Will RDC / CDCs add profit to CED?

CED and USESI issued a press release October 9th that may indicate a change in business models for CED. But then again they may be setting up a successful division that will continue to grow because of the business model they follow.

The operating model that CED has grown with great success has been one of branch centric operations (read separate branch or unit) operations). Each branch was considered a stand alone profit center without much of an ability to gather sales data or to affect group purchasing, both of which can generate purchasing leverage and yield cost efficiencies for purchasing and personnel while also providing a process for sharing of inventory multiple profit centers. Many distributors currently use this RDC (or CDC) model effectively. Perhaps CED sees greater profit opportunity with a different model, or a different model in selected marketplaces?

Standard Electric, purchased five years (November 2002) ago by CED, operated a successful hub and spoke model. Initially, Standard was not integrated into the CED corporate structure. Perhaps this model was a pilot for CED? According to distributors who have successfully operated RDC(CDC)s, the operating ratios of hub and spoke operations can be significantly less than stand alone branches.

With the purchase of USESI, CED is investing in a business model that is significantly different. So the question is has CED elected to take advantage of higher efficiencies in inventory, e-commerce and smaller inventories to lower their financial exposure? Will it improve the corporate profitability? Impact customer service? Change the organizational culture? Alter how manufacturers interact with CED profit centers?

The other noticeable change in business philosophies is that USESI will continue to grow through acquisitions and organic branch opening. In the past CED has purchased many DBA’s and keep them separate. Will Richard Worthy continue to be one of the electrical industry’s premier acquirers?

Lots of change could be coming, and CED could be piloting a new initiative. Do you think RDCs improve a distributor’s profitability while providing superior customer service and engaging branch managers to act like owners?