Top challenges facing the distribution industry & how to overcome them

Top challenges facing the distribution industry & how to overcome them

In a world of high competition and low margins, this is a difficult time for the distribution industry. Supply chain uncertainties, inventory issues, and rising competition from e-commerce chains such as Amazon have made it hard to compete. Understanding the right approach to solving these challenges is essential for distributors to adapt, transform and differentiate themselves in this new challenging business landscape.  

Looming competition

Manufacturers and retailers are increasingly cutting distributors out of business, while the existence of huge marketplace platforms like Amazon has drastically increased competition. This process of cutting out the middleman is called “supplier disintermediation,” and it has the potential to seriously disrupt the distribution industry. Distributors are struggling to differentiate themselves and offer personalization services that have come to be expected by B2B buyers on marketplaces. 

How the distribution industry can overcome this:

Distributors must find a way to compete with direct deliveries (from manufacturers to retailers or straight to consumers) with faster delivery times, quality products, easier returns, cheaper logistics and expanded personalization options. 

Rebates can be a way to reward loyalty, helping your regular or large customers feel valued. Offering rebates to your customers can also be a great way to sell specific products within a specific time and encourage greater purchasing volumes. Even if this results in a lower margin on each sale, you can still make more profit overall. 

A disrupted global supply chain

The global pandemic, travel restrictions and supply shortages have all had a major impact on supply chains and have been an ongoing concern. The Institute of Supply Management (ISM) surveyed 559 respondents and reported that since the pandemic, average lead times for inputs are at least twice what is normal. For China lead times increased by 222%, Europe by 201% and the US by 200%. 

How the distribution industry can overcome this:

A good place for the distribution industry to start is through auditing their supply chains, by pinpointing portions of the chain that are either struggling to deliver, have fallen apart outright, or are showing signs of stress. It’s essential to have a contingency plan for when things go wrong. 

While there’s a shortage of goods on a global level, it’s always a great idea to have connections to backup suppliers in case your normal supplier experiences any shortages. If you have the storage facilities to allow for holding more inventory, this can help manage slow deliveries of stock and supply chain issues in the future. 

Those distributors who can best manage their supply chain and provide reliable insight to their end customer ultimately deliver a positive customer experience and ensure customer loyalty. 

Silo’d data

Data has become one of the most valuable assets available to the distribution industry. However, with volumes of data being generated every day, there’s no way to manage it from an organizational standpoint when reliant on manual processes and legacy systems. Modern supply chains are stretched thin and pressured to make quick decisions. Having accurate information based on the most current data available could mean the difference between a floundering and flourishing distribution business. 

How the distribution industry can overcome this:

Digitization is transforming the way the distribution industry can control the end-to-end supply chain data and capture what is fundamental to that process. The first step to fixing this is by centralizing that data into a single system, which can be accessed easily by team members throughout the organization. This removes both technical incompatibilities and cross-functional dependencies, allowing all internal stakeholders to operate more autonomously and efficiently.  

Manual processes

Traditionally, distribution businesses have relied on manual processes which are time-consuming, tedious and error prone. For example, they start out managing their rebates in spreadsheets and/or rely on data from trading partners, but this becomes a slippery slope. This soon graduates to using ERP systems or even systems created internally, however, these systems are not created by experts in rebate management and often fail to handle deals with even the slightest of complexities.  

How the distribution industry can overcome this:

While managing distribution channels can be challenging, making them more efficient can lead to a boost in profits and a drop in costs. Distributors need complete visibility to keep costs low while delivering the products on-time and correctly. By automating key processes' distributors can help to improve staff productivity, keep a manageable workload, and identify any potential problem areas.  

Lack of collaboration

There are numerous stakeholders across the supply chain and meaningful collaboration between all parties is important to ensure the end customer receives the ‘joined up’ service they expect. The challenge is to get all companies aligned on their goals, so everybody knows what success looks like, and how to win.  

Many manufacturers are having trouble collaborating with their distribution companies. Distributors also often have extremely demanding requirements, much like customers do. If suppliers don’t meet their needs, the relationship will falter.  

McKinsey says “The vision of a truly integrated supply chain has proven difficult to realize. Companies seeking to increase data sharing and collaboration across their supply networks have faced three principal hurdles.” Those include trust issues, the operating model, and technology. 

How the distribution industry can overcome this:

Organizations frequently underestimate the resources required to make collaborations work, assuming that they can leave it up to staff in various functions to do what's required in addition to their other responsibilities, but this is where digital tools come into play. 

For example, distributors managing rebate programs can use rebates to reward collaboration throughout the supply chain, which result in improved business performance for all participants. Benefits include greater market share, increased revenue and better relationships between supply chain partners. A collaboration platform can ensure information is delivered in real time, that any long-term deals stay on track and deliver the results it should for the distribution industry.  

Cloud-based rebate management software is here to transform the distribution industry

Cloud technology is a way to combat industry challenges, but the distribution industry has been slow to digitalize. A 2020 Grant Thornton survey found that two-thirds of manufacturers say their external supply chains (which encompass partnerships with distributors) are partially digitized, while just 11% say they’re fully digitized. Meanwhile, one-fifth of manufacturers say their supply chains are “still largely in an analog state.”  

One tool that is crucial for any distribution industry is an effective rebate management platform. 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 to negotiate more effectively with suppliers. 

Schedule a demo to see how Enable can help you overcome your rebate management challenges.

Elizabeth Lavelle

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