Wholesale Distribution Trends in Technology

Traditionally, the wholesale distribution industry has been slow to adopt new and changing technology when compared to direct-to-consumer, retail and third party logistics companies.  Typically, within the four walls of a wholesale distribution warehouse, we’d see lots of old “green screen” technology in use.

Prior to the 2020 Covid pandemic, distributors were slowly starting to adopt newer technologies.  However, in 2022 wholesalers are experiencing increased competition from their own customer base. Manufacturers, driven by major constraints in the supply chain during Covid-19, moved quickly toward selling direct to their consumers via digital platforms, greatly reducing the need for traditional distribution.  For example, direct to consumer (D2C) sales in the US alone grew 45.5% in 2020.

To combat increased competition and become better equipped to handle constraints such as labor shortages and supply chain disruptions, distributors have recognized that technology is one piece of the puzzle.   Some of the specific technology trends are detailed below.

Software as a Service (SaaS)

SaaS stands for software as a service, which means software is hosted by a third-party provider and delivered to customers over the internet as a service.  Most legacy “green screen” applications that distributors have clung to require on premise servers.  In the SaaS environment, the server is hosted by the software provider or a third party, relieving the need (and substantial cost) of having the hardware in house.  In the SaaS model, the SaaS provider absorbs the maintenance burden and keeps the hardware and software up to date with new releases and security patches, relieving the burden on the wholesalers in house IT resources.

Additionally, legacy systems running on in house hardware have inherent limitations, the biggest of which in today’s dynamic supply chain environment is the ability to scale.   This is true both in the case of company growth as well as the flexibility to scale down in the event of economic downturns.    With SaaS, companies only pay for employees via a subscription that are using the software rather than having to purchase a multi-year license with specific user count.  The subscription cost can easily scale up and down to fit the current business requirements.

Updated Warehouse Management Systems (WMS)

Customer demands in today’s environment change and change very quickly.  Outdated WMS platforms often require IT development support to adapt to quickly changing customer needs.   With Information Technology departments suffering from the same labor shortages as virtually every other industry, waiting for IT to program changes into a legacy application can be a severe constraint to being able to respond to customer demands.  Additionally, many of these older WMS applications were programmed in languages that are not widely supported in 2022 and the pool of resources available to make changes is slowly aging out.

Adaptability is no longer a luxury; it is now table stakes in order to compete.  Customers have multiple options and if an organization is slow to change to meet their needs, they will quickly move on.  Wholesalers must be quick to respond and the technology used likewise.

Modern day WMS packages are designed to be no-code or low code solutions pushing changes that used to require IT support into the hands of superusers via configuration screens utilizing graphical user interfaces.  Superusers can do things such as add new equipment types to handle varying products, adjust pick paths, and update shipping paperwork requirements on the fly.  This is just a small sample of the power that’s been shifted from coding to configuration in modern day WMS applications.

Additionally, since most WMS applications utilize the SaaS model previously discussed, visibility of inventory and efficiency across the supply chain can be easily achieved.  Real-time data visibility across the enterprise can help increase efficiency and reduce stock outs and lost sales.

Automation

Webster’s dictionary defines automation as:

au·​to·​ma·​tion | \ ˌȯ-tə-ˈmā-shən \

Definition of automation

1 : the technique of making an apparatus, a process, or a system operate  automatically

2 : the state of being operated automatically

3 : automatically controlled operation of an apparatus, process, or system by mechanical or electronic devices that take the place of human labor

What does this mean in the Wholesale Distribution space?   In the simplest form it means that things like customer orders, incoming receipts, stock levels etc. can be electronically accessed without manual entry and printed reports.   At the more advanced level it could mean the implementation of computer controlled conveyance systems, voice directed work and robotics within the warehouse to increase efficiency and better utilize warehouse personnel.

In the interest of brevity, we’ll limit the discussion here to one form of automation, voice directed work.   In a traditional warehouse where voice has not yet been implemented, the warehouse personnel rely on paper reports or scanners to direct their work.   In an environment with voice implemented, the user wears a headset and microphone and is directed via human voice to their next work task.  This offers several advantages to the traditional paper or scanner solution:

• Increased Productivity and Safety – Eyes and hands are kept free and work is delivered immediately upon completing the previous task
• Fewer Mistakes – Workers are given easily understood instructions that guide them step by step through the work task. Additionally, through configuration by user , the work can be delivered to the team members in their preferred language.
• Reduced training and onboarding time – Companies have shown that new employees get up to speed as quickly as 1/3 of the time it takes to train in a traditional scanner or paper environment. This also makes it easier for team members to learn additional job skills within the warehouse.   This is a win/win as the employee has made themselves more valuable and the company now has better ability to flex labor across the warehouse as demand dictates.

As mentioned, voice is only 1 form of warehouse automation.   Each form of automation can offer similar advantages to those listed above for voice directed work and the ROI is quite easily justified in many cases.

Summary

The wholesale distribution industry in the U.S. represents approximately 28% of US GDP and is growing at 4% with annual revenues of $6 trillion.  The competition in this industry is fierce as wholesalers compete not only with other wholesalers, but often also compete with their own customers.  Add to this the instability of the global supply chain exacerbated by the recent pandemic and labor shortages (particularly high in the warehouse space), wholesale distributors have been forced to embrace newer technologies to stay relevant.

There are lots of options to gain a competitive advantage and increase efficiency through technology. Moving to a SaaS model, updating outdated Warehouse Management Systems, and various forms of automation are some of the most beneficial solutions.  Distributors should consider what capabilities their competitors are utilizing, where their current inefficiencies might be, and cost benefit analysis in considering which technology solutions will give them the most competitive advantage.

REFERENCES

Carey, Scott, What is SaaS – Software as a Service Defined,  InfoWorld, Jul 22, 2021

https://www.koerber-supplychain.com/industries/wholesale-distribution/#

“Automation.” Merriam-Webster.com Dictionary, Merriam-Webster, https://www.merriam-webster.com/dictionary/automation. Accessed 5 Aug. 2022.

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

Kats, Rimma, Why More Brands Should Leverage a D2C Model, Insider Intelligence, Apr 5, 2021