Distribution: Distributors Look To 'Crystal Balls'

Forecasting systems help determine how much inventory to stock
Distributors have rarely been under more pressure than they've experienced in the past 12 months. The economic downturn has reduced traditional margins for both them and their customers, making it difficult to predict how much inventory to stock, says Dean Strausl, executive director of the Electronics Supply Chain Association for electronics-components distributors. Too much inventory and slow turnover drive out profits.

Distributors are adjusting by using Web services to build closer ties with suppliers and customers and to increase the accuracy of customer forecasts. Better forecasts let distributors align stock levels with their customers' needs, leading to faster inventory turns and lower costs. The catch is that "everybody would agree customer forecasts are bad," Strausl says.

At Arrow Electronics Inc., a distributor of electronics components, the typical customer forecast is off by an average of 50%, says Paul Katz, VP of digital supply-chain solutions. That doesn't matter for parts with a large customer base--Arrow can do its own forecasting for them. But specialized items often have only a handful of customers. Getting those few to forecast accurately is critical to the distributor's ability to match inventory to demand, Katz says.

Arrow has built a system, e-Compass, that applies business rules to customer forecasts. The rules test the accuracy of a forecast by matching it against recent orders and shipments and Arrow's knowledge of a customer's business. Working with customers that persistently forecast inaccurately is now part of managing the overall distribution business, Strausl says.

Stock Building Supply, a $2.7 billion building-supply distributor with 240 wholesale outlets in 26 states, is implementing an enterprise-resource-planning and distribution system from Trend Technologies LLC across all its wholesale outlets. The new system, which for the first time offers a companywide view of customer orders, lets the distributor ship orders from the outlet closest to a customer's building site, regardless of where the order was placed, says Michael Brooks, VP of information systems and technology. Brooks says the system should reduce inventory by 20% or more.

Rank Company Revenue in millions Income (loss)
in millions
62 W.W. Grainger Inc. $4,644 $212 500
66 Applied Industrial Technologies Inc. $1,447 $3 90
78 Tech Data Corp. $15,700 $200 490
95 Arrow Electronics Inc. $7,390 ($610) 600
96 Genuine Parts Co. $8,259 ($28) 800
116 Motion Industries $2,248 -- 111
142 Corporate Express Inc. $5,000 -- 310
153 Rexel Inc. $2,484 -- 104
166 TruServ Corp. -- -- 27
169 Systemax $1,552 ($59) 250
171 Handleman Co. $1,348 $28 146
181 United Stationers Inc. $3,702 $60 255
207 Purity Wholesale Grocers Inc. $1,600 -- 11
262 Airgas Inc. $1,787 $68 110
274 CellStar Corp. $2,200 ($30) 130
296 Anixter Inc. $2,520 $43 230
304 Henry Schein Inc. $2,825 $117 200
328 Stock Building Supply $2,670 $136 105
334 Avnet Inc. $8,920 ($3) 586
350 Graybar Electric -- -- 146
430 Growmark Inc. $1,242 -- 52
461 Ferguson Enterprises Inc. $5,000 -- 308
465 Ingram Micro Inc. $22,459 ($275) --
471 Dot Foods Inc. -- -- --
Financial data is from public sources and company supplied.
Revenue is for latest fiscal year.
Employee data is from InformationWeek 500 qualifying survey.

Average portion of revenue spent on IT 2%
Average percentage of industry applications and business processes that have Web-based front ends 34%
Companies with real-time business processes in place 62%
Hardware purchases 19%
Services or outsourcing 8%
Research and development 4%
Salaries and benefits 37%
Applications 21%
Everything else 11%
Average year-over-year revenue change -9%
Average year-over-year net income change -131%
See year-over-year shifts in business-technology practices for this industry. Compare and contrast this year's data with last year's.

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