Current Challenges in Wholesale Distribution

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Current Challenges in Wholesale Distribution

Retail

From the outside looking in, the wholesale distribution business appears to be a pretty simple and straightforward business.  Distributors purchase or consign goods from manufacturers, store them in inventory and then pick pack and ship.  Simple right?

 

As Lee Corso, famed featured analyst on ESPN's College GameDay program since its inception in 1987 and a former division 1 college football head coach is famous for saying, “not so fast”.  In today’s post pandemic and e-commerce driven world, even what might appear to be a simple business model faces significant challenges.  Some of these challenges include:

  1. Grey business model lines
  2. Disruption
  3. Shipping Demands
  4. Acquisition and Consolidation

These challenges existed before the pandemic but have accelerated the threat to the wholesale distribution space in the post pandemic “new normal”.

Grey business model lines

Traditionally, products were the main focus for wholesale distributors.  The goal was to have the products most in demand from their customers in-stock and manage the inventory to the demand.  To remain competitive with B2B and B2C companies, wholesalers have been required to shift more of the focus to value added services.  Services such as service and repair, vendor managed inventory (VMI) and light manufacturing to name a few will continue to increase in importance for distributors and their clients.

In addition, the lines have become greyed as customers expect distributors to behave and operate more in the fashion of eCommerce, 3PL and other highly digitized companies.  This has moved many to a more data driven approach using analytics to interpret demand and predict customer behavior rather than relying primarily on the human intervention and personal touch of the traditional sales approach.

Disruption

The truth is supply chain disruptions have always existed.  The Covid 19 pandemic has both increased the level of disruption and pushed supply chain into a mainstream topic of conversation.  Prior to the pandemic, mentioning supply chain at a family holiday gathering would bring about a blank stare but in today’s world, where consumers are directly experiencing the effects of supply chain disruption, the mention of supply chain typically results in lots of questions and conversation with those not in the industry.

Supply chain disruptions can come from virtually anywhere.   Weather 1000’s of miles away that shuts down a factory in Taiwan, a ship “stuck” in the Suez Canal, or a driver shortage in the transportation industry affecting available capacity are just a small sample of the myriad of challenges.  Wholesale distributors are turning more to technology like predictive analytics, and advanced warehouse automation to help manage and respond to the chaos of supply chain disruption.

Shipping Demands

Wholesalers now face stiff competition from large online companies such as Alibaba and Amazon entering the B2B space.   Wholesale margins which were always low are being challenged by price transparency offered by these types of companies.  At the same time, these companies can hold vast amounts of inventory in order to satisfy very aggressive shipping SLA’s.  While distributors cannot afford to hold those levels of inventory, there is a shift to the return of safety buffers to better meet customer’s needs.  To keep safety buffers as low as possible, distributors need to have the right products at the time with flawless execution to shorten delivery times.

Acquisition and Consolidation

Over the last few years, there has been a trend of mergers and acquisitions within the distribution industry.  Companies including Wesco, Anixter, Graybar and Watsco have all been part of either acquiring or merging with other entities.   Adding to this has been a trend of private equity firms buying up both the manufacturing companies as well as distribution customers, the goal seeming to be to cut out the middleman.  The younger generation consumer generally prefers the online shopping experience to traditional brick and mortar and the pandemic pushed even some of the most technology wary consumers to the internet to buy basic needs.  Distributors will need to shift and scale to support a greater online presence to combat these trends.

Summary

The challenges to the wholesale distribution industry are far more likely to increase rather than decrease in the coming years.  As we fight through a post pandemic recession, the demand for competitive pricing against online competitors and faster shipping will force distributors to rely more on technology then relationships going forward.  At the same time, mergers and acquisitions continue to shrink the landscape of available options, forcing the more direct to consumer model into prominence.  Distributors will need to be constantly aware of these threats and disruptions to remain viable in the years to come.

REFERENCES

https://en.wikipedia.org/wiki/Lee_Corso, Accessed 30 August 2022.

Baumbach, Werner, Post-pandemic Challenges and Opportunities in Wholesale Distribution, https://blogs.sap.com/2021/08/02/post-pandemic-challenges-and-opportunities-in-wholesale-distribution/, Accessed 1 September, 2022.

https://www.bluelinkerp.com/blog/4-challenges-wholesale-distributors-2018/, Accessed 1, September 2022

Rajasekharan, Mahesh, Key Challenges in the Wholesale Distribution Industry,  www.cleo.com. Accessed 3 August 2022.

Meier, Magnus, Under Pressure: Top Challenges in Wholesale Distribution, https://www.the-future-of-commerce.com/2021/04/30/challenges-in-wholesale-distribution/, Accessed 29, August 2022.

Meier, Magnus, Assessing the Pandemic Impact on Wholesale Distribution's 4 Major Segments, https://www.inddist.com/supply-chain/article/21160130/, 13, August 2020

Under Pressure: Top Challenges in Wholesale Distribution, https://www.the-future-of-commerce.com/2021/04/30/challenges-in-wholesale-distribution/, Accessed 29, August 2022.

Epicor Software, 5 Services for Distribution Value Added Services, https://www.inddist.com/home/whitepaper/13777681/epicor-software-5-services-for-distribution-valueadded-success, Accessed 30, August,2022.

Ferreira, Devin, Wholesale Distribution Trends: New Year Challenges, www.hmiaward.com/blog/, 18 February 2022

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