Unlocking Wholesale Distribution's Potential
Unlocking Wholesale Distribution's Potential
A confluence of dynamic change agents is affecting the wholesale distribution sector. Businesses are undergoing transformations, and distributors are no exception. The National Association of Wholesalers and Distributors' latest report, Facing the Forces of Change: The Road to Opportunity, which includes this gloomy conclusion, is accessible at www.nawpubs.org.
As they look ahead, wholesalers and distributors must contend with a business climate that is fundamentally different from what they've encountered in the past. A mix of outside forces of change and the strategic reactions of forward-thinking wholesalers and distributors will rewrite the conventional ways distributors generate money and expand.
Our research conveys a message of hope for the future of the distribution business despite the difficulties executives in this field face. 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. One in twenty Americans have jobs in the sector, and it's responsible for seven percent of the private sector GDP in the US. Contributing 25% of the total productivity improvements in the U.S. economy throughout the past decade, wholesale distribution is another engine that fuels our country's economic progress.
TRANSFORMATION FORCES
Future obstacles for businesses will originate from suppliers, new competitors, and consumers. These factors can be old acquaintances to you or they could be new developments in your industry. Nonetheless, once these pressures reach a tipping point in wholesale distribution, our study indicates that every distributor will be affected.
Prevalence 1: Self-Service by Customers
Your salesforce and customer interactions will be forever altered 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. Because modern technology is becoming less complicated and expensive, smaller wholesaler-distributors will overtake bigger 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, for the next five years, sales roles in wholesale distribution are projected to grow at a rate that is half of the overall job growth in the United States.
Our Second Trend: Strategic Sourcing
Customers might strengthen their negotiating position with distributors by reviewing their own expenditure data. Customers are able to make better, more rational sourcing decisions through the three-step process of strategic sourcing, which reduces purchasing costs.
Consequently, distributors may expect more aggressive behavior from their clients, who will employ more complex sourcing activities and new technology to challenge their field-level sales strategies. Internet reverse auctions, where the lowest bidder takes home the goods, are aggressive tools that aren't going anywhere.
Additionally, according to Pembroke Consulting's research, consumers will demand that end-users within their organization improve their compliance with 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.
Third Trend: Services and Pricing Based on Fees
Even if there will be a dramatic increase in fee-based services and pricing, there will still be many obstacles. According to our statistics, more than 80% of wholesaler-distributors intend to implement fees that are distinct from product expenses. Fees will be slowly accepted by customers. Some will opt out of paying for service and instead switch distributors.
For distributors that can provide customers with innovative services that really benefit them, fee-based services offer a great opportunity to increase their profitability. Distributors can attract customers by offering innovative services that help them save money and increase their profitability. Be advised that trying to impose new costs on services that are already free will not be successful. Maintaining relevance over time will also necessitate ongoing innovation in fee-based services.
The distributor-customer dynamic shifts when services are no longer free. Distributors will be held to a higher standard of excellence in their core activities and will be required to provide precise, measurable results.
Imports and domestic competition have put pressure on product prices, therefore manufacturers are looking to services as a potential new revenue stream. Whether they work with distributors or not, the majority of manufacturers in our study intend to expand their design and research efforts to provide end customers with fee-based services.
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. When it comes to processing and fulfilling customer orders, most suppliers to distributors anticipate that logistics companies will compete with wholesaler-distributors. The service and support provided after a sale, however, will continue to be a strong suit for wholesalers and distributors.
In addition to different service levels than traditional distributors, alternative channels also provide more material purchasing possibilities. The traditional market share of wholesalers and distributors is being eroded as customers increasingly rely on these channels for a variety of purchasing needs.
Embark on the Path to Prosperity
For astute distributors, new difficulties present fresh chances. Customer service will set businesses apart from the competition as items get more and more similar. Distributors can go beyond just supplying items reliably and become providers of personalized and distinctive partnerships throughout the supply chain.
Over and over again, wholesale distribution has reinvented itself in order to survive. Distribution executives in wholesale can find a wealth of useful methods and tactics in Facing the Forces of Change: The Road to Opportunity.Return to the stage of getting to know 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. Use third-party, unbiased customer data to put your management team and your own knowledge to the test. Have a sit-down with both satisfied and dissatisfied consumers and go through their purchase process to learn about their actual service needs.Present novel, fee-based services that enhance the customer's business operations and bottom line. In this model, distributors can take advantage of preexisting connections, expand upon established strengths, give something new, and then get paid fairly for it.Encourage self-service by customers to keep expenses down and enhance internal productivity, allowing the channel to remain cost-effective. 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.Prepare your sales team for the obstacles of tomorrow. In order to be competitive in the ever-changing world of services and solutions, salespeople who typically focus on pricing will require training. Take a look at your sales staff and see if any of them could use some training in customer qualification, issue identification, problem solving, or coordinating business resources. Incorporate customer-centric needs into compensation schemes rather than relying just on historical data.Reimagine your interactions with suppliers today. The essential distribution role that manufacturers desire will be undermined by online auctions, which will drive distributors to reduce salespeople and ask for more drop shipments to clients. Manufacturers will take an increasing amount of business directly from distributors unless the latter step up to the plate.Make supply chain solutions available to both suppliers and customers in an unbundled form. Companies of all sizes in the distribution industry are offering logistics, warehouse infrastructure, and technology as a service for a charge, rather than engaging in traditional sales and marketing roles.
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