In Distribution, You Win by Being Reliable, Not Cheap
After finding $200 million lost to discounting, QXO's chief says reliability matters more than price.
roofingcontractor.com · How QXO is Using AI to Streamline DistributionAt recent question sessions with investors, Brad Jacobs, chief executive of QXO Inc., was explaining what his company found after buying Beacon Roofing Supply, a distributor that sells roofing materials to contractors. QXO had found roughly $200 million in pricing leakage, meaning losses tied to what Jacobs called "undisciplined discounting" through manual pricing systems, and its fastest selling products were often out of stock. Basics like shingles and underlayment were among the materials contractors ran short of, delaying projects.
Then Jacobs, who argues that building products distribution is way behind on technology, offered his lesson for how to win.
"We plan to win market share not by discounting price but by being in stock, quoting quickly, delivering on time and in full, and invoicing accurately," he said.
That list is how he says QXO will compete.
Jacobs described the industry problem in these terms: "The building products distribution industry is way behind on tech." He added, "We've seen companies running dozens of ERPs with outdated systems, manual processes, and limited inventory visibility." An ERP is business software that runs orders, inventory, and accounting.
In Beacon's case, Jacobs said: "Four percent of our SKUs account for about 80% of sales. Yet many of those fast-moving SKUs were out of stock." A SKU is a distinct product, such as one shingle size or color. Running out of stock is a problem contractors know well: missing materials delay projects.
His answer was to rebuild the back office. QXO upgraded its full technology system, from customer and pricing software to warehouse, trucking, forecasting, and personnel programs, with real time data for managers. Quotes now reflect what is on the shelf, what delivery costs, and what the customer paid before, and warehouse systems separate fast and slow sellers with a focus Jacobs put this way: "always be in stock, in every branch, on A-items." A-items are the best sellers.
Lilli Tillman Smith, an analyst at Principia Consulting, said other distributors are watching QXO closely. If its technology continues to prove an advantage, she said, it could set a model others follow.
Questions people ask
What does pricing leakage mean?
Pricing leakage is the profit a company loses when it charges less than it meant to charge. It often comes from manual quotes, unauthorized discounts, outdated price lists, and failure to add freight or small order costs. In distribution, where margins are thin and there are thousands of transactions, small leaks add up fast.
What are A-items?
A-items are the small number of products that drive most sales. Distributors often rank inventory as A, B, and C, with A-items getting the most shelf space, tightest reordering, and closest tracking. A best-selling shingle would likely be an A-item, while a rarely ordered specialty part would be a C-item.
Why does delivering on time and in full matter so much?
Delivering on time and in full means the complete order arrives when promised, with no missing items or substitutions. Distributors track it as a percentage, and contractors care deeply about it because a short delivery can idle a crew. High scores usually require accurate inventory, good warehouse organization, and route planning.