Tuesday, December 28, 2010

Closing 2010 in Fasteners

This week, business is winding down 2010. A year that began with optimism but quickly became the year of not so much recovery.

In the Fastener world, many businesses experienced a "recovery" of sorts. Comparing the huge decline of 2009, this year presented stability and normalization. The rapid downward curves were gone and predictability had arrived once more.

However, the stark reality that the new "norm" was somewhere in the 2005 or earlier levels has hit hard. With sluggish growth on all sectors, the US economy is in the long run for a gradual increase. We need growths in the mid 3% area to recover the losses we have experienced in the past 4 years and to bring the unemployment down from where it is. The news of low to mid 2% growth means we are just barely keeping up with the new folks entering the labor market.

The issue is further compounded by the fact that the requirements for new labor is completely different than those that have been laid off. More technologically savvy and educated workforce is becoming a must. New jobs are going to be dependent on high productivity associated with technology, internet and high end manufacturing (check out Germany's economy for the past 3 years - Lessons from German Economic Boom ).

Fundamentally, we need to work closely with our working force to educate and uplift the workers capabilities. Basic education, retraining and partnerships have to change. These will take time....in my opinion 5 to 7 years.

So what will happen to Fasteners? I think we are ripe for similar changes. I truly believe the old model of multi-tiered distribution are going to change. With customers and manufacturers demanding more productivity, the industry is going to experience gradual but big transformation over the next few years.

For one, Master Distribution concept will transform. Many Asian manufacturers I believe will start entering the US Market themselves through consolidation and acquisitions. I have to believe the Porteous, Heads, Brighton, and Stelfast combinations will be different. Either they will transform themselves or they will get transformed.

The value chain from manufacturers to distributors to retailers (e-tailers) will also need to change. As technology forces regional players to go national via the internet, Master distribution will need to vertically integrate with their channels. This simply will not be a web based ordering, but rather true vertical integration where the manufacturers/master importers are truly enabling their distributors beyond just providing them low prices and availability.

For example, the ability to drop ship and seamlessly move inventory from the importer/manufacturers warehouse to the endpoint? Logistic integration to truly provide availability beyond phone calls and websites? Dynamic pricing to where certain manufacturing benefits are immediately visible to the end users. What am I talking about? Well, if you look at other commodity industries like soft drinks, groceries, or clothing, you will see the tremendous vertical loyalty and integration that these manufacturers provide to their channels.

Examine how Hilti has enabled their channel and you will quickly see a forbearer of what I think needs to start happening in the Fastener world. However, it will happen via technology and modern workforce. And changes like these take a while to happen.

So I ramble on......and I want to come back to our economy. How will that effect us? For one, we all need to make sure that we have the productivity capacity to grow our business by 30-40% over the next 5 years without significantly increasing our expenses (and yes that unfortunately includes labor). This is what will be needed to compete in the new economy. Already Fortune 500 companies shrunk their expenses significantly and they are now generally growing without adding significant labor or other expenses. Productivity increase is the name of the game.

Look for the construction industry to be sluggish for the next 2-4 years. The massive overflow of inventory (foreclosures and excess from the last few years) will take time to work off. Combine this with the reality of new rules for lending and financial world which still has a massive hangover from the drunken debt we took on in the past; look for development to be considerably slow in commercial and residential area. Those of us relying on this market will need to be pragmatic and look beyond our regional borders to expand. Possibly look into other sectors for opportunities. There may even be opportunities in consolidation and mergers!

FMW Fasteners has taken a leap into the technology world and we continue to learn. We are humbled by this great industry and the legacy of the giants that continue to navigate this world of ours. I want to thank all of you that have helped us in various ways over the past year. We honor the giants on whose shoulders we are standing today. Without you we would not have the foundation to build our little abode. Thank you for your support and we hope to march on to 2011! Happy New Year!