Distribution Disrupted

How the industry let the future creep up and put it in survival mode.

Confusion.  Turmoil.  Damage.  Warp.  Interrupt.  Of all of these synonyms for “disruption” found in Webster’s Dictionary, “warp” seems to be the most appropriate for describing the 2017 outlook for distribution.  The term is not frightening, but it does imply alteration.  It conveys bending, but not breaking.

And that is the challenge to distributors right now.

“The industry is in constant change.  In order to stay competitive and profitable, companies need to adapt,” notes Bill Zielinski, executive vice president and COO at Chicago Tube & Iron.

While technology has been buzzing in the industry as “the great disruptor,” it turns out that there are various contributors to the trends occurring in distribution.  Specifically, people and processes are challenging today’s distributors.  Chicago Tube & Iron, F.W. Webb and Smardan Supply weighed in on how they are recalibrating to meet the new realities of the industry.

Human resources

Human resources (HR) is perhaps one of the most complex trends that distributors are having to wrap their heads around.  First, there are the Baby Boomers (generally 57-74 years old), who are retiring later and living longer.  Then, there are the Millennials (generally 23-38 years old), who are going to school longer and accruing student debt.  There are many other key facts about these generations, but these are significantly contributing to the HR issues distributors are handling.

“Baby Boomers will be retiring in record numbers and those positions need to be filled with qualified, technically-literate individuals to ensure these companies’ futures,” Zielinski says.

This year marked the period when half of Baby Boomers hit the Social Security official retirement age of 66 years old.  While this is a looming stressor for employers, many Baby Boomers are remaining put.  Many of the reports from publications and institutes have attributed Social Security funding changes, The Recession, and other reasons to this phenomenon of staying put.  Regardless of the cause, if employers can’t get Baby Boomers out the door, they could face stretching pay over more generations than they have in the past or losing future generational talent all together.  The latter is already an issue for employers without “sitting” Baby Boomers even in the equation.

At every industry conference, panel and expo, there is a discussion of Millennials not viewing distribution and the trades as attractive career paths.  

“Attracting new young talent into our industry has been a challenge for a while now, and will only get exponentially more difficult over time,” comments AJ Benton, brand manager at Smardan Supply.  “Our industry needs to market ourselves better.”

One of the talking points about Millennials is that they view themselves as over-qualified.  Looking deeper at this point, research has shown that higher education is a priority for Millennials.  According to a report (bit.do/Millennials15Facts) released  by the White House Council of Economic Advisers in October 2014, labor market participation for 16- to 24 year-olds has been declining since the 1970s, as that age group now focuses on school, not on combining school with work.  This is an issue the trades have to get creative with, as apprenticeships and hands-on education are cores of the industry.  

There could be an opportunity with this Millennial trend of post-secondary education.  Many Millennials have been left with student debt that was compounded by slow wage growth during the Recession, according to that same White House report.  Simply put, living wage and expenses have taken on a new meaning for Millennials in comparison to previous generations.  Coupling their advanced education and debt, Millennials view competitive salary as a basic need.  While that may offend or baffle some employers, the issue will have to be addressed.  Millennials made up the largest share of the U.S.  workforce in 2015 according to an update from Pew Research Center (bit.do/2015Millennials), and the trend will continue.

Inventory management

Another trend on distributors’ radar is inventory.  Many are seeking the best solution for their business needs.  

It’s no secret that maintaining and organizing inventory takes a significant amount of time.  Outsourcing inventory allows distributors to concentrate on other parts of the business that are growing in demand like automation.  Additionally, outsourcing has been a draw for distributors looking to go international.  International shipping can be a hassle when it comes to costs and paperwork.  But, outsourcing order fulfillment eliminates that issue and allows for more focus on priorities like product sourcing.

