As the U.S. continues to reopen the economy, no one knows for certain what the new normal for distributors will look like. There have been unprecedented shifts in consumer habits. Distributors in every sector have been affected, with some seeing drastic increases in demand and others seeing orders plummet. These changes in consumer habits have put small businesses at a disadvantage, with NFIB reporting that 92% of small business owners are struggling because of the effects of the pandemic. As businesses look to an uncertain future, one thing has become clear: those that commit to innovating will stay on top.
This guide highlights seven actions that distributors can take to weather the current economic climate while preparing their business for the future. For a more in-depth review, download the 7 Actions Business Need to Take Now white paper. There are also more distributor specific resources—6 Tips for Distributors of Tomorrow, from Consultant Dirk Beveridge.
Re-Evaluate Your Business Model
Now is the time for distributors to take a close look at which components of their business model are working and which must be adjusted. To determine what changes, if any, need to be made, it is critical to track key performance indicators (KPIs) weekly. Customer acquisition and retention is important at the best of times but has become critical. What is the lifetime value (LTV) of a customer now? How does that compare to your customer acquisition cost (CAC)? Do your customer acquisition costs vary relative to your business unit, their geographical location or respective channel? You need to evaluate how your most important KPIs have changed due to COVID-19.
One of the most significant changes will likely occur in the business-to-business selling model. Historically, most distributors made sales face-to-face, relationships were built in person. Now, there is limited or no face-to-face contact. Trade shows and events have been postponed. As more buyers work from home, they will likely become more self-servicing. They are looking for price transparency, the easiest and most direct way to get product—sometimes looking to go direct to the manufacturer.
This shift isn’t new, but it definitely has been accelerated due to COVID-19. Distributors need the right technology to capitalize on this new environment. Even if your business doesn’t have those tools in place today to support new selling channels, it is possible to get up and running quickly with the right partner.
Bedford Industries was able to set up an ecommerce site selling newly-produced protective masks within a week and, once it was live, completed the first online order within 45 minutes.
“Some of us have wanted to develop ecommerce for several years, but that method of direct sales and fulfillment is a very different model than our traditional B2B distributor model,” Bedford President Jay Milbrandt said. “This early ecommerce site has allowed us to shatter that barrier. There is already a lot of encouraging discussion about what other products we could imagine on the web store in the future.”
Conduct a Financial Health Check
One of the most important aspects of your business to pay close attention to during this transitional period is cash flow. As consumers’ needs have changed, the relationships between suppliers and customers have changed as well. To navigate this new environment, use key relationships with customers, partners and suppliers to maintain positive cash flow. Be sure to start with the larger clients, as they will have the most impact on your business’ finances. If possible, take advantage of cash discounts where available, in addition to the many rebates available from manufacturers. Identify fast moving items and keep on top of micro sales trends—there may be an opportunity to bring in additional inventory for items that you know are going to sell. Products as diverse as furniture, fish and fluoride have seen surprising rise in demand. Speaking of inventory, make sure you’re valuing old, slow-moving inventory accurately. Between housing, handling and additional administrative costs, the total cost of holding inventory can represent 25-30% more than the inventory’s unit cost value.
Monitor Health, Safety and Legal Concerns
For distribution centers and warehouses, especially those deemed essential, it is critical to ensure you are acting accordance with county, city and state health and safety regulations. Employees need to feel safe in the new working environment, and your customers should feel confident that the products they are ordering are safe as well.
Within the warehouse or distribution center, there are specific sanitation and safety precautions that must be enforced. Health authorities recommend that all frequently-touched surfaces be sanitized every two hours. In a large, busy warehouse, it may be difficult for workers to maintain social distancing while also trying to effectively communicate with each other. Consider providing communication devices like walkie-talkies. Precautions such as wearing personal protective equipment (PPE), following social distancing guidelines and frequent sanitation are new to everyone and they will likely need to be reinforced by management. Establish clear, consistent protocols through signage, and digital and in-person communication.
The CDC recommends that all employers implement and update a plan that is specific to the workplace, identifies all areas and job tasks with potential exposure to COVID-19, and includes control measures to eliminate and reduce exposure to COVID-19. The CDC provides a Resuming Business Toolkit designed to help organizations as they re-enter business and ensure employee safety. Make sure the new guidelines are distributed to all staff.
Conduct Scenario Planning for Supply Chain Disruptions
Forecasting is especially difficult in today’s environment, but preparing for possible future outcomes is absolutely necessary in order for distributors to survive.
Business should pro-actively address each element of a supply chain individually to reduce potential disruptions and how its status might impact the others across multiple best, bad and worst-case scenarios. Effective communication across all parts of the supply chain is now essential. Distributors should rate trading partners by how well they are able to communicate in the current environment—this will help uncover the potential weak points.
The operations group should be using all of the integration tools available to establish and monitor inventory levels. Look for delays in communication and or large adjustments to identify potential issues.
Empower procurement to identify potentially fast-moving SKUs and inventory and to work with suppliers and manufacturers to obtain better pricing for bulk purchases and to investigate rebate possibilities to keep cash flow moving. Logistics is critical to make sure they can get inventory where it needs to go. Ensure you have multiple options for each line of business or geography.
As businesses prepare to re-open, distributors should take this time to form tighter relationships with partners. Relationships built, maintained and nurtured right now will be stronger as a result.
Focus on Customer Retention and Acquisition
In many ways, COVID-19 has accelerated change and emphasized the need for automation for all distributors. Online ordering has become a lifeline in this environment and, if distributors want to remain competitive, they must adjust. However, it will take more than an online catalog to draw in new customers.
Online shoppers not only require a website that is easy to navigate, they demand transparent shipping and delivery times. They want to be able to talk with a vendor if they need help. This is just as important for existing, high-value customers. Distributors should provide customer-specific portals and pricing for valued online customers. Not only will an ecommerce presence simplify ordering for your current customers, it greatly increases your ability for potential customers to find you.
Star Metal Fluids, a distributor based in Phoenix, noticed its ecommerce site has gotten a small but steady stream of orders for its fluids. This suggests that smaller manufacturers are turning to Star Metal Fluids when COVID-19 shutdowns prevent them from getting their fluids from the distributors they normally work with.
Explore New Packaging, Pricing and Payment Options
With so much disruption to business, taking a fresh look at your product packaging, pricing and payment terms can shed some light on new opportunities. Can you offer promotion pricing or discounting to certain segments to spurt demand? Does offering payment term flexibility or use of credit make sense? Re-evaluating these aspects of your business can allow you to maintain positive relationships with customers and consumers.
Maintain Organizational Alignment
As distributors go through these adjustments, it is important to keep the organization informed and engaged along the way. With so much uncertainty today, transparency has never been more important. Employees feel anxious and tense, especially essential workers. At this time, it is crucial to keep all lanes of communication open. Take the opportunity to be up-front with your teams and reassure them that you are taking appropriate precautions to keep them safe. Keep them updated on what’s going on in the company. It’s important to make sure that everyone is aware of updated safety guidelines and adhere to them. Make sure that your sales teams have clear direction how they can be successful and continue to keep customers are the forefront.