Building Products Distribution
Former General Manager Gives Tips on How to Stay Successful
March 25, 2008 by Samantha Carpenter, editor of Shelter magazine.
“Distribution need not sell around its customers, but rather provide a tier of services at a cost—and as a helpful function—to satisfy end-user needs together with its customers,” says Jeff Wedge, a veteran of the building products distribution climate. An innovative idea like this one is what Wedge believes he and others in the distribution industry need to adopt in order to survive the changing distribution business, and offers “out-of-the-box” concepts from one of the industry’s most innovative thinkers.
As an example, Wedge says that a wholesale distributor could offer jobsite delivery. “A wholesale distributor could, in fact, develop jobsite delivery services that would not replace the retailer or dealer’s services, but be a service for the retailer or dealer,” Wedge says. “An example of that is a truckload of windows. Instead of delivering them to the lumberyard, I could deliver them to the jobsite for a nominal fee charged to the lumberyard. The [lumberyard] would, in turn, not have to pay for [its] employee, [its] fuel, or [its] truck and tie [it] up from servicing another customer. [The lumberyard] could pay me to do that. And, due to my scale and logistics expertise, I could probably handle those windows and deliver them in better condition than a lot of lumberyards or retailers could anyhow.” The distributor is providing a service so the retailer doesn’t have to, he says.
“I could go a step further now that I’ve got them [the materials] at the jobsite. I could stock the project; I could put all my doors near each opening they are assigned to; and I could stage all the windows next to the openings,” Wedge says. He says that his former company, Hampton Distribution in Sacramento, Calif., had this type of vision of jobsite service. Hampton wanted to develop an installation program with its own installers who would (for a fee) offer installation for the lumberyard or pro-dealer or the non-technically install-oriented dealer who doesn’t have the infrastructure, the insurance or the team to do that, so the distributor, in turn, could represent their products as installed to the end users and to the consumer. “I believe that the distributor can help reach through and down to the end user—not to threaten [the dealer or retailer] but help them to do more,” Wedge says.
Another idea Wedge has includes a fit-and-finish program (or sometimes referred to as a lock-and-slide program). “I’m talking specifically about the door business and window business,” Wedge explains. “When the windows have been installed and construction is continuing, there is an opportunity for the distributor to go to the jobsite and walk through and check and adjust all the windows, maybe even install all the hardware, clean the tracks and do troubleshooting. You are doing two things: saving a lot of money for that jobsite call down the road … and while on the jobsite, looking for the opportunity for additional business.”
And another idea for distributors is the adjustment, replacement and repair after a job is complete. Wedge says that while many manufacturers, distributors and retailers have taken this role, “I think distributors have a chance to go in and assert themselves. There is a strong value for providing that service for the whole marketplace, proactively, not reactively.”
Wedge says there are many reasons why distributors are afraid to face the problems within their industry. First is the perceived threat that, if they offer services like jobsite delivery, they are going to threaten their customers. “They might think my ultimate goal is to cut them out and do it myself. And that’s a very, very fine line to walk,” Wedge admits. “If I do, quite frankly, develop the ability to deliver to the jobsite and to install the windows, and I know who all the architects, builders and remodelers are in a given area—then many keen retailers and pro-dealers would possibly believe that is the next step [to take over their business].”
Wedge says that distributors would need to make it very clear to their customers that this is not the case. “The enormous scale of the points of transaction, the credit, and the sheer logistics is not something they would want to take on in an entire marketplace and sell direct to end users, but collaborating with [the retailer and dealer] is.” Starting an installation program from scratch would be difficult, according to Wedge. “[At our company], we knew we would have to purchase an organization that already had installers and that [it] might sell more products than we handled, such as cabinets, doors and windows,” Wedge says. “But to get that expertise, we would have to buy a company that was already doing it, that had a line of insurance and expertise to scale.”
Wedge says then the two companies could be blended. “And that’s a formidable task. That’s not what distribution has done in the past; it’s vastly different,” he says. “So that crosses into the third reason [why distributors are afraid to change]: these ideas are foreign to what distribution has always been.”
But what will happen if distributors and their dealers stay in their traditional roles? Wedge says both companies could lose market share. “Many pro-dealers and retailers don’t do these same things for fear of losing customers. For instance, a major lumberyard owner may choose not to offer installed product initiative because he thinks, ‘If I install, well that’s what my contractors do. I’ll take their business; I can’t do that,’” Wedge explains. “That’s not how to look at it. A lot of these builders would love to have a back-up installation leg on which to stand.” Wedge says this is a possible scenario: a contractor may be running thin with people, he may get backed up, he may ask a lumberyard with an installation program to help install a job and “it may be the greatest savior the contractor could ever imagine.” Wedge suggests that the contractor might say, “Hey, I’m really glad you were there for me. Hey, that worked pretty well. I might try that again next time.” If distributors don’t start looking at new services to offer their customers, what does Wedge believe will happen?
