The role of distributors is changing, says Guy Blissett, wholesale distribution lead for IBM Corp. and author of The National Association of Wholesaler-Distributors’ 2013 edition of Facing the Forces of Change: Reimagining Distribution in a Connected World. New technologies and ways of leveraging them to engage with customers and supply chain partners are emerging every day. While today’s environment can be daunting, Blissett says, it’s also full of opportunity.
Blissett spoke with Staff Writer Angela Poulson about the forces that are changing distribution and the emerging technologies that could be the catalysts for major change in coming years.
MDM: The subtitle of this year’s Facing the Forces of Change report is Reimagining Distribution in a Connected World. What’s the idea behind the title?
Guy Blissett:There are two things to note there. One is the word “reimagining,” which refers to the acute need for distributor executives to think innovatively to reimagine the role they play in the value chain with their customers, suppliers and other stakeholders, as well as thinking very differently about the role of the different company functions, like IT and marketing, in the business. It’s not just reimagining the value proposition of the distributor but also reimagining the importance of the internal functions that will deliver on that proposition.
The other key word there is “connected.” We know that individuals are more connected than ever, and they’re able to access information more dynamically. That same dynamic and expectation is going to change the types of interactions we have with customers, because some of the things that we’ve traditionally delivered to them like basic product information, features, functions and availability are all available now through websites and mobile apps. That’s creating an amazing opportunity for distributors to redirect customer-facing resources, building trusted advisor relationships based on insights and solutions.
MDM: How does today’s business environment differ from that of 2010 when the last edition of Facing the Forces was released?
Blissett: When we were conducting research for the 2010 report, the macro economy, and distribution in particular, was still facing a great deal of uncertainty, and that was creating hesitancy in terms of investing in new capabilities, systems, warehouses, inventory and personnel. One of the messages we wanted to deliver was that rather than viewing uncertainty as a reason for caution, it was really more of an opportunity for leading distributors to create separation between themselves and their peers.
I think what’s really changed versus 2010 is that we now are facing not only those same uncertainties, but many more forces of change on top of that. If you look at where we are today, there’s a lot of uncertainty in areas such as the job market, the nation’s debt ceiling and budget negotiations, and the new health care law.
It’s sobering to reflect on what happened to those distributors that sat on their hands in 2010 and didn’t make investments in their business. Today, rather than viewing all of these complicating factors as challenges, I view them as opportunities for distributors to fundamentally change how they run their business, how they engage with customers and the types of value propositions they deliver.
It can be daunting and unnerving, but I think the environment today is far more exciting and full of opportunity than it was three years ago.
MDM: One of the forces of change mentioned in the report is new technologies. How can new technologies be leveraged to create competitive advantage?
Blissett: That’s a very interesting area and obviously a very salient area for distributor executives to consider. There are so many developments happening now that I think there’s a tendency to become enamored with new technologies and to focus more on technology features than how they can be applied to change ways of working and ways of engaging.
Distributors need to think innovatively about what the technology will allow them to do differently. It’s not just about putting tablets into the hands of your sales force, for example; it’s about what the sales force is now able to do when they meet with customers that’s completely different from what they used to do.
For example, the tablet enables distributors to facilitate a deeper, more expansive discussion using online analytic tools, including what-if scenarios around ordering patterns and delivery schedules; video clips of products and services and their application; dynamic negotiating and pricing functionality; and the ability to review order status, history and future requirements. The technology enables a different conversation, and the capture of information more dynamically, so the technology itself is less relevant than the processes and the interactions that we’re able to change by leveraging that technology. It’s a fine point – it’s one that I think a lot of executives get tripped up on.
MDM: When it comes to technological innovators, which companies should distributors be keeping an eye on?
Blissett: There’s obviously a huge amount of attention being paid to AmazonSupply and the rapid expansion of their product lines. There are now over a million items on their website. Amazon recently added foodservice and grocery categories. They offer 3D printing supplies and equipment. They are exploring using drones for deliveries, something we suggested was possible in the latest Facing the Forces of Change.
With their scale and track record, they’re certainly a company to pay close attention to, but I think you also need to look more expansively across your peers as well as nontraditional competitors for inspiration, and to see your future competition.
