Frank Hurtte, founding partner of River Heights Consulting and a contributor to Electrical Wholesaling, sent along this excerpt of an article he wrote on the impact of inflation on salaries for the IMARK Group’s magazine.
TheDistributionChannel.com’s ongoing surveys of distributors point to an acceleration of people costs. It appears to be a pandemic phenomenon. According to our research, the costs of some positions have moved up as high as +30% since 2019. Chiefly affecting warehouse, delivery, clerical and customer service departments, the issues associated with this is something our industry has not seen in at least three decades.
If your company uses people with engineering degrees, expect the cost to increase as well. Alan Carty, CEO of Automationtechies, a recruiting company specializing in automation engineers and technicians, shared his perspective on the engineering market: “Engineers of all kinds are no longer only needed in traditional industries like manufacturing, systems integration and distribution. The new digital economy has put companies like Google, Amazon, Deloitte and others in the market for engineering and technical talent. These companies have changed the nature of competition for those with these talents. They bring a completely different view of salary structures. We have observed a general increase for technical types of employees.”
Later in our conversation, Alan shared a resource for checking the compensation levels of entry-level people www.collegegrad.com. We did a quick review of the findings. Here are a few sample points for an entry-level electrical engineer (all listed as “Average Entry-Level”) and all the numbers track significantly higher than 2019 numbers: Davenport, IA-$67,400; Buffalo, NY-$70,054; Chicago-$88,500; Cleveland-$71,800; Denver-$80,379; Las Vegas-$73,600; and Los Angeles-$105,400.
Based on a review of the numbers of people working in various capacities in the typical distributor, I believe it’s fair to say the typical distributor will experience at least a +10% increase in people costs, probably more. Our analysis does not include a hike in matching Social Security payments which took place in Jan. 2021, nor do they include likely benefit related hikes.
Why is this important? Using the latest published numbers for the NAED (Electrical) and AHTD (Automation) PAR reports, we find that people account about 60% of the distributors’ gross margin. Looking at the NAED PAR for “Best-in-Class” Distributors, we see the number is 57%, but other groups score far lower. The Association of High Technology Distribution (AHTD) shows a total investment of 67% in a similarly ranked distributor. Unless distributors capitalize on profit-producing activities or find methods to improve productivity, there will be a severe profit squeeze.
— Frank Hurtte, River Height Consulting/TheDistributorChannel.com
Frank is a lifer in sales and distribution fields. He was selling auto tires in a family business before he was 14 years old and worked for 28 years for Rockwell Automation and Van Meter Industrial at sales and executive posts before starting up River Heights Consulting 14 years ago. You can reach him at [email protected]/ 563-514-1104.