The effects of the COVID-19 pandemic on the supply chain linger in 2021. The most visible challenge for distributors has been extended lead times, which means frustrating backorders for customers who need product now — and not three weeks from now.
That’s unlikely to change soon.
Near the start of the shutdowns in 2020, lead times were up more than 200%, according to the Institute for Supply Management. That never improved much throughout the rest of the year. The ISM Backlog of Orders Index expanded in December 2020 for the sixth consecutive month — indicating manufacturers’ backlogs continued to grow, even as we’re more than nine months into the pandemic.
Safety supply reliability has been the most glaring hurdle. But many distributors are also facing long lead times for industrial and construction parts and equipment and other supplies. One electrical distributor posted a message to customers in January 2021 that they are seeing extended lead times in several electrical product categories, such as circuit breakers, power fuses and wire and cable.
The causes: production slowdowns and short-term shutdowns due to COVID outbreaks and time-consuming cleaning protocols. Freight is another reason for long lead times across product categories, with truckload shortages in the LTL and spot market, and rising costs.
The answer for many distributors has been to increase safety stock on critical items, but distributors also need a substitutes strategy to keep, when possible, a customer from going elsewhere.
If the mask a customer usually orders is out of stock, you should be able to quickly tell that customer which alternate mask will fit their needs. That’s the way to win and keep business.
The idea of following up on a backorder is not new. Good sales reps have always done a great job of this for the customers they regularly connect with on the products they know best.
But it’s harder to do that across thousands of sometimes complicated and technical SKUs, at scale and across all of your sales channels.
AI enables distributors to reliably do what good sales reps do at scale and even automates the customer communication (an email or a notification to a sales rep, for example) when a commonly purchased product is out of stock. For example:
- A customer places an order and sees a product is out of stock on the distributor’s website. AI suggests a substitute item on the product page and again on the checkout page to help the customer avoid accidentally ordering an item that is out of stock.
- A customer calls or emails an order to a rep. Instead of the rep blindly ordering the product only for the customer to realize it’s out of stock, they can immediately suggest an appropriate substitute. As a result, the rep doesn’t lose the order.
- Inside and outside sales reps work from open-order reports to find substitutes so that customers aren’t frustrated when the distributor doesn’t have what they need.
The cost of backorders for a distributor is steep: erosion of profits from the added costs of customer service calls, multiple shipments if you have to split an order, shipping and labor if expediting is required, and high return rates.
But perhaps the biggest hit is to customer loyalty and share of spend: If a customer can’t get what they need from you when they need it, chances are they will go somewhere else. They can’t afford to wait.
Make sure they don’t have to. That’s how you earn trust with customers.