Delivering for Best-in-Class Wholesaler-Distributors
September 1, 2016  |  ByNAW Staff
NAW-What Challenges Are Distributors Facing?

There are unprecedented challenges facing wholesale distribution companies. What can you do to meet them? More and more wholesale distribution executives have recognized an urgent need to take positive action. But the driving factors are not entirely new. The industry has often struggled to understand and adapt to macroeconomic forces such as globalization, accelerating product life cycles, and multiplying sales channels.

Wholesaler-distributors are generally (and often proudly) sales-driven companies. They are highly responsive to their customers and organized around their sales forces. Most wholesaler-distributors were founded by entrepreneurial salesmen, so the connection to the customer is deeply wired into the culture. Although being sales and customer driven is certainly better than having a purely internal focus, it is no longer enough. A well-run, sales-driven company can react quickly to changing market conditions (by cutting expenses in a downturn, for example). But it will probably never get ahead of the market if it relies on the sales force as its primary window to the world. Sales reps are simply too emotionally and financially tied to the status quo to lead a change.

The exhibit below defines three stages in business strategic evolution. Operations-driven firms focus inward, on their own products and services. They are like a horse with blinders on, trotting in a straight line without being too distracted by the market environment.

Sales-driven companies, on the other hand, have taken off the blinders. Their outward focus helps them respond quickly to customers, but makes them more likely to meander off in different directions.

A market-driven paradigm combines the best of both worlds—the ability to follow through on a set course of action based on a full view of the market.

Click here to get the introduction to the research study Value Creation Strategies for Wholesaler-Distributors

Research conducted by Steve Deist, Mike Marks, and Mike Emerson of Indian River Consulting Group for the NAW Institute study, Value Creation Strategies for Wholesaler-Distributors, shows that successful wholesaler-distributors have moved beyond a sales-driven paradigm to become market driven and strategically led. Unfortunately, research also shows that the transition is painful and risky.

The evolution to a market-driven approach has been led by lines of trade in which competitive pressures have been extreme for a long time, such as electronics and industrial supplies. Wholesaler-distributors in these lines of trade expanded from traditional product sales into higher value services, such as integrated supply. These shifts often occurred before customers began asking for anything different and in spite of resistance from the sales force. By addressing their customers’ fundamental business drivers rather than just reacting to what their sales reps were hearing, these wholesaler-distributors demonstrated the progression from a sales-driven to a market-driven model.

NAW_Value-Creation-Strategies-chart

Private-equity buyers also have propelled the transition by introducing more disciplined and sophisticated management practices to the wholesale distribution industry. The need to justify acquisition prices to their investors forces them to clearly define value creation strategies that can offer step changes in profitability, not just incremental improvements. Their search for value has led them to question long-held assumptions and rethink business models. They have driven innovation in areas such as strategic pricing, customer segmentation and positioning, management control systems, and sales organization.

The authors’ research indicates that adopting a market-driven, value creation strategy can yield significant and rapid financial benefits. These returns derive from both competitive advantage (that is, the ability to extract a premium from the market) and, perhaps less obviously, improved execution and productivity. Strategic clarity improves communication, empowers the organization, and helps to highlight organizational misfits. In the words of a Fortune 500 executive vice president, “It takes away all the hiding places.”

Adapted from Value Creation Strategies for Wholesaler-Distributors

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