If we look at some B-to-C retailers, in particular in building supplies and office supplies, they are pushing much more aggressively into the B-to-B space and sharpening their capabilities. Lowe’s has launched their Lowe’s ProServices, Ace Hardware has The Supply Place and Staples also has a strong B-to-B component that now includes medical supplies.
I think the other interesting thing to look at is how B-to-B sellers are engaging directly with consumers – not necessarily going around their customers, but looking to augment their customers’ interactions with the end consumer. Look, for example, at what Ferguson has done in building their showrooms around the country and doing direct marketing on TV and radio to the end consumer. They’re helping their contractor customers engage with consumers to make product choices that are right for the consumer and that benefit the contractor and Ferguson.
There are many pockets of excellence and innovation across all lines of trade, both online and in traditional domains, and those companies that are innovating are winning.
MDM: Earlier you mentioned the changing role of IT and marketing within companies.
Blissett: I think those are two functional areas of business that are going to undergo a seismic shift over the next few years. For many distributors, IT is perceived as a support function. In that context the CIO delivers on projects, implements software, keeps systems up and running and responds to the needs of the business, but they haven’t traditionally been viewed as a key business partner.
That’s rapidly changing if you look at the way CEOs perceive IT in this year’s Facing the Forces of Change report. More than 40 percent of CEOs in distribution say they want to use IT as a competitive weapon. They don’t see it as just keeping the lights on; they really see the potential for leveraging IT as a source of differentiation, and that’s going to drive very different expectations about the way the CIO engages with the rest of the business. It’s going to require a far more collaborative, consultative IT function.
In many ways the role of the CIO going forward is going to be much more about figuring out how to rapidly integrate and iterate new technologies into the business and helping other functions within the business quickly understand and evaluate different options.
Marketing is also beginning a huge shift. Five years ago, you wouldn’t have seen too many distributors with a chief marketing officer, or even a VP of marketing in their corporate hierarchy. Now, however, a growing number of distributors, especially large ones, have somebody with that responsibility. This is a discrete function and position versus a combined sales and marketing position.
In much the same way that IT is being elevated, we’re seeing a shift with marketing from sales enablement – printing brochures and other collateral – to a marketing function that defines the value proposition, assesses the market and identifies white space opportunities, which includes taking a far more assertive role in prioritizing investments and capabilities.
That sounds intuitive but is a major shift from the traditional hierarchy where sales has taken the lead and exerted influence in terms of the customers they call on, the products they sell, the value proposition they pitch and how they spend their time. Going forward, marketing is going to assume more of those responsibilities.
MDM: Is the rise of analytics contributing to that shift?
Blissett: Yes, very much so. Analytics are unleashing real changes in the roles, expectations and capabilities across all functions. Analytics are creating new levels of transparency and insight in areas like cost to serve; customer, supplier and market profitability; supply chain optimization; and optimal pricing and promotion structures. That transparency is driving very different conversations and behaviors.
If we think about, say, marketing and IT, analytics is bringing these two functions closer together and driving much deeper collaboration. For example, more and more of the marketing spend and attention within a distributor is going to be focused on digital marketing, a greater proportion of revenues will flow through various digital channels and more of the distributors’ interactions with both customers and suppliers will be influenced by its digital presence and capabilities. Obviously those factors pull the CIO and the chief marketing officer much more closely together.
MDM: What other findings from the study do you think are worth noting?
Blissett: There are two things I would really draw attention to. One is the increasing criticality for distributors to deliver a superior customer experience. Distributors have focused for many years on customer service, but now it is essential to be thinking progressively, innovatively and, ultimately, far outside their current comfort zones around a more holistic concept: customer experience. One of the factors driving this is the demographic shift among buyers, who are getting younger and have a very different way of thinking, transacting, evaluating, getting information and interacting. They have a different set of expectations about how things will work and how they will engage with business partners, and it’s incumbent on distributors to be thinking about how they leverage the capabilities of various functions to deliver a unique and compelling experience for each customer segment. The experience must be consistent across channels, fully integrated and deeply customized.
