Unlocking Wholesale Distribution's Potential

Unlocking Wholesale Distribution's Potential

The wholesale distribution industry is being impacted by dynamic forces of change. Because of this shift, distributors will need to adapt to stay competitive. The new paper "Facing the Forces of Change: The Road to Opportunity" (www.nawpubs.org, National Association of Wholesalers and Distributors) comes to this gloomy conclusion.

Looking ahead, wholesalers and distributors will encounter new and difficult realities in the business climate that are different from the past. Innovative wholesaler-distributors will strategically respond to external forces of change, rewriting the traditional ways distributors generate money and grow.

In spite of all these problems, our research nevertheless has a positive message regarding the future of the distribution industry. We are ardent believers that wholesaler-distributors can find numerous new options to reestablish their relevance and boost their revenues both now and in the future.

Our sector is well rooted in the American economy and has considerable financial power. It was $2.9 trillion in sales for wholesalers and distributors in 2003. The sector accounts for seven percent of the private GDP in the US and employs one out of every twenty people working in the country. In addition to being a key driver of national economic growth, wholesale distribution is responsible for 25% of the overall productivity gains experienced by the US economy over the last decade.

Powers that Shift

Future obstacles for businesses will originate from suppliers, new competitors, and consumers. In your industry, you might be dealing with some of these forces already, while others might be making their debut. All distributors, according to our analysis, will be affected when these factors reach a critical mass in the wholesale distribution industry.

First Trend: Self-Service for Customers

The way you interact with clients and the effectiveness of your sales team will be revolutionized by self-service choices. Consumers will increasingly rely on the internet for research and to conduct more of the pre- and post-sale tasks normally performed by wholesalers and distributors. Since manufacturers and internet sources will make such information easily accessible, distributors will not hold sway over what consumers need to know to make sourcing and purchasing decisions.

In response, distributors and wholesalers of all sizes will use web technologies into their traditional sales strategies. Online orders are projected to account for one-third of wholesaler-distributors' revenues by 2008. As the complexity and expense of today's technology decrease, smaller wholesaler-distributors will overtake larger corporations by 2008.

One other consequence of consumer self-service is that it will make wholesale distribution salespeople seem less valuable when it comes to informing clients about new products. The vast majority of executives in wholesale distribution hold the view that their salesforce might be supplanted by the Internet when it comes to product information. Going forward, manufacturers will severely doubt the distributor's salesforce's performance. Consequently, projections indicate that sales employment in wholesale distribution will expand at a pace that is half of the overall job growth in the United States during the next five years.

Next on the agenda: strategic sourcing

By looking at their own spending data, customers will have more leverage when negotiating with distributors. Customers can make better-informed, more reasonable sourcing decisions with the help of strategic sourcing, a three-step method for lowering purchasing expenses.

Customers will respond to distributors' field-level sales strategies by becoming more aggressive, utilizing new technology, and relying on more complex sourcing initiatives. Online reverse auctions, where the lowest bidder takes home the goods, are aggressive tools that aren't going anywhere.

In addition, the research conducted by Pembroke Consulting suggests that clients would want improved compliance from end-users within their business when it comes to internal contracts. Small wholesalers and distributors will likely start matching prices on a local level, regional pricing will be eliminated for big clients, and local purchasers will face new restrictions on their ability to choose brands and suppliers. Nearly half of the income for wholesaler-distributors with annual sales of more than $1 billion will come from contracts by 2008.

Thirdly, the Price and Service Model Based on Fees

There will be substantial obstacles to the rapid expansion of fee-based services and pricing models based on such models. According to our findings, more than 80% of wholesaler-distributors want to levy fees in addition to product expenses. Customers will gradually come around to paying fees. Instead than paying for service, some will just switch distributors.

Distributors who are able to provide customers with innovative services that really benefit them stand to gain financially from fee-based services. If distributors can provide new services that help customers save money and increase revenues, customers will think about paying for them. We want to warn you that trying to charge for services that are already free will not succeed. Maintaining relevance over time will also necessitate ongoing innovation in fee-based services.

The dynamic between distributors and customers shifts when services are charged for. Distributors will be held to a higher standard of excellence in their core activities and will be required to provide precise, measurable results.

Companies in the manufacturing sector have begun to see services as a potential revenue stream in response to price rivalry from both local and international competitors. Indeed, the majority of manufacturers surveyed intend to expand their current focus on research and design in order to provide end customers with fee-based services, either directly or through distributors.

Trend No. 4: Shipping and Delivery

The supply chain is heading for a showdown between distributors and third-party logistics providers. Logistics and fulfillment, the backbone of wholesale distribution, will see significantly more competition in the future. A direct competitor to wholesale distribution, pick-pack-ship services are already offered by 80% of the 200 biggest logistics companies. At present, logistics firms handle supply chain operations for almost half of the Fortune 500.

Logistics providers will be considered by suppliers as competitive with wholesale distributors. Logistics providers are expected by most suppliers to distributors to compete with wholesaler-distributors in processing and fulfilling customer orders. When it comes to service and support after the sale, though, wholesalers and distributors will continue to have the upper hand.

Additional material purchase alternatives and service levels not offered by traditional distributors are now available through alternative channels. The traditional market share of wholesalers and distributors is being eroded as customers increasingly rely on these channels for a variety of purchasing needs.

A WAY TOWARDS CHANCE

As new problems arise, smart distributors have new possibilities. The real differentiation will be customer service as items become more and more commodity. Distributors can go beyond just supplying items reliably and become providers of personalized and distinctive partnerships throughout the supply chain.

One way wholesale distribution has managed to stay afloat is by consistently reimagining its role. A wealth of advice for executives in wholesale distribution may be found in Facing the Forces of Change: The Road to Opportunity.Reconnect with your clientele. Over the course of many years of providing consistent account service, distributors have amassed an unparalleled understanding of their clients' wants and requirements. Get some outside, unbiased customer data to see how well you and your management team comprehend the situation. Discussing the purchasing process with both satisfied and dissatisfied consumers will help you learn more about their actual service requirements.Introduce innovative, fee-based services that boost the customer's bottom line and streamline their management processes. As a distributor, you may take advantage of your connections, expand on your strengths, create something new, and then get paid for it.Maintain a low-price point by promoting self-service to cut expenses and increase internal efficiency. Customers whose spending does not warrant time-consuming interactions should be automatically redirected to self-service. When consumers start entering their own orders, many distributors notice a decrease in internal costs.Empower your sales team to face the obstacles of the future. Traditional price-driven salespeople will require new skills to succeed in the dynamic services and solutions industry. Determine if any of your salespeople require training in customer qualification, problem identification, solution discovery, or coordinating business resources to solve difficulties. Incorporate customer-centric needs into compensation schemes rather than relying just on historical data.Change the way you interact with your suppliers right now. Distributors will be forced to reduce sales staff and increase customer requests for drop shipments due to online auctions, which will undermine the essential distribution role that manufacturers desire. Manufacturers will continue to take more and more business directly from distributors unless the latter take the initiative.Make supply chain solutions available to both suppliers and customers in an unbundled form. Without engaging in sales and marketing, distributors of all sizes are turning to technology, warehouse infrastructure, and logistics as a service for a price.



Your business can pursue the new avenues to profitability described in Facing the Forces of Change: The Road to Opportunity by implementing these and other tactics.

Wow, that's funny!

Location:

Share :