Do Wholesale Distributors Think in Terms of Supply Chain Optimization?
Not all wholesale distributors think in terms of supply chain optimization—but they should. Faced with growing costs, demanding customers and paper thin margins (net margin is often under 1%), supply chain management often separates successful distribution companies from those that constantly struggle.
Wholesale distributors act as aggregators of demand, buffering manufacturers from small orders and logistics complexity. As consolidators, they represent multiple, sometimes competing suppliers, placing the manufacturer’s inventory closer to consumption for faster delivery, and some provide a local contact for technical product information, repair and customer service. This ensures the right products are ready when and where the customer needs them, and at the right price. In markets where technology, regulation, competition, or fashion trends drive rapid product life cycles, the wholesale distributor often manages product succession as well.
For wholesale distributors, inventory presents a challenging balancing act: holding too much wastes resources and risks obsolescence, while stocking too little can drive customers into the arms of your competition. A wholesaler’s network is often more regional than global, and its inventory is predominantly in finished goods, yet the infrastructure is still characteristic of a multi-echelon supply chain, which can be likened to a massive glue trap for working capital. Developing core competency in supply chain optimization techniques such as demand planning, supply planning, replenishment planning, transportation management, and inventory optimization can give a wholesale distributor a competitive edge.
Our recent white paper, Building a Profitable Wholesale Distribution Supply Chain, takes a step back and re-examines the wholesale distributor’s complex supply chain—where balancing service and inventory costs is critical to the success of the business. The goal is to buy and stock as little inventory as possible, while still meeting all service level goals. Upgrading buyer-centric systems alone won’t drive more profits—a wholesale distributor’s playbook needs to include supply chain optimization techniques such as:
- Forecasting market demand while handling uncertainty
- Formalizing vendor-managed inventory consignment
- Reducing safety stock levels and shifting buffers for maximum efficiency
- Focusing on buying inventory when it’s needed
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