The state of Wholesale Distribution Research, sponsored by NetSuite has highlighted the current state of the industry. After a year of turmoil in 2016 confidence is returning. Rangla Bodla, Head of Industry Marketing at NetSuite highlighted the research in a blog recently. The research white paper can be found here, it was written by Modern Distribution Management (MDM) . Bolda commented “While the economy is showing signs of growth for sellers, we can’t ignore the dramatic changes in the historically conservative wholesale distribution industry.” The worry is that while Wholesale distribution is evolving, is that enough? Disruption brings revolution not evolution.
The research is based on nearly 300 respondents across several sectors. The largest sector was industry (55.3%). The research is spread across several different industry sectors and size of companies. The forecast for 2017 is positive. Only 2% of respondents felt that there would be negative growth in the near future.
A small proportion of electrical, HVACR and PT/Bearings see the market as declining. One suspects that the negative views are shared by companies with individual problems. The most positive sector is Grocery and Food with 80% seeing growth at more than 5%.
Competition is forcing changes.
The MDM report focuses on talent, disruption and customer demands as the top three causes for concern. Unlike a recent Deloitte report they do not focus on the threat of competition. It places the focus on evolving their own solutions through smarter use of talent and technology.
While Deloitte concurs to an extent with this analysis it would be naïve to assume that competition is not a major threat. Companies cannot just invest in technology and talent while assuming they will conquer all. Every industry is being disrupted and that disruption is led either by your own company or competitors. While one can lead the way in disrupting an industry is about understanding both customer needs and competitive threats. The classic example is Amazon where the power it is gathering to itself in both logistics and retail is frightening. Companies need to understand where they can fit in this modern world. It is hard to compete in the mainstream against the massive corporations and they need a niche where they can offer a differentiated service.
Focus on the US but global impact
The market in the US has several concerns, fuelled mainly by the new president and the impact he has had. These are not isolated to the US. MDM cites the economy, regulation, M&A activity across the supply chain and manufacturing productivity as key concerns.
There are similar concerns across the globe. The introduction of GDPR across Europe next year and the Brexit question are both raising concerns. The bigger question on the global market is the rise of protectionism. A recent article by Pankaj Ghemawat in HBR (July/August 2017) sees the increase of protectionism as a threat. This is not so much the end of globalisation. Ghemawat argues that with a more restrictive climate companies need to focus on more profitable areas. Emerging markets will remain emerging and trade will still continue.
What should the focus be?
The MDM research was US centric and focused on the domestic market. Interestingly the business priorities remain broadly unchanged. Revenue growth is top with 63.9%. Interestingly the methods to increase revenue are increasing wallet share of customers (58%), adding new products (46.8%) and improving ecommerce capabilities(35.6%). What was lacking, either from the survey or the results, is that new services were not included in this though perhaps products was all encompassing. The problem for distributors is that while they need to introduce ecommerce functionality for their B2B customers, they should be wary of attempting to disintermediate those customers by cutting them out.
There was also no mention of the implementation of new business models. Whether this would be revealed in a survey is doubtful but it will be interesting to see whether the industry evolves.
Reducing costs remains important
Wholesale distributors are looking to reduce costs in order to increase margins. Two main areas of investment are seen. The first is increasing productivity of employees. Interestingly companies realise that to do this they also need to invest in those same employees. 26.8% of respondents see employee training as a business priority. It was number five on the list. The other is investing in technology. The top three investment areas are E-Commerce, CRM and Mobile for Sales. The latter is interesting as it is less a technology in its own right and more a feature of an existing or deployed solution. Whether that means CPQ or merely the availability of Ecommerce on mobile devices is unclear.
Oddly HRM is not on the list. For larger organisations and the investment in training that they are looking to make this is surprising. Most industries are seeing the benefits of implementing modern HRM solutions. From talent acquisition through to management it can improve employee satisfaction and productivity. NetSuite announced SuitePeople at Suiteworld last year and they may have been disappointed by its non appearance. It will be interesting to see whether MDM include a question about it in next years survey.
What does this mean
NetSuite will leverage this report to help demonstrate that they can deliver a complete solution in this market. Their solution covers the breadth of functionality that the sector is looking for. With SuiteSuccess they are also able to implement solutions faster. They are not the only ones in the market though. CRM is becoming increasingly important and with customer centric solutions it will argue its case powerfully too.
There are also companies like Sage Intacct who operate in this sector. With Sage now backing Intacct , NetSuite may find that they come up against them more often. There are also Salesforce partners that offer wholesale distribution solutions such as Rootstock. With small wholesale distribution companies investing in Salesforce, the natural tendency is to look to Salesforce centric solutions rather than integrations that NetSuite and Intacct have.
For Wholesale Distribution the outlook is improving. The question is who will be the winners and grow market share and who will lose out? Those companies that invest in technology and people to increase efficiency and performance should benefit. Those that remain inefficient are unlikely to continue satisfying ever increasing customer expectations and demand. Of the 300 respondents one wonders how many will be acquired or cease to exist in 2018 and how many will have grown?
Is Wholesale Distribution burying its head in the sand or have they got it right with the return to basics? Improving revenue and efficiency has been the mantra for several years. But is a return to those basics enough in a world where Amazon, drones and 3D printing could all fundamentally change industries?