There is a change a foot in the wholesale distribution companies I work with. They are accelerating their efforts to expand and protect their value with in the supply chain. Adjusting their business models and experimenting with new practices to differentiate them from the disruptions taking place in the industry. Why now? Experts have been providing warning signals about this disruption since the 1990s with the birth of the internet and the emergence of new players like amazon. Most distributors have continued on with their traditional business practices for many years in the face of these threats. Evolving with incremental changes but not challenging their core value proposition dramatically. Playing defense, not playing offense.
For whatever reason playing defense has worked for many distributors until recently. Many relied on geographic and category expansion as the main source of growth. But the threats of erosion in their business models is starting to cause distributors to start changing this approach. Their long-standing customers are starting to place their smaller, commodity based orders with non-traditional competitors, their smaller customers are gradually shifting their business through new channels. The top customers are asking distributors to take on more and more activities and roles, asking them to become extensions of their processes. And talent is the most recent challenge. The wholesale distribution industry can expect a substantial exodus of older workers in the coming years and is already facing a challenge to match workers to jobs. This will require a new workforce strategy to address the new reality. All of this is putting more and more stress on the distributions organization, traditional business model and, most importantly, profit margins.
With all these changes more and more distributors are playing offense. They understand that the practices of the past are no longer good enough. They also seem to understand that they can’t try to become someone they aren’t. Just chasing the “Amazon” business model may not be the right approach and they probably can’t win that game. Rather they are asking though questions of what has and can differentiate them in this new market and from these new disruptive competitors.
Distributors are investing in capabilities that highlight to their customers the critical role they play in their success. This includes the expansion of value added services, acquiring different kinds of companies which provide needed capabilities, focusing on a keeping and attracting the type of talent that fits with these capabilities. This includes embracing a more comprehensive digital customer experience as well, but one that is more than just placing more orders online. With this broad-based transformation, distributors are also investing in modern technology platforms and innovations to support the additional complexity in their business, to extend their enterprise reach to better encompass their suppliers and customers, and empowers their new-aged workforce.
Its an exciting time in the distribution industry. The energy and urgency is different.