After over a century of evolutionary change, the wholesale distribution industry, a business based on supply chain logistics and order processing now faces a true inflection point. The evidence is found in the many disruptive forces impacting distributors across all verticals. The industry’s financial performance has sagged, driven in large part by disruptions and failure to modernize the order processing process. YoY growth has slipped from the 16 percent achieved in 2006 to an uninspiring 3 percent rate in more recent years. Charting a new course in financial performance will require decisive action by distributor executives.
To date many distributors have survived and, in some cases, thrived based on their ability to effect incremental changes to their businesses. But without the ability to track sales and modernize their enterprise mobility software solutions distributors face an inflection point will be both dramatic and decisive.
Many now believe an incremental approach to growth and survival is no longer viable. The next three to five years will see only visionary distributors who chart a new course for their businesses (distributors of the future) survive. Those who are constrained by the past and will face an inexorable decline.
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What is the path to becoming a distributor of the future?
It is important to acknowledge that an inflection point is not a negative event, but rather a threat to the status quo. Many distributors are responding by exploring incremental growth and cost- reduction opportunities by tackling tough questions:
- Which acquisitions will contribute to growth?
- What products can I add to drive value to my customers?
- How can reduce margin erosion?
- How can I better streamline order processing?
Only a select few are assessing the disruptive forces and considering more strategic questions, such as:
- How should I be leveraging digital innovations in order processing, sales AI and effective modernization?
- Who will be my competitors in the future?
- How can I energize my business with better order processing tools and sales AI?
- What new business models can I enable with the right technology?
- What long-term impact will B2b eCommerce and mobile order apps have?
- How are leaders from other industries harnessing modernization to maintain the competitive advantage?
Fortunately, there are ways to remain relevant. The fastest way to become and stay relevant while opening new lines of business includes an accelerating road map of technical modernization.
What does a distribution company do?
Many will say something along the lines of, “We buy stuff and we sell stuff.” or “Supply chain and order processing”. If this were truly the case, value creation for distributors with this mindset is driven by their efficient conversion of inventory and receivables to cash. However, when a distributor modernizes with the use of order apps, sales trackers and other valuable technology they increase their value to both their customers and suppliers. For retailers using an order app or other modern distribution tools they can gather buying habits, track sales and supply metrics. Information, analytics, and insights can quickly be gathered to offer an informed path to critical business decisions and stakeholder interactions. For distributors that can now gather infinite amounts of data with their vast human resources connected to a solid technical back bone they can use that data to improve their relationship with suppliers and by effect increase the overall margin of goods sold.
Technical modernization is not only empowering distributors to make more informed decisions or order processing it’s about what inventory to stock, how much, and where to store it, but what value proposition will resonate with each customer segment, what price to charge, which markets are growing, which segments value private label, which customers prefer in person sales vs. self-service, and which customers offer the strongest growth potential.
The implications of accelerating digitization on distribution are profound. This is, after all, an industry where traditional selling is foundational and where B2b often still means face to face. Some distributors will be shaken by these realities made clear by Deloitte research:
- A three-to-one margin, B2b customers would rather self-educate about
products and services than talk to a sales rep - 59% of customers would prefer not to talk to a sales rep at all.
- By 2020, one million B2b sales reps are expected to be made redundant by technical advancements.
- YoY growth in B2b eCommerce of 19% is faster than projected growth in B2C.
Perhaps the only other times distributors have faced such significant channel disruption was in the 1960s when household phone adoption reached 80 percent and then again in the late 1990s when computer and Internet penetration also reached 80 percent.
Mobility and Order Processing Are The Key
Advances in mobile technology and order processing are empowering customers to manage their business however and whenever they. Distributors can now measure their geographic impact and coverage based data gathered by customers using mobile to access business information and place orders via an order app. Ai2’s mobile app OrderShark offers increasing functionality that facilitate customers’ ability to access product and order information at a time of their choosing boosting sales and familiarity of available goods.
The essential mindset shift that must be made is for distributors to realize is that technology is no longer a back office cost to manage, and that digital is a weapon they can leverage for competitive advantage upstream and downstream.
A further manifestation of the disruptive impact of digital can be seen in AI -related opportunities. Here, modernization is not just leveraging new technologies but offering a competitive edge through suggested insights based on data analytics. These fast, reliable and deep insights help a B2b sales rep create value in an otherwise dull or repetitive conversation or task.
In addition it allows leadership to remotely monitor individual usage patterns and coach sales reps on how best to leverage a companies assets. Instead of selling a commodity product based solely on price, distributors can generate valuable insights from product usage patterns on the fly.
B2b eCommerce is not B2c
While consumerization of IT is driving a new wave of B2b eCommerce it is not B2c eCommerce and it should not follow the same path. Consider the differences:
B2b eCommerce vs. B2c eCommerce
|
B2b eCommerce |
Vs. | B2c eCommerce |
| I need. | Vs. | I want. |
| Complex pricing negoatied with my vendor. | Vs. | Simple price. I’ll find coupons or discounts. |
| Built for customer retention | Vs. | Built for customer acquisition |
| Ongoing | Vs. | Transaction |
| Purchase approvals and workflows | Vs. | Impulse buys |
| Relationship centered | Vs. | Product centered |
| Fast and often reorders | Vs. | Low level of product reorders |
| Rational purchasing | Vs. | Emotional purchasing |
Expectations in B2b eCommerce are increasingly informed by developments and experiences in B2c. Expectations common in B2C, such as transparent pricing and a customized user experience are rapidly permeating B2b.
Customers have high expectations with regard to user experience:
B2C expectations are very much driving change in B2B eCommerce customers want intuitive, fast and simple ordering platforms; visibility into inventory to know if an item is in stock; progressive search options to facilitate a quick, efficient order entry process; fast access to substitute products; and the ability to buy from their own device even when offline.
Author Bio
Andrew Johnson
Andrew Johnson is the VP Business Development for www.ai2.com. Ai2 creates the #1 sales order management platform for distributors and manufactures. He joined Ai2 after spending 8 years at Apple helping app developers open up new markets for Apple hardware by helping organizations and developers create go to market strategies that would lead to adoption and utilization of new hardware and software technology. Prior to working with Apple Andrew ran a boutique experiential marketing company in New York City working with some of the world’s most prestigious brands and bring their brand to live through live events and technology.