The distribution industry is due for a remodel. What has worked for decades still works, but it is far less effective now for businesses that want to grow. MDM’s team has identified key areas that distributors need to focus on in 2016 to build the adaptive model that changing market conditions require.
Understanding economic cycles – and where we are in them – is an important part of doing business. And disruptive cycles are nothing new in distribution. So this current disruption – or “curve in the road,” as Alan Beaulieu of ITR Economics called it at the 2016 NAW Executive Summit – should seem familiar.
The world is in an era of fundamental change. The impact of technology, the emergence of the digital globalization, demographics and many other factors have changed how business is conducted on both the buying and selling sides. But the fundamental issue is around how companies are changing their capabilities to create value for their customers in spite of what’s taking place in local and global markets.
Bridging the cycle gap
The current market cycle has created a gap that keeps growing. On one side of the gap are companies that continue to operate using essentially the same business model that has “always worked” for them. In this model, businesses ride the cycle up in good times and they hang on as they ride it down in the bad times.
Adjustments are made along the way. Distributors focus process improvements around inventory, logistics and other transactional elements. But most of their competitors have also done that. The incremental optimization is getting smaller and smaller, particularly as the technology tools have gotten better and better.
On the other side of that gap are companies that are asking different questions about what they have to do to make themselves successful going forward. These are the market leaders. Instead of asking “Who moved my model?” they’re saying, “We’ve changed our model.” These distributors focus on how to use the conditions on the way down to improve conditions on the ride up, rather than on just how to survive the drop.
The distribution model is due for a remodel. The foundational elements should not be abandoned – customer intimacy and operational excellence are still critical to long-term success. But serving customers requires a change of mindset. It’s not just about being lean; it’s about being adaptive.
The days of your customers buying from you because it is too difficult to compare what you offer to your competitors – online and offline – are quickly becoming history. This series on the 2016 Distribution Remodel will provide deeper insights into how distributors can upgrade their models to be more competitive.
Here is an overview of the elements we consider key to the 2016 Distribution Remodel, and the topics that we will cover more in-depth in this and in upcoming issues.
Investing on the Down Side
The increased competition from new players, including big-box stores and online-only distributors, and more supply chain transparency have resulted in compressed margins and tighter budgets. This, in turn, inhibited the ability of distributors to invest in new product and service models because cash flow has been constrained.
But the new environment requires an upgrade. Current conditions have magnified the impact of lack of investment for many distributors, and many are struggling to figure out how to best use their
limited resources. They need to invest in technology, in talent and in how they approach sales – among other aspects. And it is likely too much for any company of any size to address all at one time.
It is critical to strengthen the foundation core, then prioritize how to build a bridge to the future, more adaptive model for your company. Start by identifying your gaps and strengths and evaluate the role those aspects play in your company. Then assess what needs to be done to create a stronger, more agile company for the upside.
Taming the Talent Tide
Millennials now outnumber baby boomers in the workforce. And they have a very different idea of what an ideal workplace is.
And as digital natives, they bring a very different skillset to the table – one that you might not know is ideal for growing your company. For a long time, the focus for hiring has been on matching a person to a job description. Hiring managers want the “unicorn” employee, the one who has the perfect collection of skills, experience and education – easily assessable characteristics.
But that one-size-fits-all definition isn’t working as well anymore. It excludes many good candidates who may have a degree or experience in a field that’s not listed. And it fails to account for culture, which, in many ways, is the most important differentiator for distributors.
Don’t let your search for the mythical unicorn employee keep you from finding the best employee. Skills can be taught; culture can’t.
It’s also important to look at how you develop skills within your own organization. The myth of the millennial is that they’re willing to jump ship for a little bit more money. The reality is that they’re really looking for some place where they don’t just feel like any generic cog in the machine. You do still have to offer a competitive wage, but you can’t just throw money at them and hope the other issues are forgotten. If you invest in developing them for the long term, they are more likely to repay that investment with loyalty.
Finding Balance & Focus
As with any remodel, having a strong foundation is important. Without a strong foundation, new additions will crumble before they’ve had a chance to be fully built. But if too much focus is placed on the foundation, your business will not grow.
How can you adapt to your customers’ changing needs while staying focused on your core strengths at the same time? How will you continue to create value for your customers as their expectations change?
Companies that are proactive and strategic about how they adapt have more control over the process than those that are just reacting to whatever is thrown at them.
Data plays a big role in finding balance and focus, going back to identifying gaps and strengths. But instead of focusing on how to improve business operations, the focus needs to be turned outward to how markets are being served.
Where are the most profitable places to deploy your limited resources? How can your customer segments be most effectively and efficiently served?