Tue, 02/11/2014 - 9:17am
A few decades ago, running a wholesale distribution business was a relatively simple proposition. Get product X from manufacturer to customer, provide some service and support, and charge a fair markup for your trouble. Like so many things in our globally connected digital world, that basic model has taken on complex new dimensions unimaginable to the wholesale distributors of yesteryear.
Wholesale distribution companies are under increasing pressure to reassert their role in the broader supply network. Direct-to-consumer sales by manufacturers threaten to erode margins. The launch of AmazonSupply.com sets the stage for B2B buyers to take advantage of economies of scale that are virtually impossible for mid-market distributors to match. This disruptive new mega-competitor should not to be taken lightly. With $61 billion in 2012 revenue, Amazon sells more product online than its 12 biggest competitors combined, including Walmart, Target and other big box chains.
Meanwhile, consumerization has made B2B buyers far more discriminating and demanding — and equipped with the digital means to switch suppliers on a dime. The globalization of supply networks raises the stakes for efficient sourcing and sale of goods over hundreds or thousands of trading partners, some demanding EDI transactions, others dispersed across dozens of nations.
These pressures likely contribute to lackluster growth expectations in the near term.
To survive and thrive in the brave new world, many wholesale distribution companies need a wholesale evolution, if you will, in day-to-day execution and strategic direction. Customer relationships, analytics and supply networks are ripe for innovation, adapting existing processes and deploying new technology:
Customer centricity. Flexibility in purchasing is essential, from phone for old-school buyers to ecommerce sites in both B2B and B2C with rich functionality. The caliber of your ecommerce site matters a lot, as customers have grown accustomed to the ease, personalization and functionality of top sites. Customers expect omnichannel bi-directional interactions, automated transactions, history and preferences with real-time visibility into stock availability not just on a desktop, but over tablets and smartphones too.
Every day or week that a wholesale distributor fails to deliver a superior omnichannel experience increases the risk not just of a lost sale, but of churn and lost accounts. On the other hand, wholesale distributors that strive to stay at the leading edge of ecommerce build customer intimacy and are positioned to win new business by expanding reach and penetrating new markets.
BI/analytics. It’s no longer sufficient to track revenue on a month-to-month basis. To excel, wholesale distributors need business intelligence (BI) and analytic capabilities to explore data in depth. For instance, the right approach to analytics lets you size up profitability by customer — what are your distribution and support costs for a particular customer? What’s the customer lifetime value? What are the upsell/cross-sell opportunities and what is the full product lifecycle costs once support, RMAs, and MRO costs are included?
Insights into your total costs vs. revenue for a customer is critical to pricing decisions and maintaining margins. Similarly, what’s your profitability by product or by service offered? Spikes in fuel costs and manufacturer price fluctuations need to be factored into your distribution of a certain product. Strengthening your analytic prowess generates data-driven insights for informed tactical decisions as well as strategic direction, such as adopting a consignment model in certain sectors.
Supply network collaboration and management. Partnering with trading partners for mutual benefit is important in meeting today’s demands. Shared technologies and cloud integration promote transparency that helps wholesale distributors tighten processes with third-party logistics (3PL) providers and fine-tune production by manufacturing partners to fulfill available-to-promise commitments.
Demand planning is increasingly in use to reduce carrying costs, avoid stockouts and costly emergency replenishment, improve productivity and provide a buffer against erratic market conditions and seasonality. Forecasting in conjunction with a manufacturer gives both partners flexibility to adapt swiftly as demand changes. Tracking supplier performance in terms of cost, quality and speed gives distributors insights into working with the best-value partners.
Cloud Changes the Equation
Achieving these ideals with a fragmented infrastructure of on-premise software tools and point products is a daunting task. Lack of integration across disparate applications means poor visibility, delays and unproductive manual work.
Unfortunately, many wholesale distributors are still relying on outdated technology. According to a 2013 study by the industry research firm Mint Jutras, 53 percent of wholesale distributors seeking to replace their financial systems are doing so because of outdated technology. Another 45 percent cited seeking lower total cost of ownership as their motivation.
That same study, ERP in the Cloud for Wholesale Distribution, found that wholesale distributors considering cloud ERP identified lower costs and the ease of upgrades as the most important benefits that cloud ERP provides.
The NetSuite Wholesale Distribution Edition provides all the benefits of cloud ERP, but is also purpose-built to give wholesale distributors the control, visibility and process efficiency needed to evolve in an increasingly competitive environment. Distribution customers are streamlining lead to cash, strengthening customer relationships with CRM and SuiteCommerce, and optimizing inventory with demand planning.
A growing selection of SuiteCloud Developer Network partner solutions for forecasting, EDI, shipping, 3PL, mobile, sales tax compliance and more lets customers enrich their NetSuite environments. Moreover, the cloud gives wholesale distributors the agility to adapt to emerging and future trends, from the disruptive implications of 3D printing to the move towards mass customization and a “batch size of one.”
For instance, Soligent, the largest distributor of solar panels and equipment in the U.S. chose NetSuite’s cloud-based ERP solution as its core platform for managing all of its operations. By residing in the cloud, NetSuite is easily accessible to Soligent’s resellers, without requiring any integration with the reseller's own ERP system. In turn, that makes ramping up a new partner much easier. Eco Box, a distributor of shipping supplies and moving boxes in San Antonio, Texas, has more than doubled its revenue since modernizing to the cloud with NetSuite ERP and NetSuite CRM. NetSuite has given Eco Box a highly transparent and scalable solution for growth and efficiency that allows the company to easily add new warehouses and stores. Building on its success, Eco Box implemented the NetSuite OneWorld global business management solution to support business expansion into a subsidiary structure and manage financials across the entities.
Meanwhile, Siracom, a Value Added Distributor of wireless infrastructure and security products, selected NetSuite to consolidate all of its disparate sales order and purchase order processing, inventory and accounting systems onto one unified cloud platform, after realizing its previous ERP solution couldn't provide the scalability necessary to manage its recent growth or support the company's global expansion ambitions. Siracom is leveraging NetSuite for financials, CRM, inventory management, order management, and multi-currency, gaining real-time visibility into critical business information, inventory management, and providing improved collaboration and relationships with customers and vendors.
The challenges and opportunities facing wholesale distribution recall a motto of the U.S. Army Corps of Engineers: “The difficult we do immediately. The impossible takes a little longer.” In other words, many distributors have already mastered the low-hanging fruit of the business. Now’s the time for distributors to raise their sights to the next level and explore new possibilities in the cloud.