Wholesale Distribution: Any Way You Want It?
I have an affinity to rock & roll music released from the late 70s through the early 90s. The groups on my most listened to playlists include Boston, REO, Rush, Kansas, Styx, Van Halen, Eagles, Foreigner and The Police, just to name a few. I find it interesting that even though many of these groups haven’t released an album in decades, there are stations dedicated to playing this music, television ads often feature their songs and many of this era’s songs have been re-recorded by current bands.
Recently, I was listening to Journey, another of my favorite groups, while reading about the current state of the Wholesale Distribution Industry. I’m sure you’ve experienced this too! The Journey album “Any Way You Want It” made me think about the current strategy of wholesale distributors and the desire to provide whatever a customer wants whenever they want it. Although this might sound ideal and be a viable short-term strategy, in the longer-term other strategies might be more sustainable and ultimately more profitable.
The wholesale distribution industry in the US alone includes about 420,000 establishments with combined annual sales of more than $8 trillion. Wholesale distributors have played an important supply chain role for well over 100 years helping to drive the economy and meet ever evolving market needs. However, wholesale distributors face greater challenges today than ever before due to the increasing complexity of supply chains and ever increasing customer service expectations. Wholesalers are quite literally caught between a rock and a hard place.
Wholesalers occupy a difficult supply chain position between retailers and manufacturers who both face their own set of challenges. Retailers demand lower prices, shorter lead-times, broader product portfolios and value added services while and manufacturers are seeing their costs rise due to increasing commodity, labor and operating costs. Now add in the challenges of an increasingly global marketplace and omni-channel distribution which can remove the wholesaler as an intermediary in the supply chain and you can see why wholesalers feel squeezed. To stay ahead, many wholesalers are doing everything they can to deliver whatever the customer wants.
Historically wholesale distributors have been sales-driven companies founded to fill the gap in capabilities between manufacturers and retailers. They tend to be highly responsive and organized around their specialized sales resources. However, in today’s digitally driven economy this may not be the ideal strategy to ensure success. Wholesalers need to evolve from a customer-only focus to a market-driven strategy that combines the best of sales-driven and operations-driven strategies.
Instead of being reliant on the sales force as the primary window into the market, a market-driven wholesaler embraces some aspects of internally focused and efficient operations that are based on analytics and company performance objectives. Being strategically driven helps to provide a balanced perspective between internal and external forces. Scientific-based operational capabilities enable the wholesaler to be both proactive to expected market changes and responsive to customer demands. A market-driven organization will ask the question, “Is it profitable and in the long-term interests of the company to provide a customer what they want?” Wholesalers that are market-driven often expand from pure product sales into proving higher value offerings like integrated supply chain services.
Outlined below are three steps wholesale distributors can take today to start moving towards a market-driven operating strategy.
- Mature Your Supply Chain Planning: Develop robust planning capabilities and integrate them into your existing revenue forecasting processes. This will help move the organization from selling whatever customers want to meet quota to selling what is most profitable or beneficial to the wholesaler while also meeting customer needs.
- Optimize Your Inventory: Too much inventory leads to discounting, obsolescence and write-offs. Too little inventory causes missed service levels and lower revenue. Leading wholesalers are moving away from simple inventory policies based on “rules of thumb” and embracing scientific approaches to managing inventory like Multi-echelon Inventory Optimization (MEIO). MEIO considers time-phased demand and service level requirements to determine the optimal quantities of a product at each location. MEIO is a game changer and can lead to significant reductions in inventory while maintaining or increasing in-stock availability.
- Add Long-Range Planning Capabilities: Long-range planning creates an action plan for meeting the company’s goals while ensuring the development of necessary capabilities to support strategic objectives. The purpose is to understand what market and other conditions may exist down the road, identify areas of opportunity, and anticipate what competitors may do over an extended time horizon.
Wholesale distributors who move beyond a sales-driven focus based on low price, today’s orders and rules-of-thumb to a strategically driven analytically led approach can reap significant competitive advantages. Maybe for the wholesale distribution industry a more appropriate Rock Album would be “A Question of Balance” by the Moody Blues.
1 “What Challenges Are Distributors Facing?” National Association of Wholesale Distributors