Posted by Ranga Bodla, Wholesale Distribution Industry Lead, NetSuite
When faced with a flat economy, distributors often turn to cost cutting in order to keep their profit margins and shelve any plans for expansion. That’s what many are doing now, in the face of flat growth over the past year or two. Growth has been mostly in the single digits, and even industry leaders aren’t doing that much better. Modern Distribution Management (MDM) reports 2014's average growth rate for the top 40 industrial distributors was a meager 11.3 percent, and much of that was due to mergers and acquisitions.
What’s the best approach for dealing with a flat economy? MDM’s report, 2015 Wholesale Distribution Trends suggests several strategies for keeping revenues up in a poor economy. For starters, a distributor has to be flexible and open to possible opportunities for expanding product lines, inventory, markets or partnerships.
At the same time, a distributor shouldn’t rashly jump into something without doing its due diligence. Not all new markets or new technologies are worth the investment, especially when future sales may not support the expense.
MDM spoke to numerous industry experts to get their insight into how to handle a down market. They all agreed that distributors, especially the independent ones, need to make sure they’re following best practices in their operations.Many want to rush out and purchase a new piece of technology, overhaul their website, or upgrade their software, but that may not be the best move. Instead of rushing into a major change, ask yourself “Do I have the right foundation in place?” and “What’s hype versus what do I actually need to do?”
Once you’ve ensured that the fundamentals of good business are in place, then focus on these other four areas that MDM’s experts say are important today.
- Improving Ecommerce Capabilities. This is no big surprise. By now, online shopping has been available for at least 20 years, and both B2C and B2B customers appreciate the convenience of buying online. While the B2B ecommerce evolution has been slower, business buyers now also expect to do product research and place orders on their distributors’ websites. Increasingly, they also want their B2B vendors to support all of the complex processes that are part of a B2B purchase – yearly contracts, negotiated prices, delivery schedules, credit, and payment plans. So, NOW is a good time to upgrade your online B2B store to serve more of your B2B customers’ needs. If you don’t have much of an ecommerce site at all, then you need to get going. Ecommerce helps distributors to generate more commodity-type sales and low-value sales, while not taking time away from customer service and sales employees, who should be devoting their time to high-value customers.
- Deepening Customer Relationships. As noted above, high-value customers should be cultivated with superior service. Distributors should consider ways to cement their relationships with top clients and invest in services and upgrades that will enhance the buying experience for these customers. That could mean shorter response times for service, new product features, an upgrade to the online knowledge base, or increasing the number of in-person visits.
- Operate a Leaner Supply Chain. Distributors should always be looking for ways to trim their costs, and even more so when sales are slow. That focus on cost efficiency increases when revenue growth is slowed, and distributors must manage their supply chain partners and processes to ensure maximum efficiency.
- Smarter Supply Chains. As smart devices become ubiquitous in production and distribution, they’ll add to the operational data that can be tracked and analyzed. It will be easier for distributors to spot hidden inefficiencies, and tweak supply chains processes to maximize resources. MDM projects that supply chains will become increasingly governed by smart devices which will monitor the quality of materials, shipping times, inventory levels, product and partner reliability, energy consumption, and myriad of other data points. Those who can leverage the Internet of Things (IoT) in their supply chains will be more competitive than others who are less efficient.
Those distributors who develop collaborative relationships with their business customers, and invest in technologies that can solve those customer problems, will be the winners in 2016. Maintaining a healthy margin today and in the near future depends on leveraging IoT capabilities to reduce costs, speed delivery times and provide customers with optimal service.