Critical supply chain disruption that is causing even the biggest distributors such as W.W. Grainger Inc. to adjust their ecommerce and fulfillment operations continually won’t be going away anytime soon.
We expect the volatility of 2020 and 2021 to average out and get back to normal heading into 2022.
D.G. Macpherson, CEO
W.W. Grainger Inc.
“This year, the supply chain has become a competitive sport,” Grainger CEO D.G. Macpherson told analysts on the company’s recent second-quarter earnings call. “The year has been characterized by strong demand but a very challenging supply chain environment. Raw material shortages, labor shortages and transportation challenges have been the norm, particularly in the second quarter.”
Distributors such as Grainger anticipate that supply chain disruption issues will impact their business and logistic operations until at least some point next year. “We expect the supply chain challenges to last through the end of the year and likely well into next year,” Macpherson said.
Grainger, a prominent distributor of maintenance, repair, and operations (MRO) products, has an extensive national and international delivery network. In all, Grainger—which says it has 573 branches in North America, Central America, South America, and China serving more than 3 million customers each year—is relying on fulfilling orders from nearby regional facilities when inventory supplies are unavailable at a primary location. “We are also leveraging our branches for more shipping in this environment,” D.G. Macpherson told analysts.
Grainger is using one of its newest distribution centers in Louisville, Kentucky, to fulfill orders in states such as New York when branches and supply centers in those locations are running low. “We are actively leveraging our network,” Macpherson said. For example, for a customer located in New York, we would typically fulfill their entire order from our Northeast DC. Due to supply constraints or product delays, now part of the order may only be available in Louisville.”
Labor shortages, overworked carriers and the ebb and flow of product availability are other issues compounding supply chain problems. “We are also investing in non-pandemic inventory and partnering closely with our suppliers to work through any supply constraints, inbound lead time challenges and any potential cost increases,” he told analysts. “Additionally, a shortage in the labor market have had a significant impact for all companies this year.”
Grainger is working through its staffing issue in part by paying higher wages, but “transportation has been very challenging—that is clearly linked to the product and labor shortages,” Macpherson said.
Despite supply chain issues, Grainger did deliver higher revenue for the second quarter, including for its “endless assortment” online-only channel, which consists of ecommerce operations Zoro.com and MonotaRO.com. Zoro and MonotaRO cater to smaller businesses than those typically served by Grainger.com.
For the second quarter ended June 30, total sales grew year over year by 13.1% to $3.20 billion from $2.83 billion in the first quarter of 2020. Net earnings were $225.0 million compared with $114.0 million in the second quarter of 2020.
Sales for Grainger’s endless assortment business grew year over year by 23% to $645.0 million in Q2 vs. $525.0 million in Q2 2020.
Other digital metrics include:
- Total number of registered users of Zoro.com and MonotaRO.com grew 21% to 12,149 users from 10,010 in the second quarter of the prior year.
- The number of available SKUs on Zoro.com was 7.5 million items compared with 4.2 million in Q2 2020.
“We expect the volatility of 2020 and 2021 to average out and get back to normal heading into 2022,” Macpherson told analysts. “Our Canadian business drove positive operating earnings growth for the quarter and managed expenses well—we are seeing continued momentum in targeted end markets, especially heavy manufacturing and higher education as schools prepare to reopen in the fall.”
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