New dimensions in Manufacturer-Distributor relationships—Part 2
The use of e-commerce and e-business/low service platforms has driven commodity distribution to profits that are little better than marginal cost. Hence distributors don’t have the financial motivation to put significant personal sales effort to box-in/box-out (BIBO) distribution. Instead, distributors will increasingly allocate the sales effort by a more robust logic than margin dollars including cost to serve, lifetime value and loyalty.
As customers are stratified, those who simply transact commodities will be served by low-cost solicitation methods including e-business or telesales solutions. These customers, in aggregate, may purchase significant commodities however distributors will likely not put sellers on the street for these sales. It is simply inefficient, doesn’t make the best use of technology, and customers increasingly will not pay for it.
Commodity suppliers will be judged less on their product quality and more on their channel services and IT support. Our research finds approximately 70% of all distributor products are commodities. For most, the differentiation of product attributes is small or non-existent. As these products are placed online, they become easy to search and compare prices on. Their commodity status is accelerated by e-commerce.
Many of the products, however, have lifecycles that last decades and will be in use well into the future. Of importance to the distributor are the service supports of the product including: promise date, shipping accuracy, invoice accuracy, shipping completeness, quality of packaging and labeling, return privileges and quantity buying options.
Also, vendors will be increasingly judged on their ability to provide e-commerce-ready content and product information that can be easily downloaded into the ERP system and the e-commerce CMS (content management system). As data is turned into information, wholesalers are investing significant funds in developing product content. Vendors who take an active role in this will be rewarded with orders.
Vendors who offer application, design and support of value-added assemblies will sell more. As the traditional BIBO platform becomes less financially attractive, distributors are moving into assemblies that combine different technologies into a unique solution. The more common solutions will be all, or partially built to stock. Vendors can help with assemblies in several ways including engineering expertise, augmenting product design to fit a unique need and working with distributors to develop solutions that can be scaled across similar applications.
As transaction technology has improved through e-commerce, manufacturing has globalized and the supply chain becomes increasingly lean, traditional distributors are re-defining their value proposition including development of assemblies and unique field services. Vendors who support e-commerce with upgraded content, well-organized product data to populate the ERP and CMS platforms, drive service quality that surrounds the product and offers engineering assistance for assemblies will find they are rewarded with growing sales from their distributor partners.
In case you missed it: Part 1 from August 2014.
