By Harrell Kerkhoff, Maintenance Sales News Editor
Despite the best efforts of mega corporations that globally sell a wide variety of products and services over the internet, the wholesale distribution industry remains alive and well. The big question is, how can today’s small to medium-size distributors take advantage of future opportunities in a time of supply chain disruptions, labor shortages, changes in technology and a variety of other challenges — both known and unknown?
Providing specific tips during an educational session at the recent 2021 ISSA Show North America, in Las Vegas, NV, was Michael Marks, founding partner of Indian River Consulting Group (ircg.com). Marks discussed, “What Is The Future Of Distribution?”
Marks, who is also a research fellow of the National Association of Wholesaler-Distributors (NAW), explained that there are approximately 360,000 wholesale distributors in the United States.
“Even with mergers and acquisitions, that number stays very consistent. As distributorships are purchased by other companies, that process often forms a void that is filled by new distributorships, many of which are very digital by nature,” Marks said. “Today, 1 out of every 25 employees in the United States works for a wholesale distributor. (The late) Peter Drucker, management guru, once called distribution the ‘dark continent’ of the American economy. The good news is, distribution continues to grow. The key focus now should be on transaction efficiency.”
Marks added that true sales people should focus less on taking care of all the needs within “specific sales geographies” and more on the true act of “sales capturing.”
“The true role of sales people today involves disrupting a customer’s current supply chain, so they choose your company instead of the other guy. Part of the problem is, many sales people spend too much time in transaction management,” Marks said. “Keeping a customer happy is a function of operations, delivery and inventory management — not necessarily sales. You don’t need a sales person to just keep a customer happy, you need a sales person to capture more sales.”
Marks spoke highly on developing sales call methods that help create a recurring revenue stream. It’s also important that distributors focus on digital technology, inside sales and the development of sales specialists — all in an effort to seek out new customers.
Marks also stressed the significance of “switching costs.”
“A company’s gross margins are a function of its customers’ switching costs. If the customer has low switching costs when going from one distributor to another, that leads to each of the distributorship’s gross margins becoming lower,” Marks said. “Therefore, instead of just looking at pricing, (a distributorship) should work on making it cost more money for a customer to switch (from one distributor to another).”
Other points Marks made in his presentation involving distribution growth possibilities included:
■ “Consignment” equals “exclusive” — Marks noted that a consignment sales model can lead to exclusive sales from participating customers. The distributorship can reduce a customer’s working capital in that process, by controlling inventory and making sure products are properly stocked. Meanwhile, pricing can be reviewed at various times agreed upon by both parties.
■ Understand true differences between the B2C (Business-to-Consumer) and B2B (Business-to-Business) models — Marks explained there is a difference to be considered when examining B2C and B2B. For example, if a person orders Christmas presents in a B2C transaction, and the presents don’t arrive on time, the person who started the transaction process might have an emotional issue, but nobody is going to be greatly harmed. The same may not be true for a company that does not receive needed products on time from another company, such as disinfectant.
“There is a difference between B2C and B2B called the, ‘Cost of System Failure.’ One must consider what happens if a transaction doesn’t properly work,” Marks said. “Many people thought (large Internet retailers) and marketplaces were going to change everything and wipe out distributors, but it didn’t and won’t happen, simply due to the physical boundaries of sending products.”
■ Technology can take the friction out of sales and customer relationships, allowing sales people more time to sell — According to Marks, the “old school” way of transaction management takes time. The good news is, modern technology allows distributorships, regardless of size, to improve their sales processes.
“There are many low cost solutions, through the use of technology, that have proven beneficial. Speed is a weapon. It’s now a great time to be a smaller, nimble and resourceful distributor,” Marks said. “It all comes back to satisfying customers. As a distributor, ask yourself, ‘What are the stresses that our customers are going through? How, as a distributorship, can we help them, such as with modern technology?’
“It may involve helping customers solve their manpower issues. As a distributor, success today is more than just ‘moving product.’”
Marks added that there is a right way to embrace technology, and it should start at the senior executive level, rather than the IT level.
“(Executives) are the people who understand the competitive environment. They understand their company’s capital structure and competitors. They have a sense of ‘where things are going,’” he said. “The goal is to get senior management involved in the flow of information, through the use of new technology. Doing so can improve future capabilities.”
■ Plan ahead for the post-pandemic — Whatever the “new normal” will look like after the pandemic, it will nonetheless eventually arrive. Now is a great time for people involved in distribution to properly prepare for, and start thinking about, changes that may take place, as well as how to grow the customer base during those changes.
“It’s a good time to go through your company’s list of customers with staff members, ranking those customers based on future opportunities and needs,” Marks said.
Refering to a hockey saying, “Skate to where the puck is going,” he added that proper planning can lead a distributorship to the right place at the right time, when it comes to future development with customers.
“Plan where you want to be (as a distributorship) in three or so years in terms of capabilities, so when customers get to a certain point within that time span, and realize their true needs, they will turn to your company for help. Again, that process should be driven by senior executives.”
■ Get your employees involved — Global labor shortages remain a huge problem for businesses around the world, and that problem is not likely to disappear anytime soon. Marks said there are two basic reasons why employees leave.
“Employees want to have purpose. This pandemic has shocked everybody. More people are saying, ‘I want to do something where I feel good about myself,’” Marks said. “The second reason people leave is because they feel their voices aren’t being heard. They may make suggestions, but nobody seems to listen. That leads them to look for new opportunities, and right now, there are a lot of opportunities to change jobs.”
Employee engagement is not only essential to keeping companies intact, but allows them to grow, which in turn helps customers prosper.
Although changes and challenges within facilities supply distribution continue, Marks said there is still a place for family-owned, multi-generational distributorships. In fact, those are often the most resilient type of distributors. Continued growth for such companies will involve the use of modern technology, transparency, meeting the needs of current customers and looking for new growth areas.