Last month NAED released the results of the most recent PAR report, which highlights distributor performance for 2010. For many this becomes the “Bible” of distributor benchmarking and profitability. It is also frequently cited to manufacturers as the reason why distributors need better rebates or other financial considerations.
But is PAR the benchmark that privately-owned distributors should use to measure their performance?
According to PAR, distributor net profitability before tax increased from 1.1% in 2009 to 2.4% in 2010. Doubling profitability in a year of growth, especially after 2009, is admirable. Unfortunately, rebate as a percentage of sales for distributors in 2010, according to PAR, was between 2.5-2.7% (depending upon size of distributor.) So rebates = net profitability?
And remember, these are privately-held companies. Many are sub chapter S companies. But they are privately owned and can do what they want within their company. In fact, the proper measurement is for each company to aspire to stretch net profit objectives or set an objective with excess funds being reinvested back into the business (or shared with employees).
So what’s feasible? There are two companies in the industry that are publicly held … Rexel and Wesco. And remember, everyone’s business is different … different market focus, different margins, different objectives. Wesco just released its Q2 earnings. They reported a 5.6% operating margin.
Given the breadth of PAR, about 125-150 distributors, and the fact that 33-35% of distributors are in either A-D or IMARK, perhaps a better benchmark would be for each group to conduct its own PAR study and share the results. Suspicion is that A-D’s affilitates would be higher given their industrial weighting (at least over the past couple of years.)
Now for some of us shooting a par would be great on the golf course. But is striving for PAR good enough for your business?
What do you think about PAR? Is PAR level performance what you strive for or do you set internal goals?
5 Comments
Par is convenient for complainers. We set an internal goal and perform to it. We have distributor friends who regularly exceed 5-6%.
My guess is that many of our distributor friends use PAR to see how they rank, assuming that they understand that not distributors place their financial figures in the same slot. Some we know for sure use PAR to hide other activities and complain ‘poor mouth’.
While we do participate in PAR, we do not take the results very seriously. It is a guide to what others are saying, not necessarily doing. We are more concerned about the way we perform within our own company. Our internal benchmarks drive our success.
On the other hand Stock companies say and do things to justify their existence to stock holders.
As a manufacturer I hear how business is tough for distributors and margins are eroding, but learning that rebates are the same as profits makes me wonder about how well my distributors can sell and make a profit. I now understand more the value of IMARK and A-D.
Comparative data should be used to evaluate performance to competitors or organizations similar to yours. High performing organizations use comparative data to analyze and drive performance relative to industry leaders. Evaluating performance against internal data or industry averages does not provide a level of feedback that drives improvement. These net profitability results might indicate that the bar is set too low.
PAR is a nice way to develop bragging rights to other distributors.
Probably no two companies put the figures in the same slot the same way.
I guess PAR is a benchmark of some kind. Our focus is on excellence not on what others do.
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