Wholesale distribution is a vital link in the global supply chain. Learn the basics of wholesale distribution and get examples of top distributors in the industry.
While the general wholesale distribution business of pick, pack, and ship may sound simple, the industry has several unique challenges that add pressure on these organizations to continuously evolve and optimize processes. Top challenges in wholesale distribution include:
- Product and service complexity
- Market competition
- Shrinking margins
These challenges were exacerbated by the pandemic, when distributors were faced with unpredictable demand, massive supply chain disruption, and workforce safety issues. The need for agility and continuous innovation became clearer than ever.
Wholesale distribution is a complex, high-volume business that can greatly benefit from innovation and digitalization to give them an edge in a very competitive market.
The complexity challenge in wholesale distribution
Many distributors manage a wide range of product and service combinations throughout their business processes. No other industry has such a high number of customers, materials, distribution channels, and location-specific pricing requirements.
Even slight miscalculations can greatly impact the profitability of their business and threaten their existence.
Wholesale distribution is a vital industry, but how it works can be something of a mystery. Learn the basics of wholesale distribution's role in the supply chain.
On top of product complexity, distributors are challenges by increasing regulatory requirements in the areas of customer protection, circular economy trends, national mandates, and product traceability. Requirements for trusted products requires distributors to track, trace, and monitor goods along the entire supply chain, which often increases the cost of doing business.
Internet giants enter the fray, challenging traditional distributors
Large players such as Amazon and Alibaba entering the B2B space have caused severe disruption to the typical way wholesalers are used to doing business. Price transparency and low barriers to switching suppliers are the new normal, driven by abundant online connectivity and readily available information.
To respond to increased competition and disintermediation, wholesale distributors need quality products, superior stock availability, shorter delivery times, and flawless execution of operations. Efficient distribution center logistics are vital, as even distributors with large volumes achieve small margins.
The average B2B distributor is losing up to 5.2% of profit annually due to misaligned pricing. Discover optimized B2B e-commerce pricing.
A wholesale distributor can process hundreds of thousands of order line items each day with delivery windows ranging from same-day to many partial just-in-time deliveries over multiple months. Due to the complexities of forecasting demand and supply across a multitude of potential suppliers and hundreds of customers, overstock and out-of-stock situations are key issues. The focus is on reducing the cash that’s tied up in inventory or minimizing the negative impact on customer service levels.
As mergers and acquisitions drive industry consolidation, the need to differentiate themselves is steadily increasing for wholesale distributors. As a result, they’re taking on functions of adjacent industry segments like manufacturing or retail. The result is a blurring of roles in the supply chain.
Digital commerce giants have already grasped the incredible opportunity to apply their technological expertise to leap forward from the B2C model into B2B markets.
Wholesale distributor challenge: Shrinking margins
Due to the intermediary nature of wholesale distribution businesses, profit margin is a critical lever to determine a company’s revenue and overall profitability. In fact, a 1% price decrease requires the company to increase its sales by nearly 6% to achieve the same profit outcome.
The speed and efficiency that consumers are used to receiving in their personal lives has put a strain on distributors to become easier to do business with, offer additional services, and increase levels of personalization, all potentially at the cost of their bottom line.
Emerging marketplaces add another level of complexity to wholesale distributors, as more competitors enter the B2B space with a keen focus on disrupting the low end of the market with no-frills, low-cost offerings.
To regain profit margins and deliver on customer expectations, wholesale distributors must collaborate very closely with their suppliers to differentiate themselves through high-value services or by increasing operational efficiencies that allow them to win customers at competitive, wholesale prices.
With high complexity, increased market competition, and shrinking margins, wholesale distributors must continuously innovate to address market changes with customer-specific solutions that transform and differentiate their business.
This can be done through adopting the methodology [shown above] of trying out new processes, products, services, and business models, measuring the customer experience response, and optimizing new products and services based on value and experience.