The effort to overcome supply chain challenges will continue to impact most elements of distributor operations in 2022. Backups will touch everything from the way salespeople spend their time and prioritize customer relationships to facility management, pricing and labor strategy. However, after more than a year of such conditions, distributors are better equipped to deal with the disruption.
Although supply chain issues will likely dominate sales reps’ time as they call around to find inventory, adjust expected timelines and answer customer questions about delayed product, there are steps they can take to ease the burden, says Gary Clark, president of industry sales and marketing consultancy OneSolution. “Scheduling purchase orders in advance will help guarantee supply,” he says. “Most distributors are going to have to increase inventory levels on key items, and perhaps consolidate vendors where it makes sense.”
Supply shortage strategy
Rethinking service levels will help as well, says Andrew Horvath, principal and leader of the distribution practice at Alexander Group. Most distributors do not differentiate service levels between their biggest and most-profitable customers and low-growth or one-off transactional customers. Tweaking lead times, product availability and pricing to prioritize higher-value customers can help to ease the burden on those most important accounts. “Think about customer satisfaction,” he says. “If you’ve got 100 customers and 95 are happy and five are pissed off at you — but the five that are pissed off are your most important customers — that’s a lot of business at risk right there.”
The concept of shifting service levels based on customer value “has gotten lip service in the past,” but 2022 is the time to make it a reality, says Horvath. He recommends distributors give the most important and profitable customers first crack at inventory, provide them with the shortest lead times, best freight options, most strategic pricing and best customer services reps.
“It’s a supply shortage, but it only should be a supply shortage for your longer tail customers,” he says. “One of the things we could do coming out of the first half of the year is to track the sales and all the rear-view metrics in terms of lead time, delivery, percentage of complete orders, track it by customer segment or tranche, and start understanding how the top customers are being served versus the entire rest of the market.”
The customer segmentation process at Amazon Business helps the company to meet differing needs, says Chris Costello, director of U.S. enterprise customers. “We are dedicated to continuing to enhance the end-to-end customer experience, especially large enterprise customers who often have a more complex set of priorities than small- and medium-sized businesses,” she says. “This can mean expanding our contract options, elevating the customer experience and refining delivery options to meet the evolving needs of these customers.”
At Grainger, tackling supply chain challenges involves cross-functional team collaboration. “Creating practical and actionable solutions requires strong collaboration, agility and communication among customers, partners and our internal teams,” says Barry Greenhouse, SVP and president, global supply chain and customer experience. “Inventory planning, supplier management, transportation, product, customer experience, IT, distribution centers — we see teams working together to leverage our scale in new ways to address today’s obstacles as well as tomorrow’s opportunities.”
Facilities impact
The inventory volatility that can come with supply chain issues, along with the continued growth of e-commerce, will push the need for more warehouse space in 2022, says Dave Haley, customer success executive at supply chain software consultancy Open Sky Group. “The demand will be high and in limited supply,” he says.
Rent expense is projected to rise by as much as 7% in 2022, according to Motley Fool, while at the same time CNBC reports 1 billion square feet of new warehouse space will be needed by 2025. To make the most out of existing facilities, Haley recommends distributors:
- Move to a narrow aisle layout. This likely will require new equipment, he notes.
- Maximize your vertical space. Storage and mezzanines are options.
- Eliminate obsolete inventory taking up expensive space.
- Cross dock where possible.
“By better utilizing your current space, you can reduce or perhaps eliminate needing to acquire more square footage,” Haley says.
One a related note, the ongoing driver shortage — estimated to be at more than 80,000 open roles, according to Fortune, is not likely to ease into 2022. To manage what they can control, Haley recommends distributors consider a transportation management system, some benefits of which include:
- Load consolidation
- Automated mode selection
- Efficient routing
- Rate shopping capability
“Dock scheduling systems will also increase efficiency tuning the trucks quicker and adding driver capacity,” says Haley.
All of these factors contribute to ongoing price increases. Customers were relatively open to price increases throughout 2021, but may not be so accommodating in the coming year, says OneSolution’s Clark. “Distributors will have to continually successfully sell price increases to their customers next year, which will become increasingly difficult when you start putting price increase on top of price increase,” he says. “But that is the reality of some of the biggest challenges that we’ll see next year.”
Talent management
On top of these operational challenges is the continuing labor shortage. According to the Bureau of Labor Statistics, there are 10.4 million open jobs in the U.S. with just 6.9 million unemployed. Forbes reports close to 500,000 open warehouse jobs, notes Haley.
To mitigate these issues, he says, distribution operators can reduce the amount of time needed to service customer orders. Three steps Haley recommends distributors take:
- Lean out the operations and eliminate as much waste in the process as possible. “Travel time tends to be the biggest offender,” he says.
- Evaluate what technology reduces the required man hours in processes. “Robotics have come a long way and offer a variety of solutions. Voice picking, conveyors, carousels, pick to light, shuttle systems are a few options to look at,” says Haley.
- Look at systems solutions to control your material flow. “An inventory slotting program can be critical,” he says. “Warehouse management, labor management, and warehouse execution systems can all increase velocity.”
A touted silver lining of the pandemic is how the remote work environment has expanded distributors’ talent scope to a national or even international scale. However, Alexander Group’s Horvath hasn’t heard many national recruitment success stories, yet. “It’s still very much a ‘catch as catch can’ approach. There’s been some grand ambitions to say, ‘We’re gonna have a nationwide remote sales team and we’re gonna go source talent that was just unavailable to us before.’ But actually doing that has proved a little bit tougher,” he says.
Meanwhile, expect a lot of back-to-basics distribution management in 2022, Horvath predicts. “We’re seeing more of that lately. You can’t control what’s going on in the macro space. We have supply chain shortages, we’ve got long lead times, we’ve got customers asking for things that are not reasonable. So, how do we just make it a little bit more paint by numbers? It’s controlling what you can control and having a way to have a workaround for things that are out of your control,” he says.
It’s a natural reaction to the craziness of the last couple of years, Horvath adds: “Level setting certainly is a big thing for the coming year.”
