The distribution sector is a formidable $7 trillion economic engine, ranking as the third-largest globally, and generates over 6 million jobs. Contemplate the impact of these jobs on local communities, families and individuals – it's a profound contribution.
These jobs go beyond being mere employment: they offer purpose, meaning and opportunities for individuals to realize their potential. Though these roles often underpin many other economic engines, the distribution sector tends to lag in technology adoption and embracing new processes. However, many distributorships now recognize how important technology and improved processes are in pursuing real and optimized profits as businesses.
This shift is particularly evident when these distribution businesses, often acquired by large private equity groups, face demands for increased profitability and cash flow. Consequently, they undergo a professionalization process, spanning decades, marked by significant improvements in the adoption of technology and the implementation of innovative strategies. This transformation not only positions them as more efficient businesses but also enhances their ability to provide superior service to their customers. It's therefore crucial to recognize and embrace distributors' evolving roles in the supply chain.
Seeing Rebates as Growth Drivers
Rebates play a significant role in the economic dynamics of distribution. Rebates – by which we mean any funds flowing back through the supply chain – underlie nearly every exchange of goods within the $76T supply chain. They help facilitate the movement of goods from a manufacturer, to a distributor, to a retailer or contractor.
Many distributors operate on slim profit margins, sometimes even incurring negative net margins, until rebates, forward buying strategies and other tactics come into play. Distributors essentially rely on future gains, and they meticulously monitor every penny, given that the average distributor's net margin typically ranges from one to 3%, post-tax. In contrast, their counterparts in manufacturing and trading enjoy higher net margins, ranging from nine to 20% after taxes.
The distribution sector faces substantial risks in the supply chain, as discussed earlier. Its pivotal role in the overall process underscores the importance of maximizing revenue at every opportunity. In an industry where margins are razor-thin, every dollar becomes crucial.
Rebates are also a key behavioral incentive – they let each trading partner incentivize others to conduct more profitable business together. But because they were traditionally cumbersome, hard to manage, and opaque, businesses viewed rebates as a cost of doing business instead of what they really are: strategic growth drivers.
Rebates can become a win-win for both manufacturers and suppliers, creating a mutually beneficial scenario. A well-structured rebate ensures that the needs of both parties are met, leading to substantial profits for distributors.
In the challenging landscape of 2024, growth might not be the sole focus. Whether aiming to capture wallet share or introduce new products, rebates can be strategic tools beyond mere expansion. It's time for distributors to approach rebates with intelligence and finesse, considering diverse ways to drive them for optimal outcomes.
Addressing Labor Shortages and Talent
The prevailing challenge of labor shortages and talent acquisition is a significant concern within distribution, especially considering the long-term labor crisis predicted for America and potentially the world. Demographic shifts, declining birth rates and generational changes are contributing factors. Anticipated labor force participation dropping below 60% by 2032 underscores the severity of the issue. Currently, there are nine and a half million job openings and six and a half million unemployed individuals, further emphasizing the pressing nature of the shortage.
This Future of Distribution report indicates that 85% of distribution leaders recognize the forthcoming challenge of attracting, nurturing and retaining talent for the next decade. It's worth focusing on the following controllables to address the issue.
Firstly, there is a call for a shift in belief. Despite the perception that smaller, family-owned distribution businesses cannot compete with larger entities like Amazon, the speaker asserts that these businesses are strategically well-positioned to win the war for talent. It's a matter of changing the narrative and recognizing the unique strengths and advantages these businesses possess.
Secondly, organizations are undergoing a fundamental shift in how they view human resources. The conventional notion of people as assets is challenged, and a call is made to rebrand the human resources department as the human potential department. This shift emphasizes developing the potential of individuals, fostering well-being and addressing the labor shortage in a meaningful way.
The third focus area is the narrative. There needs to be a change in the perception of distribution, dispelling the notion that it is not a "sexy" industry. The narrative needs to align with the reality of the industry's potential and the positive contributions it makes. Shifting this narrative is vital to attracting and retaining top talent.
Professional Growth and Leadership
Distributors are not just facilitators of product movement: they serve as platforms for the personal and professional growth of individuals. However, a recent report from Great Places to Work reveals that only 16% of employees are flourishing in their work environment.
According to this Future of Distribution report, 93% of distribution leaders recognize the need to go beyond merely training individuals for their roles. They emphasize the importance of fostering a mindset and ability to help individuals thrive both professionally and personally. The goal is ambitious: to have 51% of the 6 million distribution employees flourishing by 2051. Work should not be merely a means of survival: it should be a source of personal and professional growth.
Alongside this, leadership itself is undergoing a transformation, and there are three tectonic forces at play: external forces (mega trends beyond control), internal forces (mega trends affecting the marketplace and businesses) and people forces (issues like hybrid work, diversity and work-life balance). This confluence of changes, termed the "great redefinition," necessitates leaders to break away from urgent matters, connect the dots, define their worldview, and develop strategies for sustainability, relevance, and profitability.
Establishing a Strong Culture
Culture is a tangible expression of beliefs, values and ensuing behaviors within a company. Every company inherently possesses a culture, but some have been more intentional in its cultivation than others. The key lies in the intentionality behind shaping a company's culture. Cultures that are poised to lead in the future are those that foster individual flourishing.
As said previously, the success of a company is intricately tied to the personal and professional growth of its people. To thrive as a business, it's imperative to create a culture that serves as a platform for the continual development of individuals, aiding them in evolving into the best versions of themselves. Establishing such a culture is a strategic move, and organizations that prioritize the growth and well-being of their individuals are the ones set to succeed in the future.
This can also positively impact collaboration. The way you treat your employees not only shapes how they interact with customers but also influences their relationships with suppliers. If employees love working for the company, customers and suppliers also find joy in doing business with them. This trifecta of positive relationships forms the foundation of successful collaboration within distribution.
Embracing Modern Technology and Automation
The shift to cloud technology and automation should be seen as a fundamental requirement, particularly for distributors planning to scale and adapt to the rapid pace of change especially when it comes to rebate management. Gone are the days of separate systems for different departments. Sales, finance and purchasing should all be one single system – a single version of the truth for their rebates. Your employees expect modern systems that automate manual processes and provide usable data. Clumsy user interfaces, multiple systems that require separate data entry and inflexible reporting make work slow and frustrating.
For manufacturers and distributors, adopting these technological advancements becomes imperative for two main reasons. Firstly, there is a growing reluctance among the workforce to engage in manufacturing and distribution jobs. The evolving workforce now prefers jobs involving working with technology. Secondly, the retirement of the generation that historically occupied these roles has opened up opportunities for automation.
The current labor shortage, as mentioned earlier, also emphasizes the need for embracing these technological solutions. The idea is not just to automate for efficiency but to elevate the nature of these jobs. By incorporating AI and automation, individuals can transition from mundane tasks to roles that involve higher-level thinking and critical analysis – areas where human strengths lie. By moving away from outdated office environments and embracing modern technology you can attract and retain top talent.
Are you looking to unlock the potential of distribution with automated rebate management in 2024? See what Enable can do for your business. https://enable.com/supplier-rebates/distribution