The New Rules of Competition for Today’s Distributor

It is common knowledge that every business experienced some form of unpredictable disruption over the last two years. Acting as the first responders in the logistics supply chain, this disruption threatened many wholesale distributors’ ability to provide essential goods to vital businesses, such as healthcare providers and grocery stores. To stay relevant and competitive amidst all market conditions, distribution leaders need to rethink their business and operations strategies.

During a recent online event, Distribution Strategy Group’s Founder and Senior Partner Ian Heller exposed five major sources of disruption for this vital industry:

  1. Workforce: The youngest generations (Generation Y and Generation Z) now make up approximately 70% of the total workforce. These generations are the most technically affluent, which means they expect to be connected on any device, anytime, anywhere, with easy-to-use applications.
  2. E-Commerce: E-commerce is no longer just about having a slick website. Today, distributors must have a strong technology foundation to deliver an easy-to-use, personalized, B2C-like purchasing experience for customers.
  3. Cybersecurity: The COVID-19 pandemic has underlined cybersecurity as a prevalent concern as new vulnerabilities arose due to employees working from home. Phishing and ransomware attacks have virtually exploded across every industry in the past few years.
  4. Cloud: To stay competitive, many distributors are moving their technology stack to the cloud to lower capital expenditures and enjoy a better margin advantage.
  5. Marketplaces: B2B buyers are turning to marketplaces for a one-stop shopping experience. Distributors that can successfully adopt a marketplace model will stand to deepen customer relationships and drive growth.

Heller shared that as an industry, distributors are still working out solutions to these challenges as they continue to adjust to the ever-evolving market challenges. Digital transformation continues to be an enabler of business models, allowing distributors to go from reactive, reporting on things that are happening, to proactive, anticipating the future and mitigating risks.

Magnus Meier, vice president and global head of the Wholesale Distribution Business Unit at SAP, went on to share that high-tech distributors have started to market themselves as solution aggregators to underline how committed they are to long-term customer relationships, taking care of the product and customer life cycle. In addition, digital transformation continues to play a significant role during the pandemic, specifically in operations. “Distributors that have a modern ERP system have data on hand, which gives them a significant advantage over their competitors,” says Meier.

Using Services as a Differentiator

For distributors to successfully implement everything from business strategy to operations to customer experience, they first need to determine what is most important to their business. Competitive differentiators come in all shapes and sizes for wholesale distributors, be it a great service like replenishment of bins near the production line, dedicated jobs like delivery of materials, on-site safety training, or even simply having the most responsive, proactive salespeople. Aligning business priorities with competitive differentiators allows distributors to position their business model as not just indispensable to customers, but profitable.

The big players, by and large, are not great at services. Services almost always represent the introduction of variable costs into a business model. Traditionally, distributors have rolled the costs of services into the gross margin of products, but they have not monetized them or charged the cost back to customers. “If distributors put a general manager in charge of services, one must treat it the way that a manufacturer treats new product development. Figure out how to monetize it with a P&L to build a business that’s much different and adds value for their customers,” says Heller.

The technology that enables distributors to have the right level of visibility into their business starts with an enterprise resource planning (ERP) system, which is critical to transformation. Having the right processing system enables order-to-cash (O2C) and procure-to-pay (P2P) business processes, which are critical to operations. For many distributors, more than 50% of orders come through as e-mailed PDF or Excel files, creating a manual process for customer sales representatives to then enter the orders into proprietary systems.

Counterintuitive to what distributors assume, the number of manual orders received is increasing, not decreasing. To enable efficiency and resiliency, distributors must find a way to automate manual and redundant tasks and redirect that energy towards value-added efforts. “Conexiom can help process those orders with the same customer service expectations that a buyer experiences when placing an e-commerce order, a marketplace order, or any other type of digital order,” says Erik Severinghaus, executive vice president of Business Development at Conexiom.

Preempting Issues within the Supply Chain

Whether it’s due to trade agreements, politics, or biological threats like pandemics, these is less predictability in the supply chain. A good example is what happened at the Suez Canal. The only way distributors can anticipate these issues is to have complete transparency and visibility across the supply chain, all the way through to the demand side. They need to leverage technology to gain the transparency to track which boxes are in which containers and on which ships. And if one of those ships goes astray, they need to be able to understand the implications and trigger follow-up processes to minimize disruption.

“Distributors are operating at greater scale than ever before and it is essential that distributors overcome silos, talk to sellers to overcome those challenges, understand how their customers will be affected, and take mitigating action,” says Meier.

Navigating the Talent Shortage

Every business is grappling with the talent shortage today. To attract the right talent, distributors need to invest in modern technology to bolster employee experience in the workplace. Distributors need to leverage intelligent technologies to automate routine tasks so employees can focus on more complex customer requirements. They need to provide collaboration tools between different teams to drive ongoing business alignment, openness for change, business agility, and improved collaboration between sales, marketing, and demand-planning teams. The distribution industry as a whole must challenge the way it has traditionally handled work-from-home policies, salaries, long-term incentives, and other benefits to make employees want to stay in this lesser-known B2B industry. “Distributors need to offer a competitive workplace environment, not just against other distributors, but against other industries,” says Severinghaus.

Meier, Severinghaus, and Heller have a lot of commendable and proven advice on these topics. In this on-demand video, these speakers discuss the challenges facing distributors today and provide tangible guidance on how to prepare and respond to market disruptions.