How to Succeed in a Customer-Driven Digital Value Chain – Distributors in the Digital Era #75

February 13, 2020

Are you ready to participate in a digital value chain driven by customer demands for the virtual ordering of products and services, which provides for instant transparency and ever-increasing benefits while at the same time lowering costs?

In a recent Forbes article, George Bailey, Managing Director of the Digital Supply Chain Institute, predicts that new customer demands will force companies to rewrite their supply chain strategies if they hope to keep customers happy and grow their business. The best model for a coming digital supply chain might be how ride-sharing services operate today. Customers have instant visibility to the location of car inventories, how soon a ride will arrive, how long the trip will last, the cost of a journey and direct billing.

Imagine this future in a distributor’s value chain. Before ordering, customers would see not only the location, cost and delivery times of inventory, but also options for services that might include installation, training, process optimization and data connectivity. This future means that everything a salesperson might offer would be instantly available and comparable across sourcing options. Only then would customers click “go” to place an order and initiate value chain services.

In NAW’s brand-new Innovate to Dominate: The 12th Edition in the Facing the Forces of Change® Series, nearly every innovation we explore requires distributors to build connectivity with customers, collect data and leverage the power of artificial intelligence. But more is required. Building a winning value chain to match Bailey’s vision for a digital supply chain requires new foresight and smart investments. Specifically, we found that building a new partnership to enable a digital value chain requires several new collaborations, including:

  • Accessing the connected customer. Distributors may be on the front lines of serving customers through e-commerce and service platforms. At the same time, manufacturers are adding connectivity and digital reporting capabilities directly into their products. A hyper-responsive digital value chain will integrate connection between these parallel paths for customer benefit.
  • Speed and specialization must include cross-industry coordination. Distributors are setting up their business to move quickly and compete on new, specialized value propositions. However, distributors still think in terms of lines of trade defined around self-interested product groupings (e.g., plumbing, electrical, HVAC, etc.). Customer-defined solutions are not beholding to this structure and may require non-traditional visibility and servicing across lines of trade or with manufacturers not currently viewed as suppliers.
  • Monetization, not compensation. Today, supplier incentives reward distributors for carrying inventory and performing activities aligned with the supplier’s business objectives. In a digital value chain fully fixated on servicing customer demand and service expectations, running a business to earn a margin enabled by supplier pricing does not work. Distributors must find new ways to monetize their services.

A fully customer-driven digital value chain will not evolve overnight. But it is the future. To be ready, distributors must begin retooling their people, culture, digital investments and innovation plans. Distributors will not go far by going it alone, and an innovation ecosystem with deep expertise and pioneering services is essential to set direction, monitor market developments and build crucial capabilities. Distributors must start now to earn their place in the future.

As a Fellow for the NAW Institute for Distribution Excellence, I am committed to creating awareness and advancing the practice of B2B innovation in distribution. My new report, Innovate to Dominate: The 12th Edition in the Facing the Forces of Change® Series, is a roadmap for innovation by distributors. It is much more than a report on trends; it is a foundation for distributor leadership with customers and for revitalizing the value chain. I welcome your feedback, direction and questions. Please feel free to reach out to me at mark.dancer@n4bi.com.