Is your distribution business struggling in ways it didn’t before? The distribution industry is becoming increasingly competitive with the rise of eCommerce and a difficult economy. The changing landscape has led to unique challenges that distributors did not previously face. Understanding common challenges distributors are facing and how to solve them will allow your business to stay one step ahead of your competitors.
What is a Distributor?
A distributor is any business that buys products and then sells them - they buy products from either manufacturers or other distributors (suppliers). Distributors either sell to other businesses, only to consumers, or to both businesses and consumers. Ultimately, what separates a distributor from a manufacturer is that they don’t make products, but instead buy products before selling them.
8 Distribution Issues
Here are some of the unique and notable challenges that distributors are currently facing:
- Disintermediation
- Increased Competition and Customer Demands
- Selling Channels
- Aligning Sales with Backend Systems
- Lack of Adequate Technology
- Global Operations
- Relationship Management/Customer Service
- Reporting
Disintermediation
In recent years, more manufacturers have chosen to sell directly to retailers or customers, thus eliminating the need for an intermediary or middleman. By selling directly to consumers, manufacturers can earn more revenue, especially through the use of eCommerce which has contributed to helping manufacturers sell directly. For instance, from 2016 to 2019, direct-to-consumer eCommerce sales grew at three to six times the rate of overall e-commerce sales.
Solution: Differentiate Yourself
Since more and more manufacturers are selling directly, this means that there is less demand for intermediaries and ultimately more competition amongst existing intermediaries. Thus, it's important to differentiate yourselves from your competitors and make yourself an attractive candidate to distribute products for manufacturers.
If a manufacturer is going to look for a partner to distribute their product, they want someone trustworthy with a good reputation. Focusing on good quality customer service and supplier relationship management will help you to stand out and ensure that the suppliers that are still choosing intermediaries choose your business.
Distributors also must find a way to compete with direct deliveries from manufacturers by ensuring fast delivery times, easy returns, and personalization.
Increased Competition and Customer Demands
A major challenge facing distributors today is rising consumer expectations. Thanks to platforms like Amazon and other competitive eCommerce offerings, buyers now expect fast delivery and high-quality service from companies. 73.6% of online shoppers believe delivery is the most important aspect of the overall customer experience. High expectations from buyers are especially prevalent in the B2C world but naturally carry over into the B2B world as well.
Solution: Improve Warehouse Processes
To compete with the demand for fast delivery and service, you must ensure your warehouse processes are up to par. The only way that you can offer quick service to compete with eCommerce giants is to take care of the backend of your business or what’s done “behind the scenes”. This means that you must be equipped to fulfill orders as fast as possible with efficient picking, receiving, shipping, packing, and inventory management practices. Consider using software instead of manual processes to make these warehouse practices more efficient.
Offering More Selling Channels
Gone are the days when you can have success selling through a single brick-and-mortar store. Instead, you need to offer multiple sales channels such as physical stores, an eCommerce site, and online marketplaces (etc). Selling through multiple sales channels lets you have multiple touchpoints for meeting your customers and lets them buy from you in any way that they choose.
The challenge for distributors, however, is that many are having trouble adapting to the changing digital landscape. Managing multiple channels is proving difficult for distributors who are used to only selling on one channel.
Solution: Implement an Effective Online Marketing Strategy
Distributors often find themselves at a loss when it comes to selling and competing online. With the online marketplace becoming increasingly saturated, customers now have a wealth of options available to them. Therefore, distributors must devise effective marketing strategies that mirror those of their B2C counterparts to thrive in the competitive online sphere. Consider researching the latest SEO, web design and PPC strategies to drive more traffic and conversions to your online sales channels. You need to dive into analytics to remove barriers to purchasing and make the checkout process easy and seamless for customers.
Aligning Sales Channels with Backend Systems
Your multi-sales channel strategy will fall short if you fail to integrate the systems. The failure to integrate with backend warehouse and inventory management systems will lead to inconsistencies in data and will also disrupt visibility since warehouse employees will not have access to your eCommerce data.
Solution: eCommerce Integration
To have multi-channel success, eCommerce integration with your backend warehouse and inventory management systems is a must. This will allow you to align your warehouse processes with your eCommerce channels to improve efficiency and competitiveness.
Integration With Online Marketplaces
With so many companies using sites like Amazon, your distribution company can benefit from having a presence on this site depending on what type of products you sell. If you plan to use popular online marketplaces like Amazon to stay competitive, you must have backend warehouse and inventory systems that have APIs in place to integrate with the site. This will allow your Amazon data to automatically populate within your backend systems and help improve your warehouse processes.
Integration With eCommerce Site
An eCommerce site means your business can make sales 24/7. To make the most out of your eCommerce site, you need a system with APIs that allow information to flow between your system and your eCommerce site.
B2B Online Ordering Portal
For B2B companies, check if your software provider has their own B2B ordering platform that has direct integration with the software. This will provide a great channel for your B2B customers and ensure your backend warehouse and inventory data are fully aligned with your website. Things like product details, customer prices, and other information will automatically sync from your software system, making it very easy to update information.
Lack of Adequate Technology
The lack of proper technology is leading to the following challenges for distributors:
- Manual Processes
- Siloed Data
- Difficulties Managing Rebates
- Difficulties Managing Returned Goods
Manual Processes
With a lack of automated tools, businesses are having to rely on manual processes to keep track of their operational data. They are using paper and pen to conduct inventory counts and keep track of SKU information, shipment arrivals (etc.). Manual processes lead to wasted time and excess costs due to labor.
Siloed Data
Without the right technology, you will have to deal with siloed data or data that is only accessible to certain members within your organization. Instead of having one single source of truth, you might have multiple versions of the truth that vary from department to department. This leads to data inconsistencies and prevents your organization from getting a holistic view of its data to make informed decisions and collaborate.
Difficulties Managing Rebates
Without the right system, the process of managing rebates becomes difficult to manage for distributors. Distributors often have rebate programs for businesses that buy from them, and they are often involved in rebate programs that their suppliers offer. To maximize rebate programs and save as much money as possible, distributors need a system that helps them to easily track rebates.
Difficulties Managing Returned Goods
How well you manage returns directly impacts customer satisfaction. This is particularly true for eCommerce returns where buyers want as much convenience as possible in the returns process. The process of “reverse logistics” or transporting goods through the opposite direction of the supply chain is also challenging to do without the right system.
Solution: Invest in The Right Technology
All-In-One Solution
To solve the above problems, it’s important to invest in the right technology. When it comes to software, the best solution is typically an all-in-one distribution software system that allows you to manage all of your operations. Instead of having separate systems that create silos, an all-in-one solution will give you a holistic view of your operational data. It will allow you to automate manual processes and overcome the unique challenges that distributors face with managing returns and rebates.
Barcode Scanners
Having barcode scanner software in place to supplement your software is also ideal. Barcode scanning aids your business with inventory management and automates warehouse processes such as picking, packing, and shipping.
Globalizing Operations
A major challenge for distributors is overcoming the barriers that come with expanding their business globally. This includes:
- Dealing With Multiple Currencies
- Cultural Differences
- Taxes
Dealing With Multiple Currencies
When doing business abroad, you’ll likely complete transactions with customers and vendors that use different currencies. Having to keep track of exchange rates and manually convert currencies when engaging in foreign transactions is a cumbersome process.
Cultural Differences
Cultural differences can make things difficult. For example, in North America, people are very direct in negotiations and business etiquette. On the other hand, eastern cultures tend to This can make things challenging when negotiating with your suppliers or other business partners.
Taxes
Different countries, states, provinces, and even cities have different tax laws that you must abide by when doing business. It’s important both for appropriately filing your taxes as well as having a clear understanding of your margins based on the amount of tax that is deducted.
Canadians Selling into the US: Canadians Selling into the United States: Sales Tax Compliance (bluelinkerp.com)
Americans Selling into Canada: Top Canadian Sales Tax Tips for U.S. Businesses (bluelinkerp.com)
Solution: Research and Automate
To overcome the hurdles that come with doing business internationally, you need to do research into the places you’re doing business in and automate processes where possible. When it comes to taxes, find a system that lets you automatically calculate taxes based on the rules you’ve entered in the system. Similarly, automate the process of dealing with multiple currencies by finding a system that lets you set default currencies for customers and vendors that operate in different currencies.
Relationship Management / Customer Service
Another major challenge distributors face today is managing relationships in all aspects of their business.
Supplier relations
Effectively managing supplier relationships is important in negotiation and achieving favorable terms. Failure to build relationships with your suppliers will not only result in unfavorable deals but also make it difficult to collaborate and pinpoint improvement areas within your supply chain. Managing supplier relationships becomes particularly difficult when businesses are dealing with multiple suppliers and don’t have time to focus on building relationships with all.
Customer relations
Retaining customers and turning them into repeat buyers is a challenge for businesses. Managing customer relationships is especially challenging when businesses fail to prioritize fast service.
Employee relations
Many distribution businesses throw a lot onto their employees by having them go through tons of manual processes. They also fail to help their employees adopt change when changes are introduced.
Solution: Prioritize Relationships
Track Supplier Performance
Keep track of which suppliers perform the best based on metrics like on-time and in-full deliveries. This will help you to compare suppliers against one another and determine which supplier you should focus your relationship-building efforts on.
Listening to Customer Feedback
The most effective way to manage customer relationships is to listen to the feedback that they give. Pay careful attention to the feedback you receive directly or indirectly through reviews to improve the service that you provide to your customers. This is important for both B2C businesses that want repeat buyers, as well as B2B businesses that want customers to buy in bulk long-term.
Focus on Change Management
Changing your systems to automate processes that your employees were previously conducting manually may help make their lives easier in theory, but it means nothing if you can’t effectively manage the change. You need to come up with a plan to effectively introduce the change to your employees so that they are on board with new processes.
Unreliable Reporting
Reporting is another obstacle for distribution businesses as many fail to put together real-time reports that effectively monitor performance. When used correctly, reporting provides actionable insights that help distributors make key decisions to move their business forward. However, many businesses struggle with creating effective reports either because they lack the tools to create robust automated reports, or because they don’t have good quality data to begin with.
Solution: Cleanse Data and Automated Reports
Cleanse Data
For reporting to be accurate, the data that is used to create reports and analytics needs to be accurate and up to date. To ensure you have good-quality data, you need to conduct a data migration to an all-in-one system. Have implementation specialists who specialize in cleaning data do it for you so that you can ensure your data is reliable going forward.
Use Robust Automated Reporting Tools
Find a system that provides you with robust ERP reporting tools like SQL, Crystal, Power BI (etc). Your system should also provide you with on-demand, real-time reports based on live data so that you can access reports whenever you want for actionable insights.
