The battle for distribution of health care supplies is in the news these days. Amazon is courting buyers, attempting to grab share and potentially disrupt current buying practices. Health care is a huge market with unique dynamics. How all of this will shake out is anybody’s guess. However, an analysis from a channel perspective can tee up important questions for all distributors, large and small, in all lines of trade as they wrestle with disruption and drive innovation.

Every channel comes with a unique business model designed to deliver a specific value proposition. All channels can make changes around the edges and even incorporate different channels into a multichannel structure, but doing so requires customers to understand and accept their offering. With this in mind, Amazon is an online marketplace, a virtual space that offers digital shopping, easy comparisons, click-to-buy transactions and quick delivery. Buying from online marketplaces seems to be growing organically especially for one off, convenience buys.

However, large business buyers want to exercise power over their purchases, gaining customized and guaranteed deliveries as well as purchase price concessions. This is not new and today’s health care distributors offer contracts with commitments around service levels and procurement costs, backed up by proven, industry-specific logistics capabilities.

What does this mean for all distributors? For one, it is unlikely that by simply adding an e-commerce platform a distributor will create a model capable of fending off disruption or displacement by new dominant players, whether online marketplaces or multichannel behemoths. E-commerce is essential, but it’s not everything. What is required is something that scenario planners refer to as “challenge and response.” Distributors recognize the challenge and know they must transform their business. However, for most distributors, how they will respond is an open question.

Linda Taddonio, CEO of IQAcceleration, and author of an important NAW Institute for Distribution Excellence white paper, “Digital Transformation: The New Proving Ground for Distributors,” offered this advice for distributor leaders, “Executive teams have to commit to disrupting their status quo and embark on a journey of transformational change that is infused with technology. It’s grounded in getting the voice of the customer in first place and listening for opportunities to solve their problems and/or create efficiencies for them. This will require organizations to re-engineer their business processes and infuse technology strategically into those processes to augment their capabilities inside and outside their four walls. Just keep in mind that today, e-commerce is just the beginning. The next wave of disruptive technologies such as augmented reality, IoT, 3D printing, robotics, and so forth are coming online very quickly.”

Legacy businesses that fail to respond to challenges are a bump in the road for the success achieved by innovators. As distributors see today’s challenges and respond, they must redesign their business model as a new and improved channel — one that leverages digital technology to deliver previously impossible customer experiences. Creativity is essential. There may never be a template, but one has certainly not yet emerged. But given Amazon’s actions, all distributors should consider the following questions:

  1. Can you compete on the “opposite of scale”? That is, what can you offer if you can’t match disruptors like Amazon?
  2. Assuming that you can’t match, which opportunities and customers will you target and what will you offer in terms of new, digitally enabled value? What changes are required to your business model?
  3. After answering the first two questions, is your business larger or smaller than today? Is it more or less profitable? Is your business sustainable in the short run and competitive in the longer run?
  4. Have you asked yourself these questions? Have you pursued answers? If you have, what are you doing to get your business ready for the future?
  5. If you have not sought answers, why not? What changes do you need to make to get yourself and your business moving?

CEO Insights on Innovating the Distributor for the Digital Age includes a call to action for distributor leaders to adopt a new mindset for competing in the digital age and to be armed with foresight about the direction of your market and a vision for leveraging digital tools. I hope you’ll read it.