The following article, written by Jim Tompkins and featured on his blog Gaining a Supply Chain Edge, gives a great discussion on the critical changes occurring in industrial distribution, and how distributors can best prepare for these changes. Read on:
Big things are happening in today’s industrial distribution landscape and they are causing an uproar in the industry as they occur simultaneously. The five big changes happening now are:
Experience. This means everything from real-time product availability and enhanced search, to improved product descriptions and streamlined checkout. Experience also includes mobile, order history, personalization, workflow management system and free shipping and returns.
Convenience. Today’s speed of delivery is “getting local.” This is evolving rapidly as industrial distribution consolidation continues to pick up pace, and it is also fueled by eager sellers and buyers. Multipliers are high and financial and strategic buyers have the available funds to invest. As a result, this consolidation is in more physical locations closer to their customers, and therefore available for delivery.
Selection. Today’s customers demand a selection that has broader variety and depth of product offerings. This can be done through mergers and acquisitions. By buying distributors who offer different products and then integrating these distributorships, you are able to offer a larger selection of products to your customers and the acquired firm’s customer. Many customers want to buy from fewer distributors, so M&A not only offers customers a wider selection, but also results in increased revenues.
Another way to increase selection is by acting as a marketplace. You can do this by offering products for which you do not stock inventory, but rather pass the order onto your marketplace partner who drop-ships the product to your marketplace customers. This stockless production can allow you to offer an “endless aisle” of product offerings without increasing inventory.
Price. This is always an important factor. Again, this is a potential benefit of M&A. By broadening your selection, you are able to sell more products to each customer. By having larger orders, you can create more efficient operations and reduce final delivery costs. This results in lower prices passed on to your customers.
Another price reduction avenue is to cut out your supplier and go directly to the source and offer your clients private label. This can often bring increased margins and brand loyalty.
Competition. Finally, you have to work in a competitive environment to change the landscape of the industry. Since other distributors are addressing these changes, you need to as well.
-Daniel Ford, DiCentral