“[Distributors] will wait and watch product lines, one at a time, go direct,” he says.
Wedge believes there are a number of reasons that manufacturers want to exert control over the supply chain by going direct. “They want to ensure that their product[s] [are] sold first and in the best light and sales are seen through to the end,” Wedge says. “In many situations, a distributor handles competitive lines, but the fact of the matter is: the manufacturer has to have absolute confidence that all of the sales department’s promotional efforts and advertising dollars and all of the field sales, training and sales calls done result in a sale of [its] product. When [it is] in control of all those aspects … [it has] a field sales force that is totally committed to selling [its] product and nothing else, and that’s a very attractive component.”
Sit at the Table
One way to ensure that distributors and suppliers have the same goals in mind is to sit down and discuss them. It doesn’t sound hard, but Wedge believes there aren’t many companies actually doing this. Andersen Windows, according to Wedge, coined the phrase for their work with distributorships—a joint business plan. “And we used that with a lot of our dealings with our suppliers [at Hampton]. We would sit down at the beginning of the year (and preferably four times a year total) to talk about our products purchased versus the plan we had mutually developed, promotional elements, services offered, target customers, promotional publications, offers and so forth. [We talked about] the actions that we both needed to commit to as a manufacturer and a supplier in order to grow share,” he explains. Wedge has spent the last eight months communicating to the distribution industry ways in which he believes it needs to change (through his website www.thewedgeedge.com and industry blogs, such as Adam J. Fein’s Distribution Trends blog).
Wedge’s distributorship closed May 2, 2007, when Andersen Windows made the decision to distribute its products itself rather than through distributorships in the western market. “It was just going to be a matter of time for Andersen to extend its logistics model to all areas of the West. It made sense. We understood it, but we didn’t like it,” Wedge says. “Andersen was extremely fair in the way it helped us and treated us upon our exit. Andersen’s decision to finally take the territory over with company-owned distribution was the final straw for us. It didn’t make it feasible for us to remain in business. Andersen was 80 percent of our volume.”
Wedge says that a lot of people have asked him, “How in the world did you ever let Andersen become 80 percent of your business?” “When my boss and I came to the company, it wasn’t,” Wedge says. “We had four separate divisions and multiple products, and we were not focused and weren’t executing well. We decided we didn’t want to be a company that was ‘everything to everyone’ and we decided to ask ourselves, ‘If you are going to be in this business, what are you best at, what do you have passion for and what can you make money at?’ … We decided we were great at Andersen and we were really good at doors.” So the company sold off all its other divisions and put themselves in that position intentionally.
“Because of it, we ended up winning the exclusive agreement and distribution in the West for Andersen,” Wedge says. “That was a great win, but as Andersen’s Pacific Northwest and Southern California expansions occurred, it left Sacramento as this little island by itself, and over time, it was just too attractive for Andersen to sow up [its] entire model. It made sense.” “There are never any hard feelings,” Wedge says. His company is now closed.
Wedge will need to put into action many of his ideas, if he wants his next distribution industry venture to be a success. Other professionals will need to institute innovative ideas to survive the changing distribution business as well.
Call to Attention
If you attended the Association of Millwork Distributors’ (AMD) Convention in Denver in October 2007 you’ll remember Don Houghton, AMD’s immediate past president, reading Wedge’s letter of resignation from the Board of Directors (see the November/December 2007 issue of Shelter, page 20); Wedge resigned from the board because his company closed.
In the letter, Wedge wrote, “I encourage the leadership in this industry to build on the ideas and momentum that have recently sprung forth, and change the heading we are on—and forever increase the benefits and vitality to our customers, our suppliers and ourselves. And to do so this year … My greatest disappointment would be if these outstanding initial steps and beliefs failed to find enough voices and actions to help propel the industry in a bold new direction and prove the critics wrong.”
The association took Wedge’s advice and made some dramatic changes to its bylaws. For instance, the AMD membership passed a bylaw that allows for associate members to serve in a board of director position and as an officer on the executive committee.
The Inventory Pitfall
Jeff Wedge, former general manager of Hampton Distribution, which closed its doors in May of 2007, says that distributors need to become solution and logistics providers, not inventory managers. “Taking orders, the inventory, the transactional element and delivery is not the entire game any longer,” Wedge says.
“Distribution needs to reach down into the channel and provide services that can be of greater value, not only to the retailer, but to the end-user. When I satisfy those two audiences, I’ll do a better job satisfying the manufacturer.”
Wedge says distributors have three masters that they need to satisfy: the customer, the end-user, and the supplier. “Distributors need to, of course, take care of their customers. Distributors need to take care of their customers’ customers and help them be better, and they need to, of course, make sure that their suppliers could not imagine the sale of their products into a given marketplace through any other means.”
If you would like to discuss some of Jeff Wedge’s ideas in this article or other ideas he has, please e-mail him at email@example.com or visit his website at www.jeffwedge.com.