies may have authorized distributorship arrangements with manufacturers and provide training, maintenance, and repair for some equipment. Large distributors may have dozens of local retail outlets and a network of regional or local warehouses, but the typical distributor operates one combined retail/warehouse location. In 2008, Grainger operated more than 400 local branches with an average size of 22,000 square feet.
Large orders may be delivered either by the wholesaler's own trucks or contract truckers. Wholesalers sometimes offer maintenance, security, or janitorial services as additional products. Price, product selection, customer service, and convenient location are major factors affecting sales. The staff usually needs to be highly knowledgeable about a large number of individual products.
