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Home » Distribution Models in Flux

Distribution Models in Flux

By    Thomas P.  Gale 
March 10, 2009
More about:  Distribution Trends,  Management/Strategy,  Operations
Arguably, there has never been so much stress put on so many wholesale distribution businesses. By necessity many distributors are revising the models that have served well as successful growth engines - for decades in many cases. Revision is an understatement for some, as they see revenues drop double digits and radical changes in customer buying behavior.
 
Some distributors are making changes out of necessity. Others have built a business based on long-term strategic plans, and they have the most options for coming out of this current downturn stronger. These options have the potential to yield significant market share and competitive advantage over the next 12-24 months.
 
We are in a major transitional period in this industry as companies adapt to these ...
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Arguably, there has never been so much stress put on so many wholesale distribution businesses. By necessity many distributors are revising the models that have served well as successful growth engines - for decades in many cases. Revision is an understatement for some, as they see revenues drop double digits and radical changes in customer buying behavior.
 
Some distributors are making changes out of necessity. Others have built a business based on long-term strategic plans, and they have the most options for coming out of this current downturn stronger. These options have the potential to yield significant market share and competitive advantage over the next 12-24 months.
 
We are in a major transitional period in this industry as companies adapt to these new market conditions and different customer behaviors. The winners who gain ground over competitors will be those who 1) invest in process improvement and 2) fully leverage their technology toolkits.
 
Many distributors are dealing with daily cash flow issues as customers shut down plants or dramatically cut back on production. Even the most strategic distributors don't have much room to position for the future when they face a 20 percent or more revenue drop month to month. Even so, it's critical to be pragmatic and think about positioning for when opportunities start coming back.
 
And some distributors are doing just that. They are focusing on process improvement by tapping specific IT tools - warehouse management systems, inventory management/forecasting optimization, pricing, business intelligence, routing and e-billing - in their existing ERP or through add-ons.
 
One way to look at this is that traditionally distributors have been masters of orchestrating product flow and the sales process. When sales are great, process weakness can be papered over with dollar bills. Not so today. The needed shift taking place is where distributors fully take advantage of their pivot point and trusted relationships in the supply chain to extract and manage information better, then translate it into real value for customers and suppliers. That's fundamentally different than driving profitability by increasing sales volume alone.
 
It's also why distributor-supplier relationships are under so much strain now. Partnerships based on volume alone don't cut it; distributors and manufacturers have a great opportunity to shuffle their decks to come up with the best hand in a very different game."
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