A look at ancillary revenue sources for distributors
Traditionally, distributor profitability was directly tied to economies of scale – the bigger you are, the better you buy and the more revenue you bring in.
While that truth remains, today’s distributors are implementing innovative strategies to mitigate changing buyer behavior and rising costs. As the distribution business model continues to evolve, technology is utilized more frequently to amplify success.
Distributors differentiate themselves through a variety of value-add services. By taking that extra step to ensure products are delivered to customers’ exacting standards, a distributor stands a better chance of creating and retaining loyal customers. The key is to find and exploit a niche that matches the individual company’s strengths and culture; something that is attainable for employees and supported by systems. Perhaps that unique factor is customizing packaging or same-day delivery. Distributors should take a fresh look at what value they can bring to the market and then ensure investment in value-add services can be measured as carefully as inventory turns.
It also is no surprise that distributors are increasing investment in e-commerce. Today’s consumer and by extension B2B players, expect real-time access to information on items, orders and accounts, and direct communication with vendors at their convenience.
Enhancing the company’s website — including visually appealing, easy-to-read descriptions of products and options — can help to significantly increase profits. Conducting business online or through various channels interchangeably is becoming the norm for the next generation of buyers, so distributors must be prepared to invest via this outlet to remain successful and profitable.
Advanced analytics present an additional method for generating revenue-utilizing technology. Business-intelligence platforms provide real-time visibility into performance across multiple levels, allowing decision-makers to pinpoint where the company is making money and where revenue is being lost. Implementing a BI application that delivers in-context analytics helps organizations to create actionable data — information that can be used to increase efficiency and reduce unnecessary expenditure. Connecting this information through alerts or social conversations within the application can transform how a company engages and responds to daily challenges.
One of the most interesting ways distributors can improve profitability is to effectively change the conversation with manufacturers and suppliers through an integrated supply offer. When a distributor is invited to and successfully manages the inventory at a supplier’s site, it completely alters the dynamic of the relationship. The distributor ensures the material always is in stock and streamlines the effort involved in ensuring goods are on hand when needed. Suppliers are willing to pay for that level of service because it is one less thing to manage, particularly when managing that inventory is really what distributors do best. It is a win-win for both organizations.
Consumer behavior and expectations have changed, and will continue to shift in the future. Distributors that hesitate to adjust their business models and adopt advanced strategies based on the latest technology will likely become candidates for acquisition as they are outpaced by competitors.
Companies should evaluate which technology investments and modernization initiatives make the most sense for their business as the trend of “doing more with less” becomes a constant fixture in the industry.