5 Trends Disrupting Wholesale Distributors and How to Capitalize

1. Direct to Consumer Competition

In the past. manufacturers shunned direct to consumer (D2C) selling for fear of alienating their wholesale distribution partners. Over the past few yeas the D2C business model has been growing dramatically. D2C growth has come from a new breed of companies that design, manufacture, sell and ship their products without intermediaries. Often called digitally native, brands like Warby Parker, Casper, Allbirds and Bombas, are disrupting fashion and apparel, home and garden and many other industries. It is not just big venture capital supported companies cashing in. Shopify and other online stores have made it easier for new entrants.

SAP reports D2C sales grew 45.5% in 2020 and the trend continues. According to Insider Intelligence D2C sales, as a whole, continue to increase and are likely over 15% of all e-commerce sales. PiperCandy estimated D2C at approximately 13% of all e-commerce sales but also points to the growth of direct channel sales being tied to established brands. Nike is one of the most prominent examples of this, with D2C now making up 35 percent of its profits. Competition also increases when the former online only brands open brick and mortar stores. This confluence of online and brick and mortar is taking market share from wholesale distributors.

2. B2B Buyers Prefer e-Commerce

According to 2020 research from McKinsey & Company, more than 75% of B2B buyers and sellers say that they prefer purchasing online. In a recent report SAP reported this number up to 83%! The good news is more and more wholesale distributors have grown their own e-Commerce capabilities to meet customer preferences.

Distributors with a strong e-commerce program pre-pandemic benefited as business moved online. MDM reported in their 2021 survey that 21% of wholesale distributors reported e-commerce sales were 20-30% of total revenues. This number is likely only increasing as investments are made to improve e-commerce sites. Investments include:

• Improving search capability – ability to search by description, part number, customer part number and filtering
• Enhancing Search Engine Optimization (SEO) functionality – ability to rank higher in search engines without ads
• AI-powered Search – ability to learn from data on users to generate more accurate and relevant search experiences

With more business moving to e-commerce, it is critical to differentiate your distributorship. Differentiation could mean sub-specializations, superior service offerings, creating bundles for specific purposes, etc. To compete with D2C and other online competitors we see more distributors offering high value services with kitting and product consulting around their products to differentiate from online competition. Differentiation through specialization also can improve your SEO or better target paid online advertising.

3. Disruptions in Supply Chain

The global supply chain impacts created by COVID-19 have been a wake up call to surviving wholesale distributors. As a result, distributors created new partnerships and creative ways to reduce risk and streamline operations. With shipping cost up over 75%, there was no choice!

Although the immediacy of COVID-19 related disruption has passed, there are still lingering problems and future disruptions are likely from an expected recession. Capgemini Research Institute reports that 89% of organizations see disruption in the supply chain as the top business risk. Distributors must plan for supply chain issues including:

• Demand drops and surges by segment
• Supply shortages
• Inventory placement challenges
• Reduced productivity (staffing and other issues)

Accenture recommends the following five priorities for immediate action:

1. Put people first: Keep the planning workforce healthy and productive by supporting new ways of working.
2. Leverage data to improve visibility: maximize visibility into demand, inventory, capacity, supply and finances across the ecosystem.
3. Define segmentation to prioritize demand: carefully analyze demand and define priority micro-segments.
4. Build a sales and ops SWAT team: mobilize dedicated planning and execution teams that are able to undertake multiple interventions and orchestrate responses effectively.
5. Evaluate supply chain scenarios: run simulations to predict when and where excesses and shortages are likely to occur as well as running end-to-end scenarios to get actionable insights that will optimize operational metrics.

4. Rapid Technology Evolution

According to SAP 87% of supply chain experts plan to invest in technology in 2023. Capgemini reports that 43% are investing in supply chain resilience and 39% increasing investment in technology to reduce costs and drive business transformation. Key areas of investmetn include:

• Intelligent automation
• Transportation management and freight cost reduction
• Personalized and real-time customer experience

Capgemini recommends:

Build and deploy a composable, integrated, and customer-centric architecture, combining a transactional backbone, ERP, best-of-breed industry solutions (notably for execution), as well as data-sharing and
collaborative platforms to break down siloes and enable end-to-end management, from simulation to AI-based event monitoring.

Capgemini Research Institute: Advancing through headwinds: Where are Organizations investing

Although much of this research and resulting recommendations are targeted at the larger organization, small to mid-sized businesses must also invest to compete. Modern mid-market business management systems like SAP Business One, NetSuite and Acumatica provide robust core ERP functionality and integrate with industry specific solutions.

5. Workforce Staffing Challenges

Workforce staffing challenges are not unique to wholesale distribution, however: distributors are in a great position due to technology. Digital transformation in wholesale distribution has been powered by robotics, improved warehouse management technology, artificial intelligence and even augmented reality! Depending upon how sophisticated or updated your technology is, there are likely opportunities for improvement which reduce your reliance on manual labor.

Specialized staffing always presents a greater challenge. Today’s younger generation has a greater interest in work-life balance, personal fulfillment, social justice and/or charitable endeavors. Often these influences can be addressed with joint programs with your local university. Consider upskilling existing staff and joint charitable activities to assist in recruiting while addressing social concerns. Technology can also be help with advanced inventory planners using statistical analysis and other similar technologies to reduce quantities and increase drop shipments as appropriate.

Capitalizing on Wholesale Distribution Trends

in the digital age, integrating technology is the key to your wholesale distribution operations are key to increased profitability. Specifically, for wholesale distributors we recommend:

• Digital Transformation – Use technology to automate and streamline your operations This starts with clarity in your business process. Technology is just a tool. Having a digital process and a team properly trained to execute are crucial to any transformation
• Enterprise Resource Management (ERP) – ERP is not only for large enterprises and it does not require one system for everything. We consider ERP the business management platform which centralizes and controls data for better decision making.
• Integrated eCommerce – Your website is no longer a brochure for educating people about the company, but a dynamic communication platform and storefront for your business. Modern ERP systems have “out-of-the-box” or “certified” e-commerce capabilities. Most integrate with leading platforms like Shopify, Woo-Commerce and Magento. Using a leading platform helps with SEO and having it integrated is the efficient way to operate.
• Warehouse Management Systems (WMS) – From simple bar-coding, to license plating, and onto advanced directed location management every distributor needs WMS.
• Material Requirements Planning (MRP) – Knowing how much stock to have and when to order it are key to meeting customer expectations and preserving cash. Many mid-market ERP have MRP built in and some have more advanced regression analysis. I-BN has also recommended systems like NetStock and Valogix, depending upon the core ERP, for more advanced functionality with multiple warehouse inteeractions.

Next Steps

I-BN and its partner community offer a wide array of services to increase the effectiveness of wholesale distributors. Consider one of the following services, with full confidence that our initial consultation is always free!

• Digital Tranformation Readiness Assessment – Is your organization ready for change? Talk to one of our exectuvies to find out for yourself!
• System Selection Exploration – Have you outgrown your entry level system or need a more modern platform for your business? We can help you answer these questions. Surprisingly, the answer is not always yes!
• Integration Strategy – Do you have multiple systems you are looking to streamline? Do you have a strategy for integrating systems? We have helped with hundreds of integrations with a wide variety of systems and technologies.
• Cloud Selection and Optimization – Are you looking to move to the cloud? Are you having difficulties managing multiple cloud applications? As one of the first cloud service providers for small to medium sized business, we know how to optimize your cloud experience.