April 2003

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Channel Misery Loves Company
What Will Distribution Look Like in Years to Come?
by Brian P. McIlwee

A lot has been written lately about how the market channels have been stirred and reshuffled. On a recent flight back from an NSDJA function, I mapped out the possible channels for a product from leaving a manufacturer to reaching a consumer. Starting off with traditional two-step distribution and ending with the manufacturer selling directly to the consumer, I counted 20 other options in between. One or two of these might not even have been tried yet admittedly, but I know itís imminent. This was, in many ways, a painful process, and I find myself looking at this list continually.

Allen Dyerís recent column, titled ďDebate Over the Ever-Changing Millwork Supply Chain,Ē (see 
SHELTER January/February, page 16
) does a great job of laying the foundation for where we have been and our status today. As I read Allenís article, I initially thought to myself, ďBy God, heís going to do it! Once and for all, someone is going to tell us where the millwork distribution industry is headed!Ē I think we are all looking for some form of that answer. Allen concluded, and rightfully so, that itís up to each of us to determine delivery of the best value to our customers. While this wasnít the answer I was looking for, I can deal with self-determination.

Further down the channel, I have been getting a kick out of reading the editorial and perspective columns in some of the builder magazines. Lo and behold, they are having much the same debate on where to find efficiencies in the channels. Experiments in dealing directly with manufacturers have only succeeded in limited applications. Often times, the margins gained in a lower price have been more than offset by costs associated with distributor functions. Builders are beginning to learn that the big-box mentality of beating up your suppliers for better prices cannot sustain relationships. Do we enjoy reading this just because we want to believe this is true, or is it simply a case of misery loving 

Additionally, there is tremendous consolidation going on in the residential home-building industry. I heard a remark that 25 percent of all building materials are sold through the top 100 builders in the country, and within five to ten years that figure could reach 50 percent. Truthful or not, this statistic breeds temptation for alternate channels and fuels more talk of changes to come. Furthermore, brand recognition of building products seems to be losing its significance in home building. Just as consumers buy computers from Dell because of the companyís reputation, not because of the components that are inside, homeowners are eager to buy from builders upon whom they can depend rather than the product brand names they use.

It has been extremely painful to see the consolidations and closings within our industry. Many have fought valiantly to sustain their markets. Several good companies are no longer in existence, and more are due to experience the same fate. Some of these actions, while evolutionary, donít speak well for our industry. Like a pendulum that has been jolted, I believe we have swung to the far side and are about to begin a return trajectory. We may even begin to see a retreat of some of the ambitious channel initiatives that have stirred this discussion. It is my belief that we will continue to grope for a few more years before we reach some clarity in our market channels. 

Five to ten years from now, I think we will see one of two scenarios played out. In either case, there wonít be 20-plus active channels. Two-step will always have a presence and need in the market place and one-step will be recognized in multiplied forms. As we come out of our national economic recession, there will be a resurgence of acquisition and consolidation. However, this activity will focus more on the one-step and installed markets than the two-steps that we have seen 

Until we reach that point of clarity, we must strive to get closer to our customers. Determining ways to eliminate sustain from our vocabulary is critical. Quality products is a given today. Itís the ante we have to put up just to be in todayís game. The level of value we add to the relationship is what differentiates us. Itís not about sustain, but rather how easy we make it for our customers to do business with us! 



Brian McIlwee Brian P. McIlwee is president of the J. J. McIlwee Co. of Itasca, Ill., and is the first vice president of the National Sash & Door Jobbers Association, based in New Port Richey, Fla.




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