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As subcontractors we buy the vast majority of our material through Distributors.  The system was established well before my time and benefited almost everyone along the supply chain.  Manufacturers had someone that could stock their materials locally and provide credit and payment for delivery (thus insulating manufacturers from Owner's, General's and Subcontractor's inability to pay).  The subcontractor got the benefit of having a single source where they could get their materials and an additional source of credit.

This system has worked for many years, but in the past decade I fear for the current system.  The world around us is changing, yet our system remains the same.  Let's look some of the current realities that make our current system more difficult to continue without major changes.

Financial Crisis
As the world fell into deep financial crisis everyone felt the pinch of the scarcity of capital.  This difficulty spread all the way through the supply chain from banks to distributors to subcontractors.  With that, the amount of credit and/or the qualifications to obtain credit became much more difficult.  This eliminated some of the key tools that distributors had for their clients of extending credit during difficult times.  This provided loyalty, but with cash more difficult this is tough to do.

National Retail Chains
National retail chains like Home Depot and Lowe's have changed the marketplace with retail level pricing and stocking of materials.  For most of us, about 80% of our general material items are located on the shelves of the stores and are quick to retrieve and price.  The single price for all in all locations is chaning the market.

The Small Invention called the Internet
The internet allows some supply houses to deliver their products to a much broader audience.  Innovative businessmen are peddling their supplies shipped direct to the jobsite and due to volume and overhead considerations can do so at a much lower cost.

All three of these issues appear to have negative impacts on the current distribution system, and I think that it is definitively having an adverse affect.  That is not to say that I think that distributors are going away, I just believe there has to be a fundamental change.  In a lot of ways, back to the basics.  Distributors are in the service industry and not in the material supply business.  Anyone can provide material on the shelf (assuming they have capital).  Not everyone can have the expertise in electrical or mechanical supplies.  The biggest challenge with the National Chains is finding someone that can help you and even though the Internet is all about sharing information and knowledge, boy is it tough finding the right place to ask a question and get a good answer.

In the next decade, it will be up to Distributors which way they want to go.  In my opinion if they keep up the same business model, they will continue a downward trend.  If they change back to what they are really good at (being experts around their material supplies), they will grow into dominance and will add value to the Manufacturers and the Subcontractors as they always have.

About the Author

Craig Pierce

Craig Pierce has been working in the construction industry for the past 25 years helping subcontractors master their trade. Currently he is President of Atalanta Enterprises which provides consulting services to contractors And software solutions through ConstructionMonkey.com.