By Magnus Meier, Vice President and Global Head, SAP Wholesale Distribution Business Unit, SAP
The wholesale distribution industry is undergoing massive change due to several market factors. While some might consider distributors to be laggards in the adoption of new technology to address these challenges, the truth is simply that industry margins don’t allow for the same pace of innovation investment.
Low margins mean investments in new technologies and business models must be strategic, long-term, and not prone to error.
Three Key Trends Shaping the Wholesale Distribution Market Right Now
Looming marketplace competition: Marketplaces are taking a chunk out of the traditional total addressable market for wholesale distributors — and that will continue for the foreseeable future. In addition, distributors struggle to differentiate themselves and offer personalization services that have come to be expected by B2B buyers on marketplaces.
A disrupted global supply chain: The global dynamics impacting supply chains from the pandemic to events like the Suez Canal chaos are forcing distributors to focus on local, geographic dependencies, and consider international and regulatory restrictions that impact their ability to procure the materials required. Those distributors who can best manage their supply chain and provide reliable insight to their end customer ultimately deliver a positive customer experience and ensure customer loyalty.
A talent crunch: Wholesale distributors are struggling to find qualified talent to fill digital transformation roles. One main reason is because most of the talent pool wants to work for organizations that take a social stance and serve a larger purpose. Historically, wholesale distributors haven’t invested in supporting social purpose. And, even if they had, most of them aren’t great at communicating it via social media, which serves as a lever for educating potential talent and customers about their brand. Even as an industry considered one of the largest employers in the U.S., this means they are unable to undertake the necessary digital transformation of their business.
Cloud technology is a way to combat these industry challenges. It reduces the technology cost and IT reliance, giving this industry an opportunity to invest and innovate in new ways over the next years.
This will allow them to optimize their traditional operations model and at the same time evolve their business model. Let’s look at how cloud solutions can support key distribution business processes.
New Business Models: Subscriptions and Services
The classic model of buy, hold, sell is still used daily across distribution verticals. But some distributors are diving headfirst into selling services and subscriptions to grow revenue and increase margins (which then allows for more investment into technology innovation).
Some distributors have started offering vendor managed inventory as a service (VMI), using sensors and machine learning to trigger replenishments in an automatic fashion. This reduces the customer’s cost-to-serve while improving customer experience. Running it as a subscription-based billing model allows them to generate monthly and annual run rate forecasts and smooth out cash flow.
This has helped them to build stronger customer connections, box out competition, and provide ROI on the tools and business models incredibly quickly.
How cloud helps: Many cloud solutions follow best practices for business process intelligence, identify cost cutting and simplification potential in complex processes. Subscription modeling is one such outcome, and cloud tools can enable it out-of-the-box.
Personalized Marketing and Customer Experience
Understanding your customer is paramount – and providing tailored solutions, products and services is now expected by those customers. Wholesale distributors recognize that customer experience management needs to become a priority.
To help support that, many distributors are launching personalized online storefronts and building 1:1 marketing models similar to the B2C e-commerce experience. This helps to better forecast inventory needs, incentivize customer participation in new business models and more quickly realize the financial benefits of new model optimization.
Further, these new programs don’t need additional headcount. Distributors can leverage machine learning and augmented intelligence to automate much of marketing and to scale programs.
How cloud helps: Cloud technology helps with change management practices to accelerate the time to impact in the early phases of a new roll out. For marketing in particular, cloud helps to automate the systems and tracks ROI so executives can clearly see the financial gains.
Successful Distributors Leverage Business Networks
Finally, wholesale distributors need to establish themselves within business networks to leverage the power of the network effect. Creating a marketplace or joining one helps discourage customers from buying from their competitors. Distributors are now beginning to engage in these networks, take leadership roles within them and even launch their own marketplace.
How cloud helps: Cloud technology allows for easier and quicker extensibility and API connection with partners to leverage networks in a way that adds value for customers. This also lays the groundwork for business case methodology that justifies technology innovation investment.
How Distributors Can Minimize the Cost of Innovation
The wholesale distribution industry knows these processes need to happen. They are logical business strategies, after all. But low margins and high-cost talent add to the price of innovation.
How can distributors reduce the technology cost of ownership and continuously extend the business’s core competency? The answer is with cloud: a clear, value-driven investment with quick ROI that sets up a distributor for long-term success and lower costs within a short time.
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Source : https://www.forbes.com/sites/sap/2021/10/18/how-wholesale-distributors-must-innovate-to-survive/1203