Wholesale distribution industry: Imagining new possibilities

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Traditionally, the wholesale distribution industry has been characterized as very traditional, not very innovative, and rather technology-averse. While this hasn’t really been true, especially for the past decade, it’s clear that pressure to innovate is growing for wholesale companies.

The traditional wholesale business model is increasingly becoming an endangered species. A pure product-centric business (buy–store/move–sell) is simply not enough for most distributors to remain profitable. Many of the industry trends adding to the pressure for wholesalers are not new:

  1. Increasing competition
  2. Supply chain disruptions
  3. A talent crunch
  4. Increasing regulations

Until recently, many distributors thought they had 5-10 years to redefine themselves. Then, the pandemic fueled an already almost perfect storm like warm Caribbean water does a hurricane.

Agility and flexibility have since jumped to the top of an organization’s priorities and transformational initiatives are no longer just nice to have. Wholesalers must find new ways to run their business on multiple fronts, making the practice of innovation table stakes for survival in today’s market.

Wholesale distribution industry & the innovation imperative

For distributors to evolve from a pure product business to a profitable, resilient organization, they must find additional offers that complement current business or create entirely new business models and revenue streams.

In the book Competing Against Luck, the late Professor Clayton M. Christensen calls this jobs to be done. When you understand what your customers are ultimately trying to achieve, you can build a comprehensive solution-centric offer around it.

For example, multiple wholesale distributors are offering IT services such as web design for customers to create web shops. This helped small mom-and-pop stores survive lockdowns associated with the pandemic. Other value-added services include offering extensive project management and coordination services.

Another strong driver for innovation is new regulations, which are especially prominent in the healthcare and food and beverage sectors.

The 2021 SAP Innovation Award winner for the industry leader category, AmerisourceBergen, created a track-and-trace supply chain solution and corresponding information hub to address a new law designed to protect the safety and security of pharmaceutical supply chains. The solution enabled the pharmaceutical distributor to collaborate with its thousands of business partners and meet messaging regulations.

Moving towards a circular economy

Another driver of innovation in the wholesale distribution industry is sustainability and the need for a circular economy. New regulations in this area create demand for extended visibility along the entire supply chain.

Detailed C02 and emissions reporting is quickly no longer just a marketing asset, but is becoming a regulatory necessity. More importantly, customers, investors, and the general public are demanding a serious approach to going green.

One example of this is high-tech distributor Bechtle, which has effectively designed a set of reusable shipping and packaging materials.

Adapting to workplace trends

Last but not least, wholesale distributors must consider the future of work and how that impacts the employee lifecycle. How can distributors attract new talent? How do you skill the workforce for the opportunities and challenges that lie ahead?

The pandemic has accelerated the adoption of virtual meeting concepts, mobile work, and no-touch business transactions, but even before that, the job landscape has been going through waves of transformation. While it’s becoming increasingly difficult to find front-line employees (e.g. truck drivers or warehouse staff), demand for skilled, knowledgeable customer-facing employees has grown significantly (e.g. sales and support).

Automation and robotics help alleviate manual work from the less appealing jobs and enrich more desirable roles. Additionally, artificial intelligence can support agile decision-making, proposing solutions, and digitizing knowledge so it can be shared effortlessly across the entire organization.

How wholesale distributors can drive innovation

So what’s the best way for those in the wholesale distribution industry to plan for and invest in innovation?

As a first step, listen carefully to your employees and customers. What workarounds have they implemented to get things done? What would make their lives easier?

Within a design workshop, you can bring together several key team constituents to sketch out some of the ideas and then iterate through some quick designs to test solution-centric approaches. This kind of approach can also produce impactful advanced concepts and potentially even new business models.

When approaching transformational initiatives, especially disruptive ones, one of the main concerns becomes giving your new endeavor a fighting chance. Disrupting one’s own organization is challenging, some would even say impossible.

So, designing the right organizational culture for such projects is just as important as the concept itself. This could be an incubation unit or spin-off outside the traditional company structure that can operate with more agility to fail fast and share key learnings.

Opportunities, but lots of work ahead

As the markets continue to evolve amid a dynamic ecosystem, we will see much more of these forward-thinking projects and innovation. As with digitalization, societal changes are equally dynamic, with trade being at the center of many of these megatrends.

Advanced technologies like robotics and artificial intelligence are likely to bring additional revolutionary possibilities in the coming years.

Wholesale is expected to remain one of the hottest industries in the years to come with a simultaneously dire need to be among the most innovative.

Is your business ready to become an intelligent enterprise? Find out HERE.

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Werner Baumbach

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