If you asked your average person about the wholesale distribution industry, do you think they would tell you it’s a sexy business? Probably not.
Last month in a keynote session at Insite’s Engage user conference, Ian shared why he believes distribution is not only a sexy business, but also a very profitable business.
Ian opened his session with a passionate reflection about the state of distribution:
I’m really tired of hearing that distribution is not a sexy business. First of all, any business that is intriguing, adds a lot of value to customers and makes you money is sexy. Secondly, if it’s not sexy then why are some of the world’s biggest, most well-capitalized companies moving in to disrupt distribution? If it’s so boring and terrible, why are they here?
You shouldn’t say your business is not sexy anyway. Because what message are you sending internally and externally then? If you think your business isn’t sexy what’s the message to your team? Well you guys all work here because you’re dull like me, let’s go recruit some stars. It’s like being single and having a Tinder profile that says, I’m generally less interesting and attractive than most people, but swipe right if you’re a fashion model. You can’t recruit that way.
Ian believes that if wholesalers want to keep their businesses sexy, they need to address the disruption headed for the industry. So, what’s changing? How do distributors address the disruption and take their businesses into the future? Here’s what Ian says distributors need to think about:
Assortment and availability have been commoditized
Traditionally, distributors added extra value to manufacturers and to their customers.
Traditional benefits distributors offered manufacturers:
- Geographic coverage -a manufacturer may have one plant, but a distributor can sell products anywhere
- Product availability – manufacturers don’t want to hold onto inventory after they manufacture it, instead they can send it to a distributor to handle
- Break bulk capabilities – manufacturers like to produce in railcar loads or truckload quantities, customers like to buy in units of one or two, distributors bridge that gap
Here are some of the benefits distributors traditionally offered customers:
- Assortment – customers can get a variety of products from distributors all in one place
- Financing – if a customer buys from a distributor they will bill you on 30 day terms
- Product – distributors make products available when customers need them
- Technical support – distributors can offer support and service if customers have any questions about products
Distributors traditionally made their money by adding value and benefits to manufacturers and their customers. But today, it’s not that simple. Things are changing.
- Small wholesalers are having to compete against Amazon Business.
- Channel complexity is exploding. Every channel player takes margin and adds costs. For example, fractional freight carriers like Uber freight mean the value of distributors’ delivery fleets aren’t quite as differentiated as they used to be. Amazon has even decided to get into delivery. By 2020, Amazon will have 120,000 delivery vehicles in North America alone. Competition for drivers will increase, price competition in delivery will be fierce. What’s the differentiated value of your delivery fleet in a world when anyone can deliver? The channel is becoming more and more complex. Every new channel player takes some margin away from distributors.
- More manufacturers are selling direct. Over the years, distributors have offloaded their responsibility to ship small packages and carry working capital to fulfill customer demand to their manufacturers. Their manufacturers, in turn, have learned to become distributors.
- Distributors used to be great at carrying products that were hard to find. Today, most of those products are now available on a marketplace. Whether it’s Google, Amazon, Alibaba, Walmart or some other marketplace, soon most of your products will be available and findable. Marketplaces will be able to deliver as well as or better than you can. They’re going to reach more customers. They’re going to understand customers better than you. They’re going to offer capabilities that you can’t match. It’s going to result in industry consolidation.
Today, distributors don’t create demand. They serve demand. Distribution is becoming commoditized.
Technology (especially AI) will Revolutionize Procurement
According to Ian, technology, particularly artificial intelligence, is going to revolutionize the world. It’s going to change distribution, procurement, B2B selling, sourcing and everything else along with it.
Put simply, you can’t understand the future without understanding AI or Artificial Intelligence. AI gets better on its own without human intervention. It works and reacts like a human.
AI analyzes data, makes decisions and takes action. Data comes from all kinds of sources, and innovators are constantly finding new uses for existing data. Consider a navigation app on your phone. It can inform you about how much traffic there is on the road. How does it know? Because the system is counting the number of cars between each cell tower and how fast they’re switching. Determining traffic patterns was not the original intent of tracking cell tower switching. But, along the way, someone figured out that they could use speed and frequency of cell tower switching to report navigation to your phone. They invented it so you wouldn’t lose the call. But someone realized that you could use the data for something else and now it’s in navigation systems everywhere.
Big data accumulates over time and you can find all kinds of interesting purposes for it. Distributors can use data from their ERP in interesting ways. They can market to customers, acquire customers, win back customers, plan inventory better, choose facilities and more all with information stored in their ERP system.
If you don’t think about ways to use your data, your competitors will. AI can measure its own performance and provide feedback into the big data system. When it comes down to it, you have to know how AI works because it is going to result in capabilities that you have to compete against and then provide to your customers.
Generational change will drastically impact customer expectations
By 2025 millennials are going to be 73% of the global workforce (and 44% of the US workforce). The rise of millennials is drastically going to change customer expectations. Millennials are digital natives who prefer to self-serve online whenever possible.
We love to hate on millennials. Ian says we need to stop bashing them and start embracing them. They are your customers. If you don’t like certain traits about millennials, you’re really going to hate the generation after them.
- If they can do it online, they’d rather do it online
- They know when you are marketing to them
- They won’t respond unless the marketing is relevant to them
- They rely on mobile
- They care about doing business with companies that are fundamentally good
Distributors will innovate or die
It’s clear that disruption has reached the wholesale industry. So what do you do about it? You take specific action now so you not only survive, but thrive in the future. Here are Ian’s tips for distributors looking to address the disruption:
1. Accept that disruption is here and is accelerating at a high rate
Distributors are not the only ones who are afraid of Amazon. Amazon has a lot of enemies including some of the world’s leading tech companies. Google, Microsoft, SAP, Oracle and even Insite depend on independent distributors. Those companies are going to develop capabilities that you can add to your IT system and offer to your customers over time.
2. Be a technology leader across your business
You don’t need to do AI today, but you need to be ready for it in five years. The only way that’s going to happen is if you have a really good technical team and transparent technical providers. Your technical providers need to be honest with you, have strong capabilities, and constantly develop capabilities that you need.
3. Quantify your exposure to marketplaces
This is easier than it sounds. Take 300 random transactions from the last year. Sort them into two groups. Make one group transactions that could have been bought in the marketplace. Make the other transactions that could not have been bought in the marketplace. Add up the sales volume, transactions and sales, and determine what percentage of your business is at risk to marketplaces. Simply add it up. Do it manually. Do it once a quarter and manage that number down over time. Recognize that things are going to change. New things will happen on marketplaces. But your business is also going to do new things. Measure your exposure to marketplaces in a way that makes sense to you. Don’t panic. Be deliberate. Have a strategy, but measure so you understand how well you’re succeeding.
4. Integrate supplier value into your value prop
Make sure you offer everything that you can for suppliers so that you become important to them and more important to your customers. If your manufacturers offer configurators, services, and so forth ensure you offer everything you can to add value.
5. Support an independent marketplace for distributors
Someday an independent marketplace owned by distributors may emerge. Think about marketplaces that do not buy or sell or have distribution centers. Perhaps Google, eBay or Alibaba could someday be a good partner for distributors. If an independent marketplace emerges, enthusiastically embrace it.
6. Learn to develop, price and sell hard-to-digitize services
If you’re going to differentiate in the future, you need to develop services and you need to know how to price them. You need to know which ones to develop. You need to know how to charge for them so you are not giving services away. Develop a service strategy because services require people and marketplaces don’t have people.
If you want to learn more about Ian Heller or Real Results Marketing visit their site here: http://realresultsmarketing.com/