Working in the supply chain is a fascinating challenge for all parties, particularly for distributors dealing with challenges as diverse as disintermediation, labor shortages, changing customer buying behavior, and even cyber security challenges. In this blog post, we address the industry's current state, look at why the distributor is an integral part of the supply chain, and reveal tips for improving the supply chain for distributors.

The Current State of the Supply Chain

Even though wholesale distribution in the US alone amounts to combined annual sales of about $9 trillion, according to Dun & Bradstreet, it’s not an easy time to be in this industry. With the growth of threats from behemoths like Amazon, seemingly endless supply chain challenges, and risks from trends like the growth of e-commerce and manufacturers selling direct to consumers (D2C), it sometimes feels hard to be optimistic.

But every challenge creates an opportunity.

• Decentralization

Why is decentralization a supply chain challenge? According to an article by ToolsGroup, “Large distributors have lots of locations, and each location or distribution channel is making individual, autonomous planning decisions. Because these planners often lack a central strategy and view of inventory that comes with automated planning solutions, these decisions are being made in silos. The resulting inefficiencies can result in imbalanced inventory and undermine the success of the company as a whole.”

That’s why more distributors are considering using the information at their fingertips more efficiently. According to research by Sage, almost 80% of distributors are adopting digital transformation strategies. Valuable data can transform decision-making and put power in the hands of distributors like never before.

• Supplier disintermediation

To reduce costs, supply chain participants are moving to eliminate the so-called ‘middleman.’ The process, known as supplier disintermediation, creates risks for traditional distributors who aren’t adding value to their customers. However, opportunity can arise from risk when seen with a different lens. Wholesale distributors can shift from merely meeting customers’ needs to anticipating future demands while improving customer service and streamlining processes if they improve their data acquisition and analysis processes. Industry leaders look for every opportunity to improve customer service and streamline operations. With one-fifth of manufacturers saying their supply chains are “still largely in an analog state,” according to a 2020 Grant Thornton survey, those who embrace digital automation will see early mover advantages.  

• Siloed data

Our CEO, Andrew Butt, writes in Forbes, “One of the most powerful tools wholesale distributors have at their disposal is access to huge amounts of data on everything from supply chain operations to consumer behavior. Traditional approaches to inventory, logistics, pricing, rebates, and network management can be reimagined through the application of advanced analytics.” Andrew goes on to remind us that wholesale distributors can help their partners leverage digital insights to “identify pain points, predict and drive consumer behavior and improve efficiency for every link of the supply chain.”  

• Manual processes

In the same article on How Wholesale Distributors Can Continue To Compete In A Changing Economy, Andrew Butt shares some insights Enable discovered from a survey we did with 100 respondents from the US and UK: We found that 34% of companies still use spreadsheets to negotiate and document deals manually. Andrew calls this “A major impediment to transparency and quality control, as it’s much easier to make mistakes and harder to correct them with cumbersome tracking methods like spreadsheets.”  

• Labor shortage

No one can deny the impact of the ongoing talent shortage. Supply chain roles have not always been considered ‘sexy’ job opportunities, partly due to antiquated processes and tools. Research by Dell Technologies on the Gen Z Effect found that 80% of Gen Z participants aspire to work with cutting-edge technology, and 91% said technology would influence their decision between similar employment offers.

By leveraging helpful tools that are easy to use, those distributors who adopt digital transformation sooner are more likely to have the edge over their competitors.  

• Excess inventory

AI-powered retail and supply chain planning software, ToolsGroup, suggests that because “Distributors tend to be more purchase-focused than demand-focused, some even employ aggressive forward buy tactics, buying stock not because they can sell it quickly but to keep it out of the hands of competitors. But the inventory situation is starting to flip, making this mindset more of a risk to effective inventory management than ever.”

Being weighed down with stock that isn’t moving doesn’t help anyone. The alternative to promoting healthy stock movement may lie in utilizing effective incentives with partners who can, ultimately, help customers buy products that have been taking up space in warehouses. Using rebates effectively may offer one solution to this challenge.

• More mergers & acquisitions

According to the Industrial Distributor M&A Pulse Q2 2021 Full Report,  US industrial distribution M&A activity increased 91% from 2020, and global activity increased 53.6%. M&As create confusion, frustration, and delays for employees – particularly with IT, as multiple ERPs need to be integrated or eliminated.

However, rather than waiting for ERPs to be merged or eliminated, there is an efficient alternative that can proceed immediately. Leveraging time-saving tools like supply chain planning or rebate management software can improve efficiency within weeks or even days. The right unified supply chain solution or rebate management tool can give you that visibility by integrating with multiple ERPs independently of ERP migrations.

