The 2020 Mid-Year Economic Update_long

Falling Cost of Technology Helps Distributors Compete

Be selective in how you create customer value.
Mark_Hill_1sv

Small and mid-sized distributors have historically struggled to compete with the capabilities of their larger counterparts. With less staff, fewer resources and generally less capital to invest, smaller local or regional distributors have tended to view themselves as the underdogs in this fast-consolidating market.

Cloud technology – no longer just a buzzword – has been an equalizer. It’s driven down the cost of technology that used to be prohibitively expensive for smaller companies to implement. Today, even the smallest of companies can sell online. There are services out there that offer e-commerce platforms at a low monthly rate; the barriers to entry have fallen. This is good news for distributors.

Industrial vending is benefiting from this trend. Grand View Research’s report earlier this year that the industrial vending market is expected to exceed $1.4 billion by 2025 – double the estimated market size in 2016 – attributed that fast growth in part to the falling cost of the technology behind it. Even larger distributors that may have felt like it was tough to justify providing machines filled with lower-cost items to smaller accounts are now expanding their offerings.

For smaller distributors, this is an opportunity. Many already have close relationships with customers and flexibility that many of their larger competitors may not be able to compete with. Combine that with affordable technology that allows them to streamline and optimize inventory management, from demand forecasting to replenishment, and suddenly they can challenge the status quo. Distributors can leverage real-time insight into inventory usage to provide a value-added service that makes it hard for customers to walk away at the first sign of a lower price.

While the cost of technology is falling, your time and resources are still limited, and you must be selective in where you allocate them. Here are three areas to consider when looking at new technology to better serve your customers:

  • Impact on customer relationships: Will the technology improve your customer relationships? Will your customer be willing to pay for the service, or grow their spend with you as a result? Will it help you build a moat around your business?
  • Impact on operations: Will the technology help you get rid of manual processes and allow you to reallocate your most valuable resources (your people) to more profitable activities? How can it help you respond more quickly to customer needs, improving both your operations and theirs?
  • Impact on your ability to grow market share: Will the technology open up new markets for your business? How can it support your business strategy?

To compete effectively on today’s stage, distributors must supply customers with something they truly value. You may not have the resources to offer free two-day shipping to customers. But distributors of all sizes need to stop telling themselves that they can’t compete on a level playing field, that they will never keep up or even take the lead. The dynamics have shifted. Costs are falling, and technology is improving. Distributors that take advantage of that will come out ahead.

Mark Hill has 40 years' experience in industrial distribution and vending. He is the owner of IMC Supply Co., Memphis, TN, and the founder of vending machine supply company 1sourcevend. Learn more at 1sourcevend.com. Reach him at mhill@1sourcevend.com.

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