For the past decade, the wholesale distribution sector has been in a transitional phase as many companies shift to digital-first capabilities. However, as one would expect with an old-school industry like this, there are just as many distributors that prefer to stick to their traditional methods of doing business.

In MDM’s latest QuickTake podcast, MDM CEO Tom Gale and Indian River Consulting Group’s Mike Marks discussed how traditional “Gen 1” distributors can avoid being left behind by “Gen 2” distributors that have utilized technology to achieve effective digital transformation.

Marks described Gen 1 distributors as those that only make changes when they absolutely need to — they react to threats in order to survive. Gen 2 distributors, on the other hand, make a conscious decision to change because they see an opportunity to reach a better position in their industry. They set a goal and then go on a journey to achieve that goal, Marks explained.

“Somebody is a Gen 2 distributor when — wherever they are on their journey — they’ve made a decision that the Gen 1 guys haven’t,” he said.

Marks added that Gen 1 distributors are like capacitors: they store their inventory and then release it based on demand. Gen 2 distributors use data, have better demand visibility and are asset-light, Marks explained, adding that Gen 2 distributors are among the first to take advantage of new technology. The discussion touched on the impact two successful models have had on accelerating digital adoption by distributors: MRO supplies distribution giant Grainger was one of the first companies to effectively utilize CD-ROM in the mid-1990s. Grainger struck again in the early 2000s, when it developed eCommerce and Web store capabilities. In the 2010s, Amazon Supply morphed into Amazon Business, rapidly capturing market share for commodity and long-tail MRO products (It’s no surprise that Grainger and Amazon Business ranked No. 1 and 2, respectively, on MDM’s Top Industrial Distributors list in 2022.)

“In these last five years, the digital aspect has started to mature, to blossom in a lot of ways in terms of a lot more maturity and alternate channels — the different market channels that have emerged in terms of marketplaces,” Gale said. “I think that’s an important context in terms of where distributors keep hold of what their core DNA is, and it what it really looks like in terms of developing a Gen 2 strategy.”

It might take time, but it isn’t too late for Gen 1 distributors to begin their journey and take advantage of the technology that’s available to them, according to Marks.

“Step one is to decide that you’re going to go on a journey — multiple years — and not just solve a problem,” Marks said. “The second decision is to surround yourself, step into that flow of information and the companies that are doing it, and be a fast follower. You don’t have to invent everything in a vacuum. You can go take a look at what (others have done).”