The transformation of the supply chain is impacting global businesses in every sector, and it is dramatically changing the way distributors do business. Digitization is steadily creating a level playing field for smaller businesses, enabling them to fulfill smaller orders more quickly and efficiently, and helping them regain market share previously taken by companies such as Amazon.
The heart of this transformation for most distributors is an intelligent digital core. A robust, modern and automated business management platform is an essential component for distributors of all sizes that hope to remain competitive in the current and post-pandemic distribution landscape.
Small Businesses Rise to the Occasion
One of the key trends in distribution right now is the growth of smaller, entrepreneurial companies that are filling the void left by exiting larger companies. According to Ralph Hess, vice president of sales at Navigator Business Solutions, those small businesses have been heavily influenced by the fulfillment models of giants such as Amazon and eBay.
“That’s really where the growth in the small- to mid-sized companies is happening, in pure distribution,” says Hess. The shift began around five to seven years ago when smaller distribution companies were primarily selling to big-box retailers in exchange for low margins. The rise of Amazon and eBay created opportunities for those businesses to do some dropshipping on the side, resulting in much higher margins.
The new business opportunities created challenges, however, due to a larger number of transactions that also needed to be managed more strategically and efficiently. Smaller distributors transitioned from receiving one large order from a big-box retailer to juggling several smaller orders that were fulfilled differently and shipped out on multiple trucks.
They have been left with the logistics, operational, and productivity challenges from an entirely new way of conducting business.
“It’s a very different business model,” notes Hess. “They’ve had to be very nimble in terms of transitioning their business model to handle both types of distribution.”
Transforming Operations with a Digital Core
The shift in the way smaller distributors are doing business has changed their business practices from business-to-consumer (B2C) to a direct-to-consumer (DTC) model. The number of transactions has increased drastically, with distributors scrambling to efficiently fulfill DTC orders via their intermediary relationships with digital marketplaces such as Amazon.
This transformation requires intelligence, automation, and efficiencies to be successful. Deploying a digital core in the heart of operations can give businesses the tools and data they need to operate more intelligently and efficiently while making better long-term decisions.
An intelligent, automated solution such as an ERP system provides a path to automation, efficiencies, and cost savings. This type of offering specifically addresses the many challenges faced by distributors of all sizes. These include supply chain nuances, logistics, warehouse metrics, and inventory metrics, among others.
The ability to see trends in product demand and make intelligent business decisions about ordering and fulfillment based on those trends is one of the key benefits of the digital core, according to Hess.
“It's usually based around product availability because that’s where people are making or breaking it,” he says. “Being able to really evaluate the cost if you’re buying the same thing from multiple suppliers. Being able to understand who you’re getting the best deal from and that the definition of a deal may not be just price. An intelligent, digital core might factor in quality and it might factor in reliability, so being able to do vendor performance analysis in real-time can help you make better buying decisions.”
Amazon Raises the Stakes
The influence of Amazon and other digital marketplaces on the global supply chain and distribution methods can’t be underestimated. Consumers have become accustomed to a simple, speedy online purchasing experience and they’re not willing to compromise. These retail giants have essentially forced distributors to up their game or get pushed out of the market by hungry competitors.
According to Hess, Amazon places additional pressure on distributors by providing them with statistics and feedback from the marketplace. If a distributor has lost opportunities due to poor coordination and logistics, Amazon will be sