Facing the Forces of Change

New challenges bring new opportunities. Business guru Peter Drucker says the theory of the business defines the assumptions shaping how a wholesale distribution company does business and assumptions about what distributors get paid to do in supply chains and marketing channels. Every executive has a theory of the business, even if it is not written down in a formal plan.

The theory of the wholesale distribution business – the traditional ways distributors make money and grow – will be rewritten by a combination of external forces and the strategic responses of wholesaler-distributors. The business challenges ahead will come from customers and suppliers.

Customers

• More and more customers will expect real-time service and instant information from distributors and salespeople. At the same time, 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.

• Customers will roam, searching for information and taking over more of the presales and transactional activities typically handled by their wholesaler-distributors.

• The salesforce’s perceived value in educating customers about new products and in-use applications will be significantly eroded. Some customers will simply not value – and will refuse to pay for – a wholesaler-distributor’s outside salesforce. This prediction is supported by official U.S. government forecasts showing the sales positions in wholesale distribution will grow at half the rate of overall U.S. job growth.

• Demanding customers will become more confrontational, rely on increasingly sophisticated sourcing initiative and use new technologies to counter the traditional field-level sales tactics used by distributors. Aggressive tools such as online reverse auctions are here to stay and will grow.

Suppliers

• Manufacturers will begin shifting away from open distribution policies and move toward more selective strategies in response to national contracts and more aggressively managing contract compliance.

• As orders migrate online, manufacturers will be better able to evaluate the cost effectiveness of their channels including the costs of serving specific wholesaler-distributors.

• Manufacturers, under product pricing pressure from imports and domestic competition, have identified services as a business opportunity. Most manufacturers plan to build on their design and research activities and offer fee-based services directly to end users, with or without their distributors.

-- Excerpted from Facing the Forces of Change: The Road to Opportunity, Distribution Research and Education Foundation and Pembroke Consulting. Visit www.naw.org.

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