How to Remodel Your Distribution Business for 2016

Posted by Ranga Bodla, Industry Lead, Wholesale Distribution, NetSuite

What is the outlook for distribution companies in the coming year? Depending on your industry, the next twelve months promise to be anywhere from modestly down to minimally up. In fact, terms like “flat,” “negative,” “slowing,” “weak,” and “preparing for a storm,” are how distributors described their current state of affairs in a 2015-2016 survey of distributors, conducted by financial services firm for Robert W. Baird & Co. In fact, for many industries, just breaking even is viewed as good news. As David Manthey, senior research analyst for Baird, put it: “Flat is the new up.”

While each industry has its unique problems, they all share some common economic circumstances. One is the weakening of the Chinese economy. China accounts for a substantial portion of U.S. industrial product consumption, so when it tightens its belt, we all do. Another general trend is the overabundance of materials and products, which drives down prices and has saturated some markets.

“The world is awash in too much of nearly everything,” said Manthey.

But it is still possible to grow and profit even in an economic malaise. Manthey and other distribution industry experts who spoke at Modern Distribution Management (MDM) 2016 Distribution Industry Outlook webcast advised distributors to shake up their business models and invest in innovative thinking about their markets, changing customer needs, and the value that the distributor holds for its customers. What can you envision them needing two to five years from now?

Now is not the time to hang onto the status quo.

“Companies are still using the same business model as five or 10 years ago,” said Tom Gale, publisher of MDM magazine, who spoke on the future for distributors. Instead, he urges distributors to re-think and re-model their business strategies.

Gale mapped out three importance steps for a successful business “remodel.”

Refocus and adapt. First, you have to refocus and evaluate the company and its industry. Don’t focus as much on your products but on your customers and the changing markets. For instance, millennials are growing up and graduating into procurement and supply chain management positions. How will they change the way your products are bought and serviced? Changes in customer buying habits or demographics might also lead you to expand into different product areas or sell products into new markets. Refocusing your business strategy will likely require you to do some serious soul searching—and research—into your company’s core values and its value to customers.

Recruit talent, not résumés. Talented employees are getting harder to come by, yet their importance to your company continues to rise. As products and distribution processes become more technology based, distributors need employees with specific types of skills and experience. However, when every distributor is looking for the few dozen people that have exactly the same technical qualifications, many distributors are going to lose out. In reality, having a checklist of credentials is not the best method for evaluating job candidates, said webcast presenter Jenel Stelton-Holtmeier, MDM’s editor. Many skills can be learned, while other qualities like creativity and common sense can’t.

“The right candidate may not line up with your preconceived ideas. You don’t want to let your search for the perfect employee keep you from finding the best employee,” said Stelton-Holtmeier.

Skills can also go out of data pretty quickly. So invest in continuing education to ensure your people learn, and stay up to date on critical skills such as digital literacy, business analysis tools, and ecommerce.

Invest in strategic technologies. There’s no getting around the fact that we do business in a highly technical age, where much of the product innovation and process improvements are based on emerging technologies. Traditionally, IT in a distribution company has meant a huge ERP server, and its value was in ensuring that transactions got processed and recorded accurately.

ERP today is much more than a system of accounting transactions. It now includes new technologies and features critical to distributors.

“Leading companies are viewing ERP as a competitive tool and rapidly starting to bring in new functionality to their ERP systems or to buy add-on products like analytics, forecasting capabilities and ecommerce,” Gale observed.

These new capabilities are also increasingly cloud-based, allowing IT to shift from being a back-office maintenance crew for keeping the servers going, to a strategic department that evaluates new technologies of potential value to the company.

Budgeting your IT resources to meet current and future challenges is a careful balance. A distribution business can’t run smoothly on only new and emerging technologies. Nor can it compete effectively if it spends all its resources on patching its aging systems.

It might be helpful to think of a remodel as a renovation project, which it is if you think about it. Invest too much on shoring up the foundation and you won’t have much to invest in new construction or innovative additions like solar panels or motion sensors. But if you focus only on the cool new stuff, the house’s aging foundation may just crumble -- and take your remodel along with it.

Download your FREE copy of the 2016 Distribution Industry Outlook report from Modern Distribution Management and find out how companies are planning to build revenue and cut costs.