Expert Paper
An itelligence Expert Paper
The Evolution of Wholesale
Distribution: Trends and Predictions
Content
The Evolution of Wholesale Distribution:
Trends and Predictions
An itelligence Expert Paper
Introduction
In many ways, the wholesale distribution industry looks much as it did in previous decades.
Distributors are focused on improving profitability, expanding their margins, and outmaneuvering the
competition. However, new technologies, changing market dynamics, and increasingly demanding
customers have fundamentally reshaped the way today’s distributors do business. In fact, 40% of CEOs
and IT executives now view IT as a competitive weapon [Source: “Facing the Forces of Change®”].
Those who remain technology laggards in the distribution industry face a tough future. Throughout the
industry, even core technologies such as demand management systems are surprisingly underutilized.
This means that the companies with modern ERP systems in place already have a competitive leg up
and will be in a better position to adapt and innovate as the pace of technology evolution increases.
In our work with some of the industry’s most innovative distributors, we have a front row seat for the
trends that are altering the competitive landscape in wholesale distribution.
Following is a summary of the top trends we’re seeing:
TREND #1:
Operational Efficiency is Still Priority One
Regardless of size, geography, and specialization, achieving operational efficiency is still the top
priority for distributors. Even as they look to the future and the transformational potential of new
and emerging technologies such as mobile and cloud, many are focusing on issues such as demand
management, warehouse operations, transportation planning, and logistics. The day-to-day agenda
continues to be balancing the books, knowing what’s in the warehouse, and giving customers
timely information on pricing and availability. Many believe they can’t achieve the operational
and competitive advantages promised by the latest technologies without first getting their existing
operations in sound order, which often means optimizing and standardizing processes within the
enterprise as a foundation for innovation and growth.
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THE FUTURE
The fact is that smart business will always be good business. However, tomorrow’s market leaders will
capitalize on the latest technologies to squeeze out the inefficiency and latency within the enterprise
and extend that mindset to their broader partner universe - whether they choose to do so through
on-premise technology or rely on cloud-based solutions to manage core processes in the effort to keep
pace with the accelerating churn of new technologies.
NEXT STEPS
The SAP experts at itelligence can show you how you can create the enterprise platform that
accommodates emerging technologies that promise greater innovation, while preserving your existing
investments and minimizing disruption to ongoing business.
TREND #2:
Improving the Understanding
of Customer Profitability
Distributors are changing the way they manage customers. For years, many have devoted the most
time and effort to keeping their biggest – and their loudest – customers happy, with little or no
insight on the return from their investment. The mass of data trapped in outmoded legacy systems
and ad hoc spreadsheets couldn’t answer basic questions such as “Is my biggest customer my
most profitable? Is keeping this customer worth the time and budget? Which areas of customer
service deliver the best ROI?” With the emergence of advanced analytic tools, more distributors are
evaluating their customer relationships with a more data-driven mindset to better understand the
“cost to serve.” The results may often be counterintuitive, but they’re helping distributors achieve
higher margins by operating in a more lean and profitable way.
THE FUTURE
Distributors will expand their analytic focus beyond customer relationships to other areas of the business
to uncover the inefficiencies and trapped potential that have previously gone unnoticed. Advancements
such as in-memory technology such as SAP’s HANA allow distributors to crunch data faster than ever
before, resulting in the ability to track trends and be more strategic in applying sales resources.
NEXT STEPS
You can’t improve what you don’t measure. Establish the metrics that can help you understand and
dissect customer behavior as the first step toward creating the analytical context needed to refine
your strategy.
“Customer stratification is
a measurement process
for managing and improving
customer relationships.
It identifies areas and
strategies for improving net
margin, and sales with each
individual customer. Best
practice distributors are
using customer stratification
in a variety of ways. From
creating and penetrating
core customers to the
most effective design and
deployment of sales force
and marketing efforts, the
possibilities seem endless.”
- Dr. F. Barry Lawrence,
Director, Global Supply Chain
Laboratory, Texas A&M
University
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TREND #3:
Demanding Customers Get More Demanding
Just selling great products isn’t enough. In today’s market, customers are looking for total solutions —
turnkey approaches that combine products and services in a way that accelerates time-to-value. At the
same time, their expectations for core service offerings continue to grow. Today’s customers want the
same delivery times for special orders as they get with off -the-shelf products. In a market with more
competition and more choices, loyalty isn’t what it used to be. Distributors need to give their customers
a reason to come back, and a wider, more personalized lineup of services is often the answer.
THE FUTURE
Streamlining the order to cash process will be key to your success, and speed to serve will separate the
winners from the rest of the pack — while the ability to provide up-to-the-minute status information on
transaction progress becomes increasingly important.
NEXT STEPS
The itelligence team can help you navigate the complexities of integrating inventory information from
your supply chain partners, while improving collaboration with your transportation providers on
shipping statuses. Customer self-service portals, integrated system-generated alerts and custom apps
can help you meet the higher expectations of your customer base and improve satisfaction and loyalty.
TREND #4:
A More Consolidated and Competitive Market
Bigger is now better. Across the industry, distributors are racing their competitors to expand their
footprint, enter new markets, and increase efficiencies. Distributors are under pressure to operate
around the clock, and global competition is resetting the market’s expectations on pricing. And
distributors face a host of new competition from non-traditional sources as well. Traditional
distributors are now competing directly with big-box retailers and online portals, and more
manufacturers are selling via direct channels.
However, the drive toward more mergers and acquisitions comes with growing pains. The challenges
of integrating data, processes, and operations can delay the efficiencies that merging companies expect
to realize. Those who can readily consolidate their systems and operations and present a unified front
to the market have the best chance of success.
THE FUTURE
As prices level out in a more consolidated competitive landscape, distributors will need to find
other areas of differentiation – such as speed, service, and unique product offerings.
NEXT STEPS
Clarify what differentiates your business from the competition as a prelude to refining your strategy
for your specific sub-vertical and customer base. Technology acts as a strategic enabler only when
you understand your position in the market.
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TREND #5:
Expansion Into Online Channels
As competition heats up, distributors are scrambling to find new sources of revenue and innovative
ways to engage customers. The “Amazon.com revolution” in the retail experience has ramped up the
market’s expectation in the B2B sphere as well. Currently, around 80% of distribution CEOs plan to
invest in e-commerce channels in the near future. [Source: “Facing the Forces of Change®”]
Today’s more innovative distributors have already deployed the always-on, mobile-ready self-service
channels to complement their traditional channels. The distributors that allow customers to do
business wherever, whenever, and however they want will continue to outpace and outperform the
companies that can’t give their customers viable online choices.
THE FUTURE
More distributors will take a cue from their retail counterparts and focus on providing an “omnichannel”
experience where transactions and data move across the distributor’s channels in a seamless way. At the
same time, distributors will increasingly capitalize on social media to better understand and engage with
their customers. The boundaries between wholesale and retail will continue to blur, and B2B companies
will explore ways to use the technology and practices that have proven successful in B2C markets.
NEXT STEPS
Consider using SAP’s Hybris and/or custom mobile apps to open up new touch points and
communications channels with customers in the effort to improve customer satisfaction and increase sales.
TREND #6:
Dramatic Increases in Speed of Sales Analytics
to Be Able to React Faster to Market Changes
The pace at which distributors have to adjust product mix to meet consumer demand for a continual
stream of innovative products is increasing. Today’s customers have choices. If one distributor can’t
deliver, they will quickly find someone that can. Distributors need to anticipate demand changes and
ensure that the right products are available to capitalize on evolving preferences. More companies are
leveraging metadata from the point of sale and the supply chain to accelerate this process.
THE FUTURE
The ability to collect and analyze vast amounts of product, market, and customer data will
transform areas of the business beyond product mix and availability, including rework, KPIs, and
supply chain relationships.
NEXT STEPS
SAP Business Suite on HANA can help you identify and analyze the impact of changing market
tastes and customer preferences — information that can then be used to ensure that you have the
right products to accommodate changing demand. The SAP experts at itelligence can show you how
the combination of HANA and advanced demand planning and forecasting tools can help your
organization manage these changes faster and more efficiently to adapt to shifts in global markets.
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TREND #7:
IT Strategy Gets Clearer as it Becomes Cloudier
Cloud-based solutions continue to grow in popularity as business leaders are drawn to the promises
of streamlined access, lower IT overhead, and continual innovation. Scores of companies have begun
exploring the viability of Cloud-based applications, with trial runs of applications in areas such as
HR and Finance running in the public Cloud. These initiatives are often a first step toward moving
a greater share of mission-critical applications into a private Cloud architecture. However, many
businesses are also finding that Cloud computing isn’t an all-or-nothing proposition. Some enterprises
still prefer to maintain the bulk of applications on site, whether for security, competitive, or economic
reasons. In the near future, many IT environments will be a heterogeneous mix of on-premise, hosted,
and Cloud-based deployments as companies learn from experience which applications are best suited
to run in private or public Clouds.
THE FUTURE
As more organizations experience the benefits and value of point solution Cloud deployments, of
point solutions, an increasing share of the enterprise IT footprint will migrate to public and private
Clouds. Widespread deployment of Cloud-based ERP is still five or more years in the future as
companies determine which business functions and processes fit best with the Cloud paradigm.
NEXT STEPS
Look at using HANA based solutions such as GRC, Analytics, and Procurement, in the Cloud to raise
the bar and explore the next frontier. The right mix of Cloud-based solutions can help you achieve
your company’s strategic goals and objectives.
ABOUT THE AUTHOR
Stefan Hoffmann, Wholesale Distribution Industry Principal
Stefan Hoffmann is Industry Solution Principal & Global Director Trade Industries. In this role, he
is responsible for the development and accreditation of vertical industry solutions. Stefan specializes
in providing organizations with enterprise resource planning and e-business solutions. He has more
than 25 years of business technology experience, including more than 10 years in senior management
positions. Prior to his position as Industry Solution Principal, Stefan served as Project Manager and
Business System Architect for itelligence from 2000-2004. During this time, he implemented SAP
solutions for companies such as SCM Microtech Inc. US, Pinnacle Inc. US, Hillyard Inc, C&H Sugar
Company, and Lastar Inc. Prior to joining itelligence, Stefan was Project Manager and SAP Consultant
for a German consulting company, where he was involved in the configuration and implementation of
various SAP systems.
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