The COVID-19 pandemic began a series of disruptions that continue to impact manufacturers’ and distributors’ financial strength and growth plans today. The pandemic snapped the longest continuous economic expansion in US history, according to an analysis by consulting firm McKinsey. Since then, manufacturers and distributors have faced shutdowns, supply chain delays, labor shortages, inflation, and rising interest rates. As a result, cash flow has become a significant issue for many distributors, forcing many to access their credit lines, seek additional investment and/or debt to float operations, and downsize their staff.
Changing dynamics: distributors caught between consumer purchasing and manufacturers’ growth strategies
This strain on distributors is exacerbated by the fact that they are also caught in the middle, with manufacturers focusing on driving top and bottom-line growth by directly competing with their distributors and consumer purchasing slowing.
Emergence of direct-to-consumer (DTC) and business-to-business (B2B) marketplaces
This growth of e-commerce has altered the traditional manufacturer and distributor relationship and resulted in new entrants to the market.
The direct-to-consumer market (DTC), for example, has seen new business models emerge, such as Dollar Shave Club, which introduced a subscription-based D2C business model, and in 2014, mattress manufacturer Casper which focused on shipping products straight to the buyer, and offering a 100-day no-hassle return period.
Manufacturers like Whirlpool are even selling directly to consumers through physical stores.
Likewise, business-to-business (B2B) marketplaces are also on the rise. Dating back to the 1990s when industrial supply company Grainger became the first US business to put its catalog online, B2B marketplaces have consistently evolved. More recently, Amazon introduced Amazon Business in 2015 and Walmart introduced Walmart Business in early 2023.
Even retailers such as Home Depot, Lowe’s, and Advanced Auto Parts are moving further into the distribution space by selling to business customers directly.
Strained manufacturer-distributor relationship and the role of ERP systems
Fundamentally, the manufacturer-distributor partnership should be collaborative and must have mutual benefits and interests in mind. But distributors are being left behind as manufacturers bypass them and require them to use their ERP systems, giving visibility into distribution customers, demand patterns, inventories, and shipment data.
In addition to improving their operational efficiencies, some large manufacturers are even pressuring their distribution partners to buy stockpiles of inventory they may not be able to sell in the near term, and thus, result in draining cash on the distributor’s balance sheet, while other manufacturers are requiring distributors to provide data for market segmentation, customer tracking or other efforts.
This intrusion has caused increased pressure on distributors and is forcing them to find new ways to adapt to the marketplace, many looking at technology as a way to be competitive.
The evolution of distributors: investing in technology for success
According to an SAP Insights global survey, midsize distributors acknowledge that their business is changing far more rapidly today than in the past.
To survive this evolving industry disruption, distributors must invest in technology to move swiftly and position themselves as a distributor of choice.
Automating facilities and internal operations is crucial. Technology that can ensure your inventory is fully optimized, avoid duplicate work and use a single online system for business processes where users can enter data once and have it available anywhere for others to access when needed.
Investing in AI and machine learning will allow distributors to utilize their data more efficiently and uncover valuable, granular, real-time insights. Distributors will be able to anticipate customers’ needs, suggest product recommendations, offer alternative solutions, and achieve profitable growth by dynamically aligning offerings, key buying criteria, and customers’ willingness to pay.
Incorporating the data analytics into a unique customer ecosystem to address customer pain points is also a valuable service to differentiate oneself and strengthen loyalty. Within such a value-add service, distributors can collaborate with customers and provide technical expertise and other services to address customer pain points and discover new products and service offerings.
Adapting to the ‘new normal’: the need for change and expertise
After several years of supply chain delays, inflationary costs of goods and higher inventory levels, distributors and manufacturers are faced with increased competition and the need to evolve to a ‘new normal’ to remain relevant and strong in today’s environment. It’s a daunting task to undertake and particularly where to start. Hartman Executive Advisors provides unbiased IT leadership and advisory services to evaluate your operations and determine how IT can better support your business goals. Contact us to learn more about how we can help.