Outsourcing often appeals to distributors who do not have specialized packing and fulfillment procedures.  It also entices distributors who don’t have a large amount and/or physically large products that require more warehousing and thus higher costs.  Using outsourced warehousing also increases footprint, thus decreases shipping costs and order fulfillment times.  In the age of Amazon Prime and expedited shipping, this matters.  It’s not that distributors are necessarily competing with Amazon, but more so that expedited delivery is becoming a social norm.

On the reverse, there’s centralized inventory, which also has benefits in cost, management and efficiency.  There is the argument that centralized inventory limits expansion, specifically international sales.  But, with a centralized hub for inventory there is a level of expertise that comes from having the same people and transportation for the inventory. 

“The cost of doing business increases daily, and the only way to survive is to optimize our operations,” Benton says.  “Centralized inventory allows us to service more customers effectively while keeping overhead at a minimum.”

For companies using multiple channels for sales, like storefronts, websites, and satellite branches, centralized inventory is better for satisfying all of those channels’ demands effectively versus having inventory spread across multiple locations.  But, centralized inventory is also used by online companies with limited physical space.  For these companies, the primary business space is the inventory location where products are being gathered and shipped. 

Online innovation

Over the past two decades, online companies have transformed commerce with their ability to reach anyone anywhere at any time.  Traditionally, location mattered to businesses.  Picking the metropolitan city, bustling neighborhood and convenient street with the most affordable rent or mortgage were key decisions for launching a business. 

Today, much of that attention is paid to the company’s website.  The internet facilitates a niche customer experience catered to specific needs and convenient timing.  While digital data helps businesses narrow down who to target, where and how, it also makes the playing field very large.  The new customer is well-informed and inundated with options from global competitors.

“A couple years ago, we developed an app that allows our customers to order product, obtain spec sheets, and several other features to help them be more efficient.  Just last month, we created a way for our app to be accessed and used on a desktop.  Currently, with the support of our manufacturers, we are developing a digital catalog, giving our existing and prospective customers the ability to view the full range of products and services we offer,” Benton explains.  “We have yet to invest in an e-commerce portal, but it is on our radar.  We are having to constantly reinvent how we do business, not only to reach a new, broader customer base, but our existing one as well.”

When trying to compete in the e-commerce space, customer service is often lost.  Without face-to-face interaction, it’s difficult to establish personal relationships, trust and other intangibles that help separate a business.  As result, there are digital support systems, like email marketing and social media, which are needed to make e-commerce personalized.

“Our company CD Sales has an e-commerce initiative to provide a market without B2C and B2B borders,” notes Ernie Coutermarsh, senior vice president at F.W. Webb Co.  “It provides immediate response to urgent needs.  For example, OEMs’ just-in-time requirements and engineers needing product information and guidance.”

Research has shown that email outreach yields high investment returns when it comes to marketing.  While everyone may not have an Instagram account, everyone does at least have one email address, if not multiples.  Email newsletters, sales and updates offer businesses a way to deepen their product’s or service’s stories and better target V.I.P.  customers.  Social media takes that customization one step further by presenting an opportunity for customers to engage with businesses.  The new customer, specifically Millennials and Generation Z, wants to identify with brands they support.  Increasingly, businesses are using social media to establish transparency with and gain feedback from customers.

“Customers can’t put a face on a manufacturer.  They sit in their ivory tower and only have a spreadsheet relationship.  Customers are virtual concepts,” Coutermarsh says.  “Any way we can touch the customer is an advantage.  We drive information on what’s new in the industry, using direct mail catalogs, e-mail blasts, educational events, trade shows, LinkedIn, Webinars, Facebook, Google analytics, focus groups, surveys, etc.  Our marketing department is focused on helping customers find their solutions.”

These are no longer the projections.  These are the facts.  Hard and cold.  While technology has and will continue to transform many industries, distribution is one with high potential to change rapidly. 

With each new innovation, the world becomes smaller, and a new global citizen is born — a citizen this industry has to figure out how to reach.  

– By Ashlei Cooper, Contrubting writer

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