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State of the Wholesale Distribution Industry
Sales of all wholesaler-distributors reached $3.9 trillion in 2006, a 10% increase versus the previous year. The industry remains an important force in all major sectors of the U.S. economy, ranging from basic commodities to advanced technology components. (See Exhibit 1 below.)
The wholesale distribution industry supports an impressive diversity of companies, with entrepreneurial family-run business competing directly with multi-billion dollar publicly traded powerhouses. There are only 13,000 distributors— roughly 5% of the total number—with annual sales greater than $25 million. The largest wholesaler-distributors have annual sales exceeding $80 billion.
Growth
The wholesale distribution industry has been growing faster than the overall U.S. economy during the recent economic expansion. In 2006, revenues of wholesaler-distributors increased 3.4 percentage points more than U.S. Gross Domestic Product (GDP). Profitability has kept pace with this growth, further testimony to wholesaler-distributors’ value to their customers. (See Exhibit 2 top right.)
The industry retains its vitality because wholesaler-distributors perform supply chain functions more effectively and efficiently than either manufacturers or customers. Manufacturers rely on distributors to communicate with their customers because wholesaler-distributors offer flexibility, fast response to customer needs, consistency of service, and local presence. Thus, wholesale distribution remains the most significant channel to market for manufacturers and the most important supply chain for customers, particularly when there are many small customers and a wide variety of manufacturers.
Employment and Productivity
The wholesale distribution industry employs 1 out of 20 private sector U.S. workers, but is helping to grow the nation’s productivity far in excess of the industry’s actual size. Multiple economic studies estimate that wholesale distribution has contributed more than 25% of the entire U.S. economy’s total productivity gains over the past 15 years.
Wholesaler-distributors are leaders in using technology to reduce low value-added labor activities, such as order processing, billing, inventory control, delivery route scheduling, and warehouse management. As a result, productivity growth in wholesale distribution exceeded the overall business sector by 1.6 percentage points in the past 15 years and by 2.5 percentage points since 2001. (See Exhibit 3 below.)
The wholesale distribution industry’s gains are critical for U.S. global competitiveness given the importance of labor productivity to long-term economic growth. The industry’s improving fortunes are also directly benefiting the 5.1 million people employed in the industry. Average weekly earnings in wholesale distribution are 26% higher than average earnings in all private U.S. industries.
Prepared by Adam J. Fein, Ph.D., President of Pembroke Consulting, Inc. He serves as a Fellow of the NAW Institute for Distribution Excellence.