Distribution’s Top Concern is Government Regulation

July 25, 2013
Anticipated health care cost increases among the biggest worries.

While most executives in the wholesale distribution industry are optimistic about their business’ growth prospects in the coming year, they are still concerned about government regulation—particularly where healthcare reform is concerned. That’s the key takeaway of the 2013 McGladrey/NAW Institute Distribution Monitor survey, sponsored by McGladrey LLP, a tax consultancy, and the NAW Institute for Distribution Excellence, the long‐range research arm of the National Association of Wholesaler‐Distributors(NAW).

According to this year’s survey results, 87 percent of the respondents reported optimism about their own business’ growth prospects and 75 percent said they were optimistic for the wholesale distribution industry in general. Sixty‐three percent of executives also said they expect to add jobs in the next 12 months, with an average expected increase of 4.4 percent.

Despite these positive outlooks, survey respondents indicated that they expect their growth to be limited by a variety of issues.  Issues that made it into the top four (out of 17) most commonly cited threats to growth were related to government policy. Government regulation (72 percent) and health reform implementation (72 percent) were tied for the most commonly cited threats to growth, with the increase in payroll taxes for Social Security and Medicare (71 percent), and the federal deficit (69 percent) close behind.

“Wholesale distribution companies are growing, and the vast majority expects to continue growing in the coming year,” said Patrick Larmon, Bunzl Distribution USA, Inc. and 2013 NAW Chairman of the Board. “However, these results demonstrate that distributors still face headwinds on the path to growth, and many of them can be traced back to Washington. Uncertainty about government regulation and the impact of policies like health reform have become a major challenge for these executives.”

While hiring is expected to increase, most distribution executives expect a variety of employee costs to increase substantially in the next 12 months. In particular, while wages and other benefits are expected to increase at an average rate of around four percent, executives expect health care costs to rise by an average of 11 percent.

Distributors are also anticipating significant increases in materials and components costs, and in several areas,

concern about these costs is on the rise. Ninety‐two percent of executives expect increases in transportation/fuel costs, compared to 77 percent in 2012; 84 percent of executives expect increases in energy/utilities costs in 2013 (an average of 4.5 percent), compared to 70 percent in 2012; and 83 percent of executives expect increases in costs of  inventory/materials/components in 2013, compared to 73 percent in 2012.

Distribution executives are increasingly aware of the risks associated with business information and data, though they continue to report relatively low levels of risk. Approximately 70 percent of distribution executives report that their information/data is at little or no risk, a drop from79 percent in 2012. At the same time, distributors are taking steps to manage IT‐related risks, with 62 percent of distributors reporting that they have an IT risk management process, and 72 percent indicating that they regularly monitor systems to find threats and attacks that might have occurred.

“Over the years, the survey results have made it clear that successful distributors are investing in their futures and are more likely than others to put a percentage of their revenue in a number of areas, including continuous improvement, training and productivity, information technology, measurement procurement, acquisitions and international expansion and exporting,” said Bob Jirsa, partner – assurance services and industrial products, distribution for McGladrey.

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