Distribution has become more competitive and more difficult. The continuing evolution of online tools has not only driven more sophisticated customer demands but also the advent of pure digital players that add value in ways traditional distributors often do not.
In their classic 1982 textbook “Marketing Channels” (here's a link to the revised edition), Lou Stern and Adel El-Ansary summarized the value-added functions of wholesale distributors. Over the years, I have developed some updates based on their work:
- Assortment convenience – A wide range of products from one source.
- Market information – Insights to customers about available product solutions and insights for manufacturers about what is needed by customers.
- Market coverage/product availability – Products available for delivery across a specific geography.
- Bulk-Breaking – Manufacturers produce in container loads; end users buy in small quantities. Distributors receive bulk quantities and then sell small orders.
- Demand generation – Distributors utilize marketing and sales techniques to drive demand.
- Order processing – Distributors take and fulfill relatively small orders more efficiently than manufacturers can.
- Sales contact – Distributors meet customer needs with outside and inside sales.
- Advice/technical support – Distributors offer expert product advice across a wide range of suppliers and products.
- Inventory holding – Distributors provide working capital to keep inventory from many manufacturers available for an even larger number of customers.
- Customer support – Distributors offer a long list of specialized services to meet customers’ needs (e.g., rebar fabrication or making wiring harnesses).
- Credit and finance – Distributors extend credit terms, offer leasing, etc. to enable customers to fund and procure an uninterrupted supply of product and service purchases.
In our omnichannel age, this is still the foundational list of core competencies a distributor must maintain and develop to remain competitive. However, the specific capabilities that make up each core competency have radically evolved.
For example, “order processing” now includes not only straightforward online capabilities but also more advanced tools such as eProcurement integrations. Credit and finance has become more expensive for distributors that offer net 30 terms but now need to match the 55-day terms Amazon Business offers.
Other industries have been through similar transformations. Southwest Airlines upset the hub-and-spoke model with its point-to-point network and superior operating practices. Apple introduced the smartphone and nearly drove industry stalwarts like Blackberry, Motorola and Nokia out of the business or into small niches. Netflix destroyed Blockbuster. Amazon killed Borders. The list goes on and on and the only constant is perpetual change.
It’s our industry’s turn to be disrupted and distributors have a choice: Adapt to the new environment by changing the capabilities that drive your core competencies – or wither away by failing to recognize the threat or refusing to adapt to it. But in the end, it’s all about modernizing the capabilities that support Stern and El-Ansary’s list of the core competencies of a wholesale distributor.
Please send your thoughts to ian@mdm.com.
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