• Changing customer buying behavior

No article about supply chain challenges would be complete without acknowledging the influence of e-commerce. According to Insider Intelligence, US e-commerce sales will cross $1 trillion for the first time in 2022; a milestone pre-pandemic speculations did not expect until 2024. However, the Insider Intelligence Global Ecommerce Forecast 2022 report suggests that 2025 worldwide e-commerce sales predictions will reach over $7 trillion. So rest assured, there are still plenty of pieces of pie for everyone – especially if all supply chain partners are focusing on what really makes a difference to their customers: Effective collaboration for mutual benefit.

• Cyber security

Lastly, it’s worth acknowledging that TechRepublic says that cyber attacks on supply chains increased by 51% in 2021. An essential component of managing supply chain change requires the adoption of secure technology. Savvy distributors treat data security as a top priority. Before adopting new technologies, distributors must ensure that their software provider encrypts traffic securely, insists on strong passwords, backs up data securely, and ensures system permissions are configurable. Investing in security and compliance essentials is wise before proceeding with any new software purchase.

Why the Distributor is an Integral Part of the Supply Chain

Distributors are a vital connector within the supply chain. Without them, traditionally, products couldn’t reach customers. While this is changing, the knowledge, experience, and relationships that distributors have built over time still make them an essential component of this network. Many distributors specialize in specific industries or product categories. Their knowledge is invaluable. This expertise helps them provide value to suppliers and customers when leveraged appropriately.  

Oracle reminds us that “Success in distribution hinges on gaining a good understanding of customer needs, market trends, costs, and price points; building strong relationships with business partners, and maximizing operational efficiency.” This can be enhanced with software that improves collaboration, including good customer relationship management (CRM) and rebate management software.  

Tips for Improving the Supply Chain for Distributors

With all these challenges, how is it possible to improve the supply chain for distributors? The answer lies in investing, adapting, and using all available resources. Here are a few tips to consider.

• Invest

Andrew Butt reminds us, “For many distributors, a significant source of reduced margins is mismanagement of vendor rebates, chargebacks, and deviated pricing — all problems that can be alleviated with a quality digital rebate management platform.”  Cloud-based rebate management software is here to transform the distribution industry. Savvy distributors like Wolseley Canada have been using Enable for years. And they’ve never looked back.

"Having managed many vendor programs for many years, it is so great to see that there is one rebate platform where we can have a consolidated version of the truth for both the wholesaler or even retailer in some cases and their vendor partners. All I can say is stop using spreadsheets! It is truly life-changing. There are other manual solutions, but they certainly don’t offer the benefits that Enable does.”

- Shawn Hulshof, Vice President of Category Management, Wolseley Canada

• Adapt

Distributors who use their in-depth knowledge and experience have the advantage over other organizations stepping into this space, including online retailers. The secret lies in how distributors can use mutually-beneficial incentives to empower their teams and partners. As Kerry Atlas, VP at NetPlus Alliance, says: “We don’t manage rebates. We manage relationships”. Enable has brought Netplus peace of mind around their rebate management process. It has helped them expand the depth and breadth of their deals, allowing them to be more creative in negotiations. Enable has also helped improve accuracy and create efficiencies as rebates are now calculated automatically.

“As a buying group, rebates are our business for the most part. We don't manage rebates. We manage relationships. And for us, I mean like any finance nerd, I love a good spreadsheet, but we were managing tens of thousands of relationships.”  

- Kerry Atlas, VP of Finance, IT & Operations at NetPlus Alliance

• Use all the resources available

“Beyond more robust data collection and analysis, there’s a large suite of tools wholesale distributors can use to become more competitive,” says Andrew.  For example, he continues, “effective rebate management is crucial for any distribution business — distributors can shift spending to maximize rebates and incentives across manufacturers, reduce rogue spending, track compliance more rigorously, ensure earned rebates are captured and use insights (such as net cost comparisons) to negotiate more effectively with suppliers.”

Conclusion

Using the right tools is the first step to supply chain improvement for beleaguered distributors. By being smarter about rebate thresholds, keeping close track of trading agreements, paying attention to SKUs and product grouping, aligning purchasing, sales, and finance teams, and no longer relying on supplier data, wholesale distribution businesses can earn more rebate revenue.

Those are just some of the benefits of rebate management software. Ultimately, however, having the right technology to support supply chain evolution isn’t just a ‘no-brainer,’ as many of our customers call it; it might be the difference between future success and failure.

Schedule a demo to see how Enable can improve the supply chain for distributors.