No need to fret aboutpace of consolidation
By Susan Avery -- Purchasing, 8/13/1998 2:00:00 AM
Corporate buyers everywhere seemed to breathe a collective sigh of relief when one year ago Office Depot and Staples called off their plans to merge operations. Then, buyers were concerned about a diminishing number of distributors with capability to provide supplies to office and plant locations nationwide. Fewer office-supplies distributors, they reasoned, mean less competition among the big players. In other words, the pending merger had them worrying about the possibility of higher prices and deteriorating service levels.
While office-supplies distributors counter that as long as there are two players in the market buyers have nothing to fear, the recent pace of consolidation has slowed. Six or seven big supplies distributors with capability to service accounts nationwide (Boise Cascade Office Products, BT Office Products International, Corporate Express, Office Depot, Office Max, Staples National Advantage, and U.S. Office Products) is downright healthy for buyers, they say. At their size, (Boise Cascade had sales in 1997 of $2.6 billion) these distributors have the purchasing power to secure competitive prices from their suppliers as well as invest in the technology necessary to meet next-day desktop delivery schedules.
This has not always been the case. As recently as the 1980s, corporate buyers were purchasing supplies for their companies' offices through local dealers. Now, many of these local dealers have either become part of bigger resellers or mega retailers--or gone out of business altogether. In fact, the most recent report on office supplies distribution trends by the Business Products Industry Association, shows that small and mid-size dealers have lost market share in each of the nine years that it has conducted its study. Small and mid-size dealers account for 4% of office-supplies manufacturers' shipments in 1995, compared with 11.1% in 1991 and 19.9% in 1986.
At the same time, shipments to largest dealers have continued to rise. According to the report, this category now represents the single largest reseller in the industry and accounts for 21.6% of manufacturers' shipments. The second largest category, shipments to superstores, has captured a greater percentage of the market each year since 1986. Superstores now account for one-fifth of manufacturers' shipments.
In the '80s, warehouse clubs and superstores brought power retailing to the office-supplies industry, say the researchers who contributed to the report. With their buying power, aggressive promotion, and low operating costs, these resellers won millions of customers away from traditional suppliers. And, with the growth of the small office and home-office market segments, superstores and warehouse clubs have continued to grow at the expense of the small to mid-size dealer.
Now, office-supplies distributors are turning their sights to other endeavors. Some are aggressively acquiring dealers in Europe, South America, Australia, and Japan in the hope that national accounts evolve into international accounts. bt opi, for one, has just purchased three companies in Europe: one in Germany, and two in The Netherlands. Closer to home, others have recently purchased office-supplies catalog companies: Staples has bought Quill, while Office Depot has acquired Viking.
Reasoning for the foray into Europe and Australia is the same as that for many of the recent moves by office-supplies distributors: trends that are occurring in purchasing. Corporate buyers at global companies are demanding that their suppliers have capability to service offices located overseas. Aligning with fewer suppliers (receiving consolidated billing monthly for several overseas locations), these buyers reason, will help to reduce costs of purchasing pens, pencils, paper, and toner cartridges.
Still, having one distributor provide supplies to locations overseas may not make sense for every purchasing manager. For one thing, some of the supplies used by office workers in other countries are different from those used in the U.S. For another, the currency is different. What's more, in some cases, corporate buyers can just as easily have a German supplier provide office supplies to locations in Germany and have him or her do this adequately.
Other trends now occurring in the office-supplies distribution industry revolve mainly around providing corporate buyers with an array of value-added services. Here is a sampling:
* Electronic commerce services, namely capability for end users to place orders and pay for supplies over the Internet. "We've seen rapid growth in demand to place orders electronically," says Jim Boyle, vice president, merchandising for BT Office Products International. "Where one year ago, buyers were placing orders through SyntraNet [bt opi's Internet product] amounting to roughly $250,000 monthly, today this figure is $2.5 million."
* Movement toward integrated supply agreements. While pace of growth of national accounts has slowed somewhat, buyers are beginning to demand more from suppliers in the way of one-stop shopping. Supplies distributors are heeding the call, aligning with companies in related businesses (computer supplies, forms). Others are acquiring such companies and venturing into general MRO supplies--with mixed success.
* Closer alignment with manufacturers of office supplies. As their customers measure their performance so too are distributors measuring performance of these suppliers.
* Assistance with meeting government regulations for environmental compliance and working with minority- and women-owned suppliers.
They still talk price
Name of the game right now, office supplies distributors say, is price. While many corporate buyers talk about aligning with their suppliers to reduce acquisition costs, most now see office supplies as a commodity purchase. Next-day delivery, summary billing, and capability to provide monthly usage reports all are a given for buyers, say suppliers.
But office-supplies distributors do work with some customers to reduce acquisition costs. For instance, in analyzing purchasing activity, they are evaluating order-placement frequency and delivery schedules. Combining orders and scheduling delivery twice a week rather than once a day may help reduce costs.
So, to differentiate themselves from the competition, office-supplies distributors are providing their customers with increasing levels of service. For instance, some have centralized call centers to dramatically help improve customer service.
"We don't talk about any of that anymore," says Tara Santry, vice president of marketing and business development, Staples National Advantage, South Hackensack, N.J., referring to such services as next-day delivery, etc. "What we try to do is take a concept [for providing office products companywide] and turn it into reality."
Santry speaks of the latest round of mergers and acquisitions in corporate America. Companies made up of a myriad of divisions and new acquisitions want to retain autonomy of each, yet receive benefits of operating as one company, she says. It's how a distributor provides services to customers such as these that office-supplies providers can differentiate themselves--keeping in mind that success of a national contract is measured by percentage of compliance throughout an organization.
No more CD-ROM
As recently as three years ago, office-supplies distributors were producing cd-rom catalogs for their corporate customers. Use of the Internet to place orders eliminates paper, helping to reduce purchasing costs for buyers. (Other buyers are using EDI to transmit orders to suppliers or have access to place orders directly into the distributor's computer system.) With Internet ordering, customers now have capability to access catalogs on a more timely basis. They can, in effect, purchase new products from manufacturers as soon as they appear in a catalog.
Pace of growth, however, has slowed somewhat. Those buyers who want to place orders via the Internet probably already are doing it. "Not everyone wants to order online," says BT Office Products' Jim Boyle. "Some prefer to fax their orders or to use our sales reps."
For corporate customers of Staples National Advantage who are not technically enabled, end users may go to one of the company's retail outlets to purchase supplies. Under an agreement with its sister division, Staples provides supplies to corporate customers at prices previously negotiated by purchasing.
Use of the Internet to order supplies can have some drawbacks. For one, it can be slow. Yet, it is accurate, easy, and also helps to reduce the distributor's cost of doing business. For some customers, distributors may use the Internet as a marketing and communications tool as well. Boise Cascade, for one, is installing technology that enables end users to contract its service reps directly. This, says Dave Goudge, vice president, product marketing, Boise Cascade Office Products, Itasca, Ill., is something corporate purchasing would love to offer to end users, taking buyers at the site out of that loop.
Just like the MRO buyers
Borrowing a page out of the playbooks of some large industrial distributors--such as W.W. Grainger and a few of the big electrical supplies distributors--office-supplies providers now are introducing the concept of integrated supply to their customers.
While suppliers say buyers have been interested in entering into such agreements for a while, technology now is at the point where it is possible. Viewed by many as the ultimate in one-stop shopping, integrated supply agreements allow buyers to interface with one supplier for many requirements. This one supplier, in turn, handles all of the paperwork for items ordered by end users. Recently, Boise Cascade aligned with Wallace Computer Systems to provide such services to their customers. In the same vein, there is a growing trend toward outsourcing--which is becoming increasingly more popular, distributors say, among those sitting in the corner office.
Still, demand for integrated supply agreements from corporate buyers raises a few issues. For instance, supplies distributors that now have capability to provide customers with business forms have to address things such as delivery. While it is possible for office-supplies distributors to make deliveries once a day, in many cases, it now takes three to four days for forms distributors to get their products to their destinations.
Supply chain management
As buying power of office-supplies distributors strengthened over the past 10 years, so have the suppliers from whom these players purchase supplies. Consolidation has occurred not only among wholesalers (there are now two national wholesalers and a scattering of regional players), but also among manufacturers. Having to purchase through only two wholesalers cuts down on competition in this segment of the industry, distributors say.
To help reduce their customers' costs of purchasing supplies, distributors are aligning with manufacturers. For instance, they are measuring their performance, certifying them, and eliminating incoming inspection.
Mix of manufacturers today is different than it was in the 1980s. It's not important that the office is paperless, but that workers' habits have changed. Looking at a list of supplies corporate buyers were purchasing 10 years ago finds things like "white out," adding machine rolls, and file folders. Today, that list has on it toner cartridges and other computer supplies. Hewlett Packard and Lexmark, manufacturers of some of these items, have nothing to do with making office supplies. Items, too, have higher price tags than those purchases popular in the 1980s.
Other value-added services office supplies distributors now provide their customers include assistance with compliance to environmental regulations and work with second-tier minority and women-owned businesses. "Our job is to see that companies meet these goals," says Santry of Staples. In helping customers comply with the Clean Air Act, for instance, Staples is helping to support purchasing managers who are working to set up employees in home offices. They've come up with laundry lists of items at previously negotiated prices to furnish these offices with computers, peripherals, and furniture, as well as provide support to help with technical connections for some of these items.
U.S. manufacturers' shipments of office supplies
(percentage of dollar volume shipped to different resellers)
Channel '95 '94 '93 '92 '91 '90
Mass mkt. 12.8 11.0 10.9 12.4 7.6 10.2
Warehouse clubs 3.5 4.4 4.1 4.0 4.0 4.0
Superstores 20.3 18.2 15.0 11.4 10.2 7.3
Wholesalers 18.0 19.2 22.9 23.2 24.2 22.4
Mail order 3.6 3.4 4.5 4.7 4.3 4.6
Large dealers 26.9 23.6 22.4 23.0 22.9 23.7
Small dealers 4.0 8.6 9.3 9.3 11.1 12.5
Direct & govt. 2.6 3.5 3.2 4.1 6.2 6.6
Other 8.3 8.1 7.7 7.9 9.5 8.7
SOURCE: BPIA
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