Scenario planning is not new, but there has never been a better time to include it as a critical part of your management team’s tools. It’s a powerful way to make sure you lift the team’s nose from the day-to-day grindstone to identify risks and opportunity, and most importantly, be ready to act quickly when you need to.
You may have heard me talk recently about the ways in which 2018 has shaped into an inflection point for distribution – it’s been a long time in the making. And while Amazon is an accelerant and arguably the disruptive force with the most potential, this goes beyond Amazon.
Distribution channels have already changed dramatically for some companies very recently. Safety products, jan/san, stationery and other categories were clearly-defined verticals with well-defined channels ten years ago. Even without the added pressure of Amazon’s completely different cost structure, model and go-to-market strategy, each of these verticals has been disrupted by a much broader set of competitors looking for tangential growth opportunities, and enabled by digital sales channels.
As we’ve outlined in our reporting on Amazon Business, it’s critical for every distributor to assess both the threat and the opportunity Amazon presents as a sales channel. I find it hard to see how you can postpone making scenario planning a competency in today’s environment. No one can say with confidence what Amazon will do, their strategic moves, and how disruptive it could be to your company’s long-term viability. Here are just a few questions we’ve offered on ways to consider Amazon’s future impact on the industry at large:
- What does it mean for your business if Amazon acquires a traditional bricks-and-clicks distributor with a national footprint, similar to their acquisition of Whole Foods in 2017 in the retail grocery sector?
- Does it make sense for your company to sell through Amazon’s platforms, or is it a short-term revenue gain that could be a long-term competitive disadvantage?
- If Amazon starts carrying 20 percent of your product portfolio over the next five years, what is the best way to defend? With 500 million SKU’s on hand, Amazon may have a much higher percentage than that right now.
- What new services should you focus on to grow profits and defend against digital players?
While there are common trends that impact every sector of distribution, this continues to be a highly fragmented industry serving highly fragmented customer sectors with very different needs. Scenario planning takes data-free conjecture and translates it into a planning format that pushes the boundaries on your internal team thinking. This is the only way to effectively plan the future.
For more tips on how to make scenario planning a bigger part of your planning process, I recommend this MDM article from 2002, a somewhat parallel time of economic downturn and technology disruption. Written by Adam Fein, Scenario Planning Basics for Distributors offers a great framework for how to use this important management tool.
He also offers a compelling example from an innovator in scenario planning: “Studying scenarios can help you transform the apparent chaos of today from a liability into a source of competitive advantage. A classic example of the role of scenarios comes from Royal Dutch/Shell, the British oil company that pioneered scenario planning in the early 1970s. In 1984, the price of oil was $28 per barrel. The planning group developed a scenario that talked about a $15 barrel of oil. When the price actually dropped two years later, Royal Dutch/Shell took advantage of the uncertainty by purchasing oil reserves at a low price from companies that had been unprepared for the unexpected price drop."
One of the key elements to put into the mix for any scenario planning is what your sales force looks like in five years. The outside field sales model is the core engine for nearly every distributor but remains one of the least measured for cost and profitability. That worked extremely well for decades, but is challenged today. The reason we are hosting our Sales GPS 2018 conference in June is to provide a venue to examine alternate structures and how to make the difficult and necessary transition to a different future state in a very different and still unknown competitive landscape. Scenario planning is the key to getting your team focused on the necessary change that has to take place.
We are in chaotic times. You can’t predict the future, but you can plan for very different outcomes that position your company in the best possible place to not just react, but proactively shape that future in the markets you serve.