Gaining competitive advantage in distribution is all about positioning. Successful distributors continually adapt to find new customers, meet emerging needs, and capture share in shifting markets. They clearly differentiate their value proposition to customers and suppliers in the unique mix of products, service, and knowledge they deliver. And they prove their value in the supply chain daily by solving problems, reducing costs, and increasing productivity.
This model has served countless companies for decades; in fact, many distributors wonder why, after all, they should fix something that has been producing double-digit sales growth for the past few years and making stakeholders smile? But distributors are at risk if they aren't building a solid platform for the future and adapting their business model to the growing global market.
Most distributors typically plan around what happened the year before, adding a growth percentage increase based on a number of market indicators. The danger with this methodology is that as industry consolidation continues—at all points in the supply chain—incremental business improvement isn't enough to stay ahead of new competitors. Sustainable growth has to come from a much more strategic approach where distributors use available technology to position themselves to thrive worldwide. But recent industry surveys indicate that only 30-40 percent of distributors currently work from such a formal plan.
This article takes a look at four critical building blocks that can help distributors plan to take advantage of emerging opportunities and avoid surprises that translate into setbacks.
Improve customer service
As global trade and communication barriers have fallen, the number of alternate supply sources has exploded. Add to that intense cost pressure from low-cost countries, and you have tightened margins in many sectors of distribution. In response, many successful distributors now offer a broader array of services to customers who have had to reduce their internal resources due to their own international cost drivers. In doing so, those distributors have increased their own margin points.
There are also ways distributors can cost-effectively deepen their local customer relationships. For example, a Midwest distributor created an online catalog tool that it adapts for each customer based on purchase history and that provides real-time inventory and order status. This self-service product information and ordering tool enables salespeople to spend their time resolving higher level customer matters, routing lower level issues directly to inside sales support, and prospecting new opportunities. Additionally, mobile technology tools enable salespeople to be more productive and accountable. They can be out in the field, calling on customers, rather than in the office doing reports. And sales management gets better visibility on day-to-day activity so they can strategically guide the time and focus of its sales force.
Manage business complexity
Some distribution operations resemble a cross between a fire drill and the movie Groundhog Day. Each day, employees show up at 8 A.M. and start the same process to perform the necessary repetitive tasks that have been built into managing sales and order flows. This can stretch resources enough that nobody can find time to look at ways to automate necessary functions and remove outdated processes.
Another issue may be that the distributor is using a technology solution that can't adapt to or integrate with customer and supplier systems. And as distribution companies grow through acquisition, connecting new branches, corporate cultures, and logistics operations can be difficult at best. The bottom line—because they have to juggle many complex business processes by hand, employee productivity is fundamentally compromised.
The right technology can integrate distributor operations across multiple locations and free up employees to address emerging business demands. Information-sharing tools—even commonly implemented technologies such as e-mail—can significantly increase visibility and communication across the company, helping distributors stay ahead of competitors by being faster and more responsive to changing market conditions.
Attract high-value employees
The distribution business isn't particularly alluring to 20-somethings. It's a difficult career path for them to understand the promise of, despite the great opportunities and income potential it offers. And as technologies help tighten the supply chain, talent will increasingly be the critical differentiator for distributors. You can bet your competitors are actively recruiting and training the next generation of employees.
How do you make sure the brightest talent will choose your company to grow their careers? Take a look at what a visit to your office headquarters looks like through their eyes. Some key questions to ask include:
Do prospective employees see a place where they can advance their careers while making a difference in the success of the business?
Do they see a set of technology tools that allow them to stay connected internally as well as externally—and that indicate a business with an innovative future?
Do they see a management team that rewards initiative?
Can they see a team environment versus one where they are simply told what to do?
Improve process, productivity, and profitability
These "three Ps" are perennial. Many distribution functions involve repetitive, low value-adding activities, such as transaction processing, fulfillment, and warehouse and logistics management. Distributors that find ways to free employees from those tasks to focus on high value-adding activities—such as solving customer problems, deepening vendor/customer relationships, and learning new product solutions—see significant increase in profitability. Great distributors work constantly on process improvement in every part of the business. They have key performance indicators (KPIs) in place that they use internally and share with customers to help benchmark their value and differentiate them from competitors.
Take stock of your building blocks
How does your company measure up in each of these four areas? In a world where customers can find a lower price with the click of a mouse on nearly any product, excellent local customer service is a key differentiator. If your employees feel like they are running 100 miles per hour every day just to keep up with the daily pace of sales, that means everyone is too caught up in the complexity of business processes—and you risk burnout and overlooked tasks. You should be doing everything to find and hire engaged and motivated people who can take the business to greater levels, or you could be sacrificing the future potential of the company. And the "three Ps"—process, productivity, and profitability—are a hallmark of professionally managed companies in any business sector.
Wherever you are in the life cycle of your company, you have to plan strategically and execute purposefully to reach the next level of success. The common denominator for success is applying the right technologies and processes at the right time—enabling employees to create customer-focused solutions that take the business far beyond the delivery of products in boxes. In increasingly competitive global markets, this will define the most profitable distributors in the next decade.
Author
Thomas P. Gale
Tom Gale is publisher and executive editor of Modern Distribution Management, a specialized information service that provides insight and analysis on trends in wholesale distribution channels. Modern Distribution Management's information services include paid print/online newsletters, industry intelligence e-newsletters, a Web site, audio conferences, and book and special reports publishing—all focused on the topic of wholesale distribution.
