This is a part of the 2015 Distribution Trends Special Issue. The annual feature was researched and written by MDM editors based on interviews with dozens of distributors, as well as industry experts and manufacturers. MDM also conducted a survey of its readers to uncover the trends outlined in this issue.
2015 Distribution Trends Special Issue
The factory of the future will be a more sophisticated animal, with machines self-monitoring their health through the use of sensors and the Internet of Things. As weaknesses appear, the machine will be able to send a message to the maintenance team or service technician before it actually breaks.
Some manufacturers have already begun to test the feasibility of sensors for this type of monitoring, says Jim Barnes, ISM services managing director.
“They see a lot of opportunity to increase the uptime of machinery through smart sensors that let you know when something’s about to go bad. That makes their products more valuable, more durable,” he says.
“There’s a tremendous amount of investment happening as the supply chain gets more sophisticated,” says Guy Blissett, wholesale distribution specialist leader for Deloitte Consulting LLP. The Internet of Things and sensors may not be considered mainstream now, but “it is happening today, and it’s picking up pace quickly,” he says, particularly in the electrical, electronics and utility sectors.
Such “smart factories” will also require a more sophisticated inventory management process, one that is more automated, according to Jim Safran, president of CribMaster. “What it’s all about is driving toward that smart factory,” he says.
The sophistication of inventory management programs has already increased, as have the distributors implementing them. “Customers continue to carry far less inventory,” says Jon Schreibfeder of Effective Inventory Management. “And they expect the distributor to fill that need.”
At the same time, distributors have placed renewed emphasis on having no excess inventory themselves. “It’s a balancing act,” Schreibfeder says.
“They want us to be able to magically predict their demand patterns and make sure they never run out and not have any excess inventory at the same time,” says Jim Derry, president of Field Fastener, Machesney Park, IL.
Advances in software have helped customers and distributors be more aware of managing seasonal, weather-related products. Better modeling is available for variable items in these categories that may bring in more information from outside sources, Schreibfeder says.
And the introduction of dashboards can make excess inventory more visible to all levels of the company, allowing for easier and more frequent checks on the effectiveness of existing management techniques.
Vending – a topic that was front of mind for many just a few years ago – still plays a critical role in vendor managed inventory programs, but the view of it as a standalone solution has diminished. Distributors are being more deliberate about how those machines play a role in a more comprehensive inventory management program. That may include the use of RFID or enhanced software that allows for information to be more easily shared across locations.
Distributors are placing more focus on being partners and sole providers for key customers, Schreibfeder says, because comprehensive vendor managed inventory programs can increase stickiness with these customers. In an era of increased competition from the Internet and big-box stores, it is becoming more critical to provide services that can’t easily be price-shopped and that can have their value documented.
“They are looking for areas where they can maximize their ROI and also have high engagement with their customers to enhance those relationships and build long-term loyalty,” CribMaster’s Safran says.
Inventory levels are rising some, but cautiously. Management is requiring more justification before approving increased levels, Schreibfeder says. Increases can’t be based on “our sales might rise.” Rather, it has to be a response to actual increases.
Distributors are also looking for alternatives when they consider adding product lines, according to Roger Woodward, president of Alliance Distribution Partners LLC, Gallatin, TN. They’re turning to master distributors, such as Alliance, to help them test new product lines without having to make a large financial investment up front, he says.
Results from the first quarter MDM-Baird Distribution survey reflected this sentiment, as a vast majority of distributors (82 percent) expected to maintain or seasonally increase inventory levels through the second quarter.
Achieving a better balance requires a change in mindset, according to Schreibfeder. It’s easier to focus on the actual numbers, but focus should be on the availability instead. Just saying that there always has to be 12 of an item on the shelf, for example, doesn’t accurately reflect actual usage or seasonal changes in demand. Using internal and external data will help refine actual patterns and help move distributors away from the anecdotal “just to be safe” mentality.
