The 2020 Mid-Year Economic Update_long

Commentary: Definition of Value is Rapidly Shifting

What does the perfect distributor look like? If there were such a thing, industry consolidation would have progressed much farther than it has to date. That this industry continues to thrive in its fragmented form underscores that customers have not reduced the definition and value of distribution down to two or three choices in any given product sector.

But the definition of value is shifting quickly; the challenge for distributors is to find the right spot for their customers, for their manufacturer suppliers, and increasingly their investors. That’s a tough order. In some cases, distributors have been in dysfunctional relationships with customers and manufacturers for too long; they have massive barriers to fix before they can even identify the value they need to deliver to stay competitive.

Too many distributors are trying to make old models work in new conditions. Put another way, too many distributors are trying to skate to where the puck was or is, not where it will be. The Wayne Gretsky metaphor was OK five or ten years ago. But today there are ten golden pucks scattered out there on the hockey rink of distribution, not just one!

Every customer faces a more complex set of problems to solve with fewer resources than five years ago. Never has the distributor been in a better position to create value and opportunities at customer locations, while at the same time more vulnerable to competitive sourcing alternatives than ever before.

Customers are changing the definition of what and how they value the functions of distribution. So are suppliers. Because of that, distributors are in the hot seat. The new model is how to turn that hot seat into the driver seat. That’s where the money is.

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