Industrial Supply Wholesalers
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Industry Overview
The US market for distributing industrial supplies includes about 10,000 companies with combined annual revenue of $70 billion. Large companies include WW Grainger, Applied Industrial Technologies, MSC Industrial Supply, and Industrial Distribution Group. The industry is both fragmented and concentrated at the top: the 50 largest companies hold about 50 percent of the total market, but 80 percent of companies have less than $5 million in annual sales.
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 $500,000.
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 six or more different product lines, or as "specialty line," meaning they carry less than five product lines.
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 just two items and is valued at less than $150. Computer systems are vital to the wholesaler operations, both for processing customer orders and reordering products from suppliers. A typical local distributor may process 200 to 300 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 2003, Grainger operated almost 400 local branches with an average size of 20,000 square feet.
Customers include industrial companies and maintenance departments, janitorial service companies, and maintenance and repair companies. Small orders are often picked up by the customer ("will call" orders). 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.