As the role of strategic sourcing in many companies becomes the focus for cost-cutting measures, wholesaler-distributors may find their world being turned upside-down. Here's some of the latest developments and a guide to help wholesaler-distributors remain competitive and profitable.
Dynamic forces of change are converging upon the wholesale distribution industry. The business environment is changing, and distributors must change, too. This sobering conclusion comes from the report Facing the Forces of Change: The Road to Opportunity, which is available through the National Association of Wholesaler-Distributors.
Looking down the road ahead, the report says that wholesaler-distributors face a future in which the realities of the business environment differ from the past in novel and challenging ways. The traditional ways distributors make money and grow will be rewritten through a combination of external forces of change and by the strategic responses of innovative wholesaler-distributors.
Despite these challenges facing distribution executives, this article delivers an underlying message of optimism about the industry's future: Today and in the future, wholesaler-distributors have many new opportunities to put themselves on the road to renewed relevance and increased profits.
The wholesale distribution industry builds from a position of great financial strength and influence in the U.S. economy. In 2003, total sales of wholesaler-distributors reached $2.9 trillion. The industry employs one in 20 U.S. workers and contributes 7 percent to the United States' private gross domestic product (GDP). Wholesale distribution also drives the country's economic growth, contributing 25 percent of the total productivity gains in the U.S. economy during the past decade.
Forces of Change
The business challenges ahead will come from a combination of customers, emerging competitors and suppliers. Some of these forces may be familiar, while others may just be emerging in a wholesale distributor's line of trade. However, research suggests that all distributors will feel the impact as these forces gain critical mass throughout wholesale distribution.
Trend 1: Customer Self-Service
Self-service options will change the way in which wholesale distributors do business with customers, and it will transform their salesforce. Customers will roam online, searching for information and taking over more of the pre-sales and transactional activities typically handled by their wholesaler-distributors. Distributors will not have a lock on information needed by customers to make purchasing and sourcing decisions, since manufacturers and online sources will make such information readily available.
In response, wholesaler-distributors of all sizes will complement their traditional selling methods with online technologies. Wholesaler-distributors expect to receive one-third of their revenues from online orders by 2008. Smaller wholesaler-distributors will catch up to larger companies by 2008 as the costs and complexity of today's technologies drop.
Customer self-service will also significantly erode the perceived value of the wholesale distribution salesforce in educating customers about new products. The majority of wholesale distribution executives believe the Internet could actually replace their salesforce as a source of product information. Manufacturers will seriously question the effectiveness of the distributor's salesforce going forward. As a result, sales positions in wholesale distribution are forecast to grow at half the rate of overall U.S. job growth over the next five years.
Trend 2: Strategic Sourcing
Customers will gain additional bargaining power against distributors by analyzing their internal spending data. Strategic sourcing, a three step-process for reducing purchasing costs, enables customers to make more informed, rational sourcing decisions.