Be a strong competitor: Use technology to leverage skills

The competitive landscape for independent distributors is changing dramatically. You probably built your strong position in the marketplace by enabling your employees to provide higher levels of knowledge and service to customers than your competitors. If cost were not a consideration, you could keep increasing your service levels by adding more people, additional expertise, and higher service levels. But with today's demands, distributors have to increase their service capabilities while cutting costs and becoming more efficient.

One of the critical differentiators in distribution is how well your company can leverage every aspect of its operations, but especially your people and their core skills. Are you fully leveraging the technology tools available to increase customer loyalty and help your employees do more with fewer resources? Distributors have traditionally been masters at responding to market shifts and changing customer needs. Service capabilities are typically how most distributors define their advantage over competitors. And often it is summed up by a simple statement: "It's our people who really make the difference." One problem: If your people haven't become faster, more flexible, and responsive to what customers need, your company risks losing its competitive edge.

This article looks at the new realities in independent distribution channels and how distributors can keep their organizations competitive by developing this "leverage" mindset.

The game has changed: Distributors need to take advantage of employee skills

In the past few years, the traditional roles that independent distributors have played in the supply chain have changed. Distributors traditionally have followed the model of getting paid for products they bundle with the unique services that differentiate them from competitors. Today, however, customers have far more vendors to choose from and more choices for how to purchase products and services. As global sourcing options increase, distributors are squeezed by margin pressures on one side and price pressures on the other. That's clearly a no-win situation for companies that want to build a stable, profitable business that ultimately benefits customers, suppliers, and distributors.

In our current transitional market, creating win-win-win business relationships is more complex. What's clear is that distributors who stay in price battles as more products fall under the banner of commodities will see their profitability continue to erode. They risk reaching a tipping point where they can't afford to invest in the training and new product/service development activities necessary for their business to grow and innovate.

So what's the alternative? Learn to fully take advantage of the skills of the people in your organization. This one move can shift your company into higher gear. Doing more with less is fast becoming the new standard at every point in distribution channels. Distributors are using lean thinking not only as a way to cut internal costs but also as an effective sales tool. For example, lean-thinking distribution salespeople have shifted from pushing products to creating cost-saving solutions or production efficiencies, helping their companies make significant gains in customer spending and market share.

In addition, because many customers have reduced their engineering and/or maintenance staff, they rely more on their distributors for both products and application assistance. So some distributors are even sponsoring seminars and training programs on lean thinking that focus on supply chain management, so that their customers can share their expertise, deepen their relationship with the company, and find opportunities for improvement within their own organizations.

Redefining velocity: How can you be more responsive in a fast-changing marketplace?

The old standard in many independent distribution channels was product velocity. The goal was to move as much product through the channel as quickly as possible, and sales volume was king. I would never argue that higher sales volume is bad, but focusing exclusively on increasing sales can prevent an organization from moving beyond the old notion of velocity to innovate more competitive strategies.

In our ongoing research into key differentiators in distribution, the successful companies we've studied over the past seven years have all developed one important organizational skill in just about every aspect of the business, internally and externally: leverage.

The most profitable distributors are using integrated technology tools to increase the speed with which their people are able to respond to customer needs and communicate fully and transparently about product availability, order status, service capabilities, and delivery status. Thanks to these same tools, distributors are gaining deeper visibility into supplier information, including market intelligence, often in real time, to make faster and more accurate decisions.

These examples of leveraging demonstrate one of the new rules in the evolving distribution landscape: All relationships must be strategic and focused on continuous improvement. Transactional relationships focused on gross sales dollars alone—without overall profitability consideration—are too expensive today and waste the limited resources available.

So while the old model of independent distribution channels was built around product speed from the point of manufacture, today's emerging landscape is about the velocity of information. And here's the new question a distributor must answer: How fast can you deliver product at the right place and time in the customer's system at the lowest total cost?

If you want to build a more innovative distribution company, you have to ask this new question not only of your own organization but also of your key competitors, along with a few critical follow-up questions. Can you give your employees new skills and tools to make them more responsive in a fast-changing marketplace? Can you respond quickly to any type of customer request? Do your customers consider your company flexible, responsive, and innovative? Because increasingly, customers are using these criteria to evaluate which vendors to use.

Stay competitive with the right tools

The answer is that technology tools are becoming important differentiators of successful businesses. Distributors who want to stay competitive will have to adopt a strategy of giving their employees the right technology tools that will help them leverage their knowledge and skills. With the right tools, employees can maintain accurate and optimal inventory levels. And they can also integrate all the information from suppliers and customers to create the best comprehensive solution, one that will be profitable. Distributors who give their employees these tools will build the strongest competitive position and their value will stay clearly ahead of what their competitors can offer.