Network Services Company, a distributor of janitorial supplies, food service disposables, and industrial packaging products, believes its growth in 2006 will significantly exceed the 2% to 4% growth projections for the industries it serves.
Network is an $8.2 billion member-owned organization of more than 70 independent distributors. Its consolidated revenues include all of its members’ sales.
R. James Alexy, president and CEO, sees a continuation of consolidation among distributors in 2006, but notes that the industry remains fragmented. The top seven competitors hold approximately 40% of the market. Cost containment will remain a critical issue for distributors and their customers. Alexy doesn’t foresee industry price increases to the degree experienced in 2005. However, fuel costs will continue to impact profitability throughout the supply chain.
More and more customers are driving down operating costs and increasing efficiency by embracing technology, such as electronic order processing. Alexy reports that more than 40% of Network’s national account purchase orders are now processed electronically and he expects that to increase to 70% by year-end 2006.
“Suppliers are also increasing their electronic transactions with distributors,” he says. “They are refining their logistics capabilities and will expect distributors to be able to transact with them electronically.”
Alexy expects demand to increase for products that meet new standards for environmental protection and hygiene.
“The Green movement will continue to grow,” says Alexy. “There are significant opportunities for effective, environmentally safe and sustainable janitorial products. Distributors must be able to provide the bundle of these products to their customers.”
Importing products from abroad—most recently from Indonesia, Vietnam and other Pacific Rim countries, and of course from China—is also on the rise. Cost-effectiveness is a critical factor, and imported products—such as plastic cutlery and gloves—enable companies to lower total costs.
Alexy adds that some global customers are beginning to ask for assistance in servicing locations in other countries. For future growth, distributors need to consider developing international capabilities.
“The year ahead is not without challenges and possibly unforeseeable issues,” notes Alexy, “but many opportunities exist for suppliers and distributors and their customers. Success will come through strong relationships, cooperation, the ability to recognize changing needs, and the flexibility to meet them quickly and efficiently.”