The other area to really highlight is the power of analytics to help distributors start to do things very differently. We are moving very rapidly into the era of widely accessible predictive and prescriptive analytics where, by mining the data that flows through and around our organization, we’re actually able to anticipate, predict and prescribe what might happen in the future.
Historically, for example, when a customer left for a competitor, the distributor knew when it happened and may have had some notion of the factors that influenced that decision, but only after the fact. With predictive analytics, we’re now able to continuously monitor how customers are interacting with us, to surface hidden trends, link disparate actions and learn how their purchasing habits are changing, things like frequency of purchase, calls to our customer service and website visits, which give us the ability to assess the health of our relationship and to see early on when things deviate from traditional patterns. That allows us to take prescriptive action such as a promotion, service call or executive intervention, and I think it’s those types of analytics that are going to be very empowering for distributors going forward.
MDM: What other trends are you watching that could create significant future change in the distribution industry?
Blissett:One is 3D printing. As we highlight in the report, 3D printing is very rapidly moving from the laboratories, from prototyping, into much more of a production environment. The application of 3D printing is expanding very rapidly across industries and mediums. We’re seeing the speed of the printers change, and you can now print not just in plastics but in ceramics, metals, even biologic material.
I think the ability to print in these diverse materials creates huge opportunities for distributors. It also asks distributors to think differently about their own supply chains. One of the rubs against 3D printing is that it takes a while – from 15 minutes to several hours – to print a part. That time delay impacts the business case for printing those parts versus just having them in inventory.
But think about the extended supply chain for many of the parts that sit in a distributor’s warehouse. If you start to factor into the business case the number of items that are held in inventory, the amount of time it takes for that part to get manufactured somewhere in Asia, for example, and the resources involved in shipping it across the Pacific, unloading it in Long Beach, shipping it to the warehouse and storing it there, you can be talking about months and months of time and working capital tied up in that part.
When you start to factor in all of those components, the economics for 3D printing looks more attractive. It’s not going to revolutionize wholesale distribution overnight, but we will quickly see broad categories of product impacted by this technology.
The other area that I’m watching closely is the various forms of robotics. It’s incredible to look at what Amazon has done with their acquisition of Kiva Systems and C&S Wholesale’s acquisition of CasePick Systems in the robotics area and developments like the Baxter Robot. The cost of a Baxter Robot is very accessible at around $25,000, and its ability to perform some of the more repetitive, not particularly value-added tasks in a warehouse or on a production line could rapidly change the economics of a distribution operation and free up personnel for more value-added tasks. Both robotics and 3D printing are highlighted in the latest report.
MDM: You stress the importance of innovation in the report.
Blissett: Fundamentally, innovation is something distributors are going to have to apply far more broadly in their organizations than ever before. Distributors have traditionally applied innovation to their supply chains and somewhat to their business models, but going forward innovation will have to be driven through all facets of the business, in marketing and sales and IT and at the corporate level in the value proposition, operating model and capabilities of the business.
Some of it is around business model innovation, things like joint ventures and partnerships. If we look at what 11 electrical distributors did in forming EDGE Investment Partners as a vehicle for international expansion, they recognized that individually they really didn’t have the critical mass to justify moving their business offshore and expanding into international markets. So they formed a joint venture and made an acquisition in Brazil to make that happen. I think that’s a great example of business model innovation.
MDM: Sum up the message underlying this year’s Facing the Forces report.
Blissett: The world really is changing around us. It is more connected than ever, and that creates tremendously exciting opportunities for doing a great many things differently and engaging with the different functions within our business, our supply chain partners and our customers in a whole new way. It also enables distributors to move beyond commodity, price-centric mindsets and apply innovation to what the distributor of the future might be and to imagine that as somebody who can help customers and suppliers realize their own value propositions and create alignment across the value chain.
There are new technologies and new ways of engaging coming out every day and new analytic tools that can help to put all of that into context, and the ability for distributors large and small to harness all of those dynamics opens up a whole realm of opportunity. I don’t discount how daunting all of that can be, but I think it’s also an opportunity to push beyond our comfort zones and position our businesses for the long term.
Opportunity. That’s the word that I would use to describe the environment today more than anything else.