The 2020 Mid-Year Economic Update_long

How Distributors Can Survive in a ‘Random-Access’ World

The electronic world no longer tolerates actions that add cost, but not value.

Today’s supply chain represents a linear process that moves raw materials from extraction through manufacturing through logistics and warehouses to an end-user. The traditional supply chain is like an old-fashioned audio or video tape. You have to start at the beginning and move to the end. There are no short-cuts, although you can sometimes speed the process.

When it comes to music, movies and other entertainment, we went from tape to discs to CDs, DVDs and MP3 players. Now you can get to any point of any recording at anytime. Why can’t we figure out how to do the same with our supply chain?

One reason: It scares too many people in the distribution industry. The word “disintermediation” jumps to mind. What if our customers could go around distribution? Could we be eliminated? Will our customers buy direct?

Of course the answers are all yes. In some industries, where distribution added no value other than sending an invoice, it has been eliminated. The electronic world will no longer tolerate actions that add cost but not value.

Distributors that expect to survive need a value proposition that can be justified by the customer. It may be supporting a “just-in-time” operation by keeping stock close at hand and delivering it as needed. Some users will pay for a middleman who will purchase product in manufacturers’ quantities, but repack and ship in smaller quantities. For some customers, the value will be engineering and support. There may be components of training and safety education. Rental, repair and support are other value-added capabilities.

In each case, it is important to know how to measure or quantify the value so it can be justified. Distributors must break down what they do into measurable functions.

It is the only way to survive in a random-access world.

Run your business to deliver value for a fair price. It is the way of the future.

Get more information on distribution and manufacturing software options from the Brown Smith Wallace Consulting Group’s Software Guides, available here.

Steve Epner is principal in the Brown Smith Wallace Consulting firm based in St. Louis. He has been advising distributors for over 30 years. Epner also teaches Entrepreneurship and Innovation in the Graduate School of Business at Saint Louis University.

Epner is the author of Simplify Everything: Get Your Team from Do-Do to Done-Done with One Surefire Process, available from MDM.

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