'Old' Distributor Taking on New Direction

While Canada's Goodfellow Inc. has deep roots in the wood and construction materials business—nearly 120 years of expertise across all aspects of the trade—its President and CEO is not only new to the company, but to the industry. The firm brought Denis Fraser on board just a little over a year ago, tasked with the job of steering Goodfellow in a new direction. Becoming a highly efficient enterprise, fortifying its position as a valuable supply-chain partner, and dramatically improving the level of service to Goodfellow customers are just a few of the objectives on his plate. Meanwhile, in anticipation of these future endeavors, one change he has already made involved enrolling the company in NBMDA—partly on the advice of other industry participants and partly based on his own intuition.

“I know from my experience the importance of good trade associations to get your bearings and develop a network of relationships,” says Fraser, stressing the particular benefits of membership to someone just entering the industry. “It's a fantastic forum to very effectively meet all of the key players in our industry and to keep abreast of new development.” He hit the ground running when he began his new position in December 2014 and, until recently, hasn't had much time to explore all that the organization has to offer. But after getting his first taste of NBMDA's annual conference in November, Fraser is already excited about attending this year's event and about tapping into its other resources. “We're just getting traction now in that area,” he says, including by sending a Goodfellow manager to the University of Innovative Distribution.

Fraser is also counting on NBMDA's events—which often bring distributors and manufacturers together—to help in the process of restoring some of the rhythm that has been lost between the two as more manufacturers bow to pressure to bypass the distribution channel. “We're a unique industry, as our largest customers are also our largest competitors,” he explains. “When you look at Home Depot, Lowes—all of these large chains that are the point of contact with the end user—they're moving decidedly to bypass the distribution channel and basically go direct to the manufacturer. That has an impact on the relationship that distributors have with the manufacturers we serve, and many of these relationships are strained at the moment.”

At the core of the matter, as Fraser sees it, is a long-running lack of understanding and appreciation by manufacturers of the value of distribution services and why they are worth the cost. Manufacturers that give in to the lure of margin gains and assume this role themselves, he warns, are likely to regret the decision once they realize that they have committed to spending and obligations that they can't deliver to the customer on a consistent basis. “To be able to successfully serve these large and very demanding customers—customers that demand a level of service that is basically increasing year after year—you need the electronics, you need the system, you need the whole process,” Fraser elaborates. “And for manufacturers that do it on their own, they often don't have the knowledge or the volume, necessarily, to support all of the cost of putting that infrastructure together.”

Already, Fraser is beginning to notice some backpedaling on this trend. He personally has entertained a number of conversations with manufacturers that tried to wear the distributor hat, found that it didn't fit, and are now interested in reconnecting with distributors. “That's really our challenge as an industry,” he surmises, “to put squarely and confidently in the face of manufacturers the true value of what we're capable of bringing to the supply chain.”

One factor that will be instrumental in demonstrating that value, according to Fraser, is the ability to more effectively bring new offerings to the end user. Regardless of how much money they can save or how much they can enhance construction quality, Fraser says that moving new products to the end market is always a challenge. “There are lots of opportunities in terms of products that can do a much better job for our customers that are not being taken advantage of as such,” he continues, stressing that simply putting the product on the shelf will not suffice. “You have to go one step further and sell the technology, the advantage, and the manpower saving to the end customer so you can successfully penetrate the market. It's the responsibility of the manufacturer, but it's also our responsibility as a distributor to make sure that we help create the final demand for these new and novel products that can be a great help to the end user.”

Perhaps the most important way that distributors will showcase their capabilities, though, is through increased efficiency. Understandably, Fraser concedes, technology investment is a daunting prospect in particular for the industry's many small players; however, he insists that it is necessary for firms that want to be successful in the coming decade. “It will get to a point where it will be absolutely essential to have very efficient systems to perform our duty and reengage the manufacturers in the benefit associated with distribution,' he emphasizes. “If we are successful in providing original and new and valued services out of these platforms, I think we're going to make it a lot more difficult for manufacturers to just simply move away and then go direct with the end user.”

Goodfellow is fortunate to not fall into the category of small distributors that may balk at the cost of technology upgrades: with about $550 million in sales annually and nearly 900 employees countrywide, including a small contingent in the United States, it is a fairly sizable firm. That girth has enabled it to spend an estimated $4 million for a new ERP system that Fraser says will deliver “a quantum leap of improvements from an efficiency standpoint and in the service level to the customer.” In addition, it will provide a platform to develop many new services, including direct access to documentation, electronic transactions, and more. “The trend is set up going in that direction,” he says, before driving home his point, “and those not waking up to the call in that direction will be left behind.”

Again, Fraser acknowledges that not all distributors—especially smaller outfits—will be in a position to accomplish these efficiencies, at least not on their own. In response, he predicts that more consolidation will arise within the channel. “There's a lot of acquisitions and mergers that need to take place to build companies that are solid enough to be able to make the kind of investment that Goodfellow is making,” he suggests. “If you're a small operator, and you've got $50 million or $100 million of sales, it will become very difficult to compete at that level and offer the service that customers are seeking.”

In addition to the need for “utilizing technology, reinvesting, and making sure that we provide extremely efficient service,” Fraser says the consolidation trend will also be driven by the demography of business owners in both Canada and the United States. “Many set up their business a fair amount of time ago and now are at retirement age,” he notes. “But not everybody's got a good plan for continuation beyond their prime years, so that offers up many opportunities for acquisition.” 

As part of its corporate objectives, Goodfellow expects to be among those that will seize merger opportunities and other collaborations as they present themselves. “We're engaged as a company in the pursuit of our growth through acquisitions,” he affirms. “We've also done some very novel arrangements with manufacturers, including a joint venture for pressure-treated wood. So we're really resolved – we've turned the page and are forging ahead with new confidence.”