Cost management: Tackling wholesale distributor challenges
Cost management is a top wholesale distributor challenge. How can distributors streamline management of the cost of goods sold (COGS)?
Before COVID, many wholesale distributors regarded e-commerce as an additional “nice-to-have” channel. Today, e-commerce is a must-have for distributors of all shapes and sizes and order orchestration is a priority.
In fact, it’s estimated that B2B website sales, including marketplaces, would top $1.3 trillion in the United States during 2020, an increase of 10% from the prior year. Unfortunately, additional e-commerce sales volumes add complexity to distribution channels, further complicating the often intricate network of branches.
Making the case for order orchestration
Many wholesalers have a geographical network of branches to build relationships with and provide advice to their customers. When a customer order is given to a branch location, it is often served by the stock of the branch, picked by the branch employees and/or delivered by the branch truck to the B2B customer. Occasionally, a sister branch could help serve the customer or transfer part of its stock to cover the existing “out-of-stock” of the original branch.
For larger organizations, each branch has a stock plan. This includes a list of the articles to keep in stock at the branch, along with a similar stock plan for the regional distribution center serving multiples branches as a hub, and sometimes even a higher level of hub with a multi-regional or even global hub.
These hubs might not hold the total catalog, which represents hundreds of thousands, or even millions of articles. Part of the catalog might be considered only available “on order,“ delivered by suppliers to the global hub. Exceptions are short cuts to deliver directly the branches, or a closer regional Hub (RDC, Regional Distribution Center) depending on the size of the network.
In situations where distributors decide to order from a supplier to fulfill a specific customer order, several days or weeks might be necessary to get the sales order fulfilled. This delay can rile customers.
Optimizing order orchestration
As e-commerce business continues to grow during the pandemic, many say it is forever changed and will not return to its previous status. Wholesale distributors should expect continued e-commerce growth.
The market share taken by e-commerce during this period (up to 50% for some wholesalers) is now so high that the complete logistic organization is reviewed as an “e-commerce anywhere” channel where orders would require orchestration across the whole supply chain.
When an order comes through the e-commerce channel, it could potentially be delivered from anywhere – the hub, the RDC, branches, and even from different branches. When trying to optimize the orchestration of orders, distributors need to solve the following question that we can summarize into this example:
- You receive an order of five articles to deliver to Customer Alpha, which could be delivered either from two articles from Branch A and three articles from Branch B; neither branch is far from the customer
- Another option could be that the order is fulfilled via five articles located at branch C, which is a little further from the customer
- Ample other potential order orchestration options exist
Wholesale distribution trends: More competition, supply chain disruption
After a tumultuous couple years, what trends can wholesale distributors expect now? Watch for continued supply chain disruption, increased competition, and a talent shortage.
This sophisticated equation is called “order orchestration.” It applies not only to e-commerce, but to any order that must be delivered, knowing that when the whole order is assigned to the most proximate branch, it’s business as usual. In today’s world, we have moved beyond the traditional schema and have more intricate needs to quickly fulfill customer needs and stay competitive.
Directing the symphony of logistics
In one sense, order orchestration is finding the right tempo and the right position of the logistic instruments to deliver the softer music to the final customer through the supply chain. This can no longer able be satisfied by a single entity (such as a branch); it requires a network of hubs.
It also requires a platform to combine the strength of e-commerce and physical commerce for one holistic view of inventory, in order to best serve customer needs while minimizing the risk of carrying excess inventory.
This organizational shift is here to stay with no return to pre-COVID days in sight. The growth of e-commerce channels and the importance of order orchestration will remain key focuses for today, tomorrow, and all days to come.
