Delivering for Best-in-Class Wholesaler-Distributors
February 16, 2017  |  ByMark Dancer, NAW Institute for Distribution Excellence Fellow
NAW-Digital Tools Were a Hot Topic at NAW 2017 Executive Summit – Distributors in the Digital Era #4

I had the pleasure of attending the NAW 2017 Executive Summit earlier this month in Washington, DC. This year’s theme promised to speak to many of the challenges faced by distributors today: a tough economy, advancing technology, rapidly changing customer requirements, shifting demographics, and tight margins. I found the program and presentations excellent, offering fresh ideas, hard facts, and useable recommendations. My many side conversations with wholesaler-distributor executives indicated that all topics hit home and that leaders are already pushing ahead with new solutions for serving customers and improving competitiveness.

The topic of digital tools and becoming a digital distributor was everywhere, both as the primary topic and as an enabler of change. Overall, I noted five themes that resonated with my ongoing research and writing for the NAW Institute for Distribution Excellence on digital trends and value chain evolution, each of which is discussed below.

Millennials Are Essential for Multichannel Strategies

Much of the common discussion about Millennials in the workplace dwells on difficulties and challenges, and it is often overlooked that they are a force for positive change. It is widely known that Millennials are technologically savvy, but less discussed is the fact that they are very strong team players and actively seek and act on feedback. They want to make a difference and to know if they are doing so. From a digital tool perspective, these predispositions make Millennials essential for execution of multichannel strategies, which require both self-directed efforts and high levels of collaboration between the field and the inside sales organization, enabled by online support delivered through websites, videos, configurators, and smartphones. Multichannel strategies and Millennials are made for one another.

Dive In to Data and Train Your Leaders

The most important imperative for distributors around data and analytics is to just get going. Distributors are analytical, data-driven businesses by their nature. Digital tools are pushing distributors to extend this competency to the front end of their businesses, with advances around digital marketing e-enabled sales, and fact-proven value creation delivered through upgraded customer experiences. While advanced software solutions and highly sophisticated skillsets can make great contributions, the 80 / 20 rule is very much in play – a huge majority of gains can be achieve by the earliest first steps.

If your organization is not currently pursuing new uses of data and analytics, just get going. Great returns will be gained by following three rules:

  • Build a team of analysts and have them work together, preferably in the same location
  • Define a problem area or potential opportunity for your analytics team to pursue and give them latitude to explore, hypothesize, test, and prove new solutions
  • Make it clear to the rest of the organization that findings from new data and analysis are important and will be acted on.

On the last point, many distributors are finding that it is important to train leaders how to use unfamiliar data and analysis. It is easy for leaders to kill data-drive initiatives from their positions of power, and it can be very hard to get them to change their ways. Leader training can be an essential element for leveraging the power of data and analytics.

Amazon Means Distributors Must Have a Channel Strategy

Kudos to Amazon for presenting on Amazon Business at the NAW Executive Summit and taking questions from distributor executives. Amazon is, and will continue to be, a major disruptive force in distribution-intensive value chains. Distributor leaders are not in denial. At the Executive Summit, they listened intensely to Amazon’s perspectives, and asked penetrating questions, the first of which went to Amazon’s plans for acting on customer data gathered through distributor transactions on Amazon Business. The answers to this and other questions did not define whether Amazon is “friend or foe,” nor can they. Rather, the imperative for distributors is to have a channel strategy and decide how Amazon fits in.

At their core, channel strategies are about which customers will be served, how they will be reached, and what value will be created. In the age of digital tools, new technology means new possibilities for creating a channel strategy. A distributor’s first task is to design its own field, inside, and online channels to leverage digital tools and achieve new levels of financial performance and customer satisfaction. The second task is to consider whether emerging disruptive channels can play a role in maximizing share or meeting customer expectations for online shopping.

The goal is to determine if Amazon and other new disruptive players can play a role that could range from achieving small, incremental gains for specific customer needs or sales goals, all the way up to becoming a major channel for sustained growth and profits. If there is a role, the next task is to implement channel management programs that work with disruptive players as a “cuspetitor” — a partner that is sometimes a customer and at other times a competitor. Creating a channel strategy in the digital age is hard work, confusing, and complicated, but it is also an essential skillset required for ongoing distributor success.

Value Selling Is About Process Mapping

More and more, the adoption and use of digital tools are prompting distributor leaders to reimagine their role in the value chain from one that buys manufacturer products, adds value and sells them, to a kind of equal opportunity value creator. In this re-envisioning of the wholesaler-distributor business model, distributors stand beside manufacturers and disruptors, leveraging the distributor’s unique capabilities for all. The path for working with customers is the clearest. Products manufactured by suppliers create value through their use by customers. Services provided by distributors create value through their execution for customers. Services are delivered by processes enabled by digital tools. Value creation for customers is about taking inventory of processes in the customer’s business and aligning the distributor’s own processes to enhance performance of the customer’s business model.

Digital tools enable value creation by collecting and sharing. As one distributor in our research explained, “We ask our customers to tell not just what they are trying to achieve, but how they go about their business. We work with them to define critical processes, which can be about anything – operations, logistics, manufacturing, marketing, or sales. Then, we work with the customer to identify which processes we can impact and which metrics to measure results. These are input metrics because they lead to and often guarantee results. We measure our sales and margins, of course, but these are output metrics. We sell more at higher margins when we focus on inputs. All of this means that business process mapping is becoming a critical skillset for our salespeople. Our biggest surprise came when we turned this approach and focused it on our best suppliers. The same approach led to stronger partnerships, more actionable support, better incentives, and improved financial performance.”

Business Model Innovation Is Essential for All Distributors

Digital tools require investment and many leaders believe that the largest distributors are in the best position to achieve competitive advantage, because they can leverage their scale to cover the costs of digital investments. This is true, but many small distributors have found that if they are smart and selective in the use of digital tools, they can achieve significantly improved sales and marketing performance with growth (not scale) funding digital investments. These two arguments have been known for some time, and I heard evidence of both in conversations at the Executive Summit.

But I also heard something new, or at least an old argument that is gaining greater credibility – distributors must change their business model by adding fundamentally new services if they are to survive and prosper. There are many examples and a few that I have heard recently include adding design or diagnostics services related to their products, and adding equipment that can remove demolished or hazardous materials, and manufacturing or assembling products, essentially acting as an original equipment manufacturer (OEM). Some of these services exist in a market and can be added through acquisition. Others are new and must be built from the ground up.

The important awakening for distributors is to recognize that adding new services enables two survival strategies:

  • Differentiation versus disruptors and in some cases, manufacturers establishing direct relationships with customers
  • Improving overall gross and net margins.

The best plans leverage digital tools, because they ride the wave of technology innovation and provide the data that a distributor can use to effectively manage pushing their business in new, uncharted directions.

The good news is that business model innovation is a discipline that can be learned. One key graphic below identifies 12 opportunities for identifying business model innovation opportunities. This approach is discussed in our two most recent books, Getting Results from Your Digital Investments and Becoming a Digital Distributor: Strategies and Tools that Create Value, but you can also get started by following up on the references sited below the graphic.

Innovation Radar for Wholesale Distributors

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Mark Dancer, NAW Institute for Distribution Excellence Fellow

Mark Dancer, NAW Institute for Distribution Excellence Fellow

Mark Dancer founded the Network for Business Innovation to drive awareness, advocacy and excellence for B2B innovation, and to enable an exchange of ideas between leaders on business transformation, technology adoption, social impact and community engagement. For more than 30 years, Mark has worked with leading companies to achieve go-to-market excellence across a wide range of industries in developed and emerging markets.

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