Estimated reading time: 6 minutes
In the previous installment of our “New Year, New Challenges” blog series, we took a look at the general issues, trends, and innovations affecting our customers in the manufacturing space in 2021. Now, as we move further down the supply chain, we’ll identify a few key distribution trends that are currently top-of-mind for wholesalers.
With all of the issues that 2020 presented for businesses, few industries have been more challenged during these past 12-18 months than distribution. Whether it was unpredictable demand, ongoing supply strains, worker safety concerns, or the reshaping of traditional customer relationships, distributors across the board have had to find ways to adapt on-the-fly to the shifting sands of this extraordinary business environment.
During our conversations with various industry leaders, this pain point of disruption has continually cropped up. Executives from both small and mid-sized distributors have intimated what many businesses in the industry now seem to be feeling: the pressure to “innovate or die.” This pressure is the result of a confluence of disruptive factors that have coalesced and become magnified under the stark conditions of the 2020 pandemic. Things like digitization, eCommerce and omni-channel sales strategies, increasing competition, supply chain automation, and industry-wide margin decline are all changing the landscape of distribution and affecting nearly every industry.
These changes are transformational in nature, requiring not just adaptations but often entirely new ways of thinking. If distributors want to avoid following in the footsteps of of Kodak, Blockbuster, Borders, Circuit City, and others who have failed to adapt to similar inflection points in their respective industries, they’ll need to harness these disruptive forces rather than resist them.
A necessary step in overcoming traditional thinking (and reversing course on shrinking margins) is to embrace technology-enabled solutions wherever they arise. For example, a recurring theme in many of our recent conversations has been the rise of eCommerce and other digital sales innovations. While these innovations were already well on their way prior to the pandemic, the last 12 months have accelerated their adoption by more than 25%.
Furthermore, since the rise of Amazon, Fulfillment by Amazon (FBA), and Amazon Business, distributors and manufacturers alike have had to rapidly shift their sales and fulfillment strategies to include online sales. As this trend has continued, customers are increasingly expecting tighter delivery windows and on-demand purchasing experiences, meaning that digital technology services have necessarily bled into non-sales areas such as logistics infrastructure.
At this point the specter of automation feels omnipresent and never-ending. Yes, we know that the robots are taking over, but what does that mean, really?
It begins with the concept of Industry 4.0, or the Fourth Industrial Revolution. With Industry 4.0, supply chains are introducing automated systems, software integration, robotics, and IoT capabilities into the distribution process. While the ultimate goal here is increased operating efficiency, it may also require, for example, a reimagining of the traditional warehouse and a redesign of how space is used. Just look at what Amazon has done to modernize their “smart” warehouses, in what one Amazon executive described as “a symphony of humans and machines working together.”
Add to this the ongoing revolution in artificial intelligence and machine learning (no, not that kind of revolution), which is transforming everything from image-recognition to price optimization and marketing automation, and it’s no wonder executives are left feeling that they need to “innovate or die.” They understand that technology can no longer be viewed as merely a back-office cost for data analytics or a simple sales platform. As a table-stakes distribution trend for the coming decade, tech integration must function as a Swiss-army knife that’s leveraged for competitive advantage wherever possible.
In the next five years, Nike is planning to grow its direct-to-consumer sales channel by 250% through a combination of eCommerce and brick-and-mortar retail sales. While this has certainly raised more than few eyebrows in the sports apparel world, Nike is by no means alone in their strategy. Tesla is famous for circumventing the traditional dealership sales structure by building their own stores, while other auto companies like Porsche have created innovative subscription services that deliver their cars right to your door. Oh, and there’s also the next wave of B2B marketplaces to contend with. This rapidly-growing industry is set to 5x by 2024, in large part because more and more millennial buyers prefer the frictionless on-demand style of this experience.
All of these attempts to circumvent the middleman from the equation are great if you’re the customer or the manufacturer. But where does that leave the middleman? It could lead to a hybrid strategy in which suppliers, “rather than deciding whether to go direct or sell through distribution . . . [focus instead] on determining which customers and products to serve direct, and which to deliver through other distribution channels.” (SupplyChainBrain, 2020).
In other words, wholesale distributors will need to find a way to add additional value to manufacturers and/or customers beyond the traditional functions of basic purchasing, warehousing, marketing, selling, and shipping. Otherwise, they could be left trying to answer some uncomfortable questions.
If it’s not clear already, these distribution trends are all interconnected for an industry navigating in somewhat uncharted waters. While there’s certainly no one right way to take your business into the future, it seems like success (or the ugly alternative) will be reliant on how well, and perhaps more importantly how quickly wholesalers are able to identify those gaps in their business model and fill them without much, if any, lag. As margins shrink, competition intensifies, and expectations grow, these are all ingredients that will require greater precision but also greater versatility, which means value-adds must be sought out in areas that might otherwise go overlooked.
Have a question or comment about distribution trends? Wondering how an incentive strategy can be a true value-add and differentiator? Book a meeting with us!