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Today’s Challenges Facing Wholesale Distributors

March 3, 2020

The wholesale distribution industry has annual sales of approximately $7 trillion and the US wholesale distribution industry includes approximately 330,000 companies. Wholesale distributors have served an important role in the distribution and flow of goods for well over 100 years and have been a driving force in the economy, but the challenges they face today are unprecedented and greater than ever before. As a result, some are struggling to maintain their market position, market share and sustainable profitability.

Many wholesalers are finding themselves caught in the middle between retailers who want to pay less while receiving more in order to meet the ever increasing demands of their customers and manufacturers who want to increase prices because commodity prices and costs are continuing to rise. The challenges are increasing as the global marketplace is becoming more competitive, retailers and wholesalers struggle to adapt to the new and ever evolving omni-channel markets, supply chain networks become increasingly complex and the technology required to manage this complexity requires a significant investment, and costs continue to escalate – all while consumers are demanding more choices, faster fulfillment and lower prices. As a result, some wholesale distributors are finding themselves and their profits squeezed from both sides.

In addition, wholesale distributors are seeing more goods being shipped directly to the retailer or consumer by manufacturers, totally bypassing the wholesale distribution channel. Online purchases for many types of goods are now being shipped directly from manufacturers, and this trend is increasing in an effort to speed delivery and reduce supply chain costs. Mega retailers such as Wal-Mart, Home Depot, and Costco buy most of their merchandise directly from manufacturers, bypassing wholesale distributors altogether. Because they buy in large quantities and operate their own warehouses, these retailers don’t need wholesale distributors. These superstores and warehouse clubs are increasingly taking market share from other retailers and now account for more than 60 percent of sales of general merchandise stores, up from just 35 percent 10 years ago.

In this complex new environment, wholesale distributors need to focus on strategically planning how they will respond to these challenges with solutions that create a competitive market advantage and ensure their sustainable profitability. As important, they must also aggressively transform their organizations from a slow, tactical, and reactive culture to an agile, quick, and strategic culture. Today’s challenges make the need for agility and quick, decisive, action greater than ever. “Facing the Forces of Change: Decisive Actions for an Uncertain Economy” is a recent research study on wholesale distribution published by the National Association of Wholesaler Distributors (NAW). Guy Blissett, IBM’s wholesale distribution lead, wrote the study and states “Given the lingering uncertainty in the economy, wholesaler-distributors must continue to take decisive actions that will position their companies for growth and prosperity. Gone are the days of overly cautious and slow decision-making processes. The business world is moving too fast, and wholesaler-distributors must be informed, intelligent and nimble enough to make rapid but prudent decisions, and then adjust and iterate as necessary.”

To survive and thrive in this new and ever changing environment, wholesale distributors must

  • Make the technology investments necessary to quickly identify and understand the issues
  • Create solutions and take action in ways that create compelling and sustainable competitive advantages
  • Rapidly and effectively adapt to the challenges posed by omni-channel marketing, increased complexity, rising costs and ever more demanding customers
  • Make the operational investments necessary to reduce time to market for new offerings, improve execution and quality, expand stock assortments as required, reduce time to deliver, and improve overall customer service levels and satisfaction while simultaneously reducing costs.

Not easy tasks by any measure! The good news however, is that technology solutions are being aggressively developed and are increasingly more available and affordable. Technology solutions such as the cloud and software-as-a-service (SaaS) are starting to change the technology paradigm and cost curve, allowing even smaller wholesale distributors to gain access to technology that they couldn’t afford before.

Appropriate and integrated business management technology solutions can help wholesale distributors optimize Inventory and operations, and enhance profitability by connecting information, people and processes. Technology can create visibility and transparency into the supply chain, so wholesale distributors have the ability to see where product is, how much of it there is and where the bottlenecks and failure points are in the supply chain. They can then make more timely decisions about purchasing and replenishment of inventory throughout the supply chain to reduce out-of-stocks while simultaneously reducing inventory. Investment in better technology in warehouse and transportation management systems enable increased warehouse and operational productivity and accuracy, reduce costs and can optimize freight movements, in order to reduce labor and fuel cost while improving time to delivery.

And finally, investments in technology can also provide greater insight into wholesale distributors’ customers and suppliers. Which customers or suppliers are most profitable? What are each customer’s ordering patterns, revenues, margins, product mix, number of deliveries, costs and their resultant profitability? What are each supplier’s value to the wholesale distributor? What are each suppliers’ reliability such as defect rates, on time delivery performance, and fill rates? What revenue, costs and profitability do they provide the wholesale distributor? And most importantly, what behavioral changes can be made throughout the supply chain to improve the wholesale distributor’s customer and supplier profitability?

Technology holds the answer to many of these challenges and is the key to understanding the issues and solution development by providing the data, information and systems required for in-depth analytics and strategic planning, followed by agile, quick, and decisive action.