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With a complex network of inter-reliance from manufacturers through to retailers and an increase in globalizing businesses, it is proving a challenging time for all parties involved as distribution chains grow more extensive and complex. So how can businesses tackle the mounting distribution challenges to maintain profitability?
Distributors are under constant pressure to broaden their product portfolio as the retail and reseller community seeks out new products and markets. At the same time, changing routes to market, the shift to online selling, increases in software and services sales and increasing demands from vendors to show ROI are chalenging traditional distribution models. Developments such as Bring Your Own Device (BYOD), virtualization, cloud and services subscription are all challenging the traditional transactions from vendor to end user.
Vendors are also feeling the pressure. Direct sales, forced consolidation and fierce multi-channel competition - especially in mature markets – are combining to make delivering ROI a real challenge. Vendors need to leverage their brand to achieve premium prices. This means more focus on new product sectors, product design, the routes to market, customer needs - and ultimately brand value.
Here we identify the key considerations to help businesses succeed in this environment.
Know your customer
If you can understand what your customers want, where and who they purchase from, what they buy now and can anticipate what they’ll want in the future, you have powerful information to plan your business. This is especially important as markets become commoditized and distributors particularly get squeezed out. Distributors who know their customers well can help vendors reach them in the most effective way, and to grow their customer base.
For distributors knowing the products and brands, price points, technology and industry of retailers and resellers helps them improve campaigns, highlight their USPs over their competitors’, talk the language of the industry and evaluate the results to refine future activity. For vendors, it’s important to understand the focus areas of distributors, to plan their pipeline and acquire stock that satisfies customer demand.
As the market evolves, all players are moving into new product areas and markets to increase the shopping cart value. One of these innovations is virtualization, replacing the hardware infrastructure companies have traditionally employed.
Bring Your Own Device (BYOD) in particular is driving this trend – and combined with the commoditization of the tech market - it means vendors and distributors need to exploit these new areas. But expanding into unknown markets brings risks. To mitigate them it’s vital to carry out due diligence before making investments – either in production or in inventory. It is important to understand the addressable market, volumes and margins, and to forecast future demand.
With margins so tight, every company in the value chain wants to deliver efficiencies – and needs to be constantly monitoring their performance. A key way to do this is to understand likely future demand for existing and new products to minimize over-stocking and write-downs.
The Thai floods of 2011 contributed to huge price increases in storage products such as spindle hard drives. Although the flood could not be predicted, the reaction could have been foreseen. Following the process of supply and demand, the almost instant shortage of hard drives for both PC builders and standalone sales meant that prices rocketed and stock that was available went straight to allocation only. Those channel players that were slow to react to the shortage lost revenue by selling below the new market price.
Having a view of what stock is in the channel, sales prices and which channels are driving demand enables everyone in the ecosystem to maximize their margins, prioritize loyal customers, and manage further the supply until a crisis has been contained.
In this complex environment all companies need to base their next move on the best business intelligence. The businesses which will succeed, whether you’re a vendor, distributor, retailers or reseller, will be those who optimize distribution channels to gain long term strategic advantages.
Find out about our supply chain management insights.
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