Cash and leverage

It looks so simple, from an outsider’s perspective.

First, you buy a lot of building materials in bulk. Then you distribute them to the tens of thousands of lumberyards, pro dealers and home product retailers across the country.

Pass out free carpenters pencils emblazoned with a phone number and logo—and you’re in business.

Of course, it’s not that simple. Every company on the Home Channel News Top 150 Distributors Scoreboard can attest to the difficulties and challenges of two-step, wholesale distribution. It’s not just the size of the products and the vast territories covered. There’s also the matter of breadth and depth of assortment. (Quick: does that caulk meet or exceed APA AFT-01 specifications?)

Then there are market forces to withstand, and rising costs. All told, it’s a tough business.

In the past weeks, our editors working on our Top 150 list (see page 26) spoke with several two-step executives to check facts, to spot trends or just to catch up. One particular conversation—with Jon Vrabely, CEO of St. Louis-based Huttig Building Products—lends itself well as an introduction to our special “Distribution Issue.”

“Distribution, whether you’re one-step or two-step, is about cash and it’s about leverage,” he said.

What does he mean by that? I’ll let him explain.

“At the end of the day, it’s all about are you generating positive cash flow or are you having to borrow money to operate your business? A good distribution business will find that they spin a lot of cash. They’re doing all the right things to manage cash. And they’re not making investments in product lines that don’t sell, or that don’t turn.”

And what about leverage?

“You’re trying to leverage the greatest possible revenue stream across the lowest possible cost structure,” he added. “The goal of a good wholesale distributor is to sell as many possible products to the same customer, because that’s when you begin to leverage your resources.”

So that begs the question: how does the two-stepper get more products into the same number of customers? That is where two other classic terms in the LBM distribution lexicon take over: service and relationships.

The 150 companies on the Home Channel News Top 150 Distribution Scoreboard each have their focus, and their unique fingerprint on the LBM industry. They have disciplined delivery teams, smart buyers and the sales staff to find new business and maintain current customers.

Companies of the Top 150, HCN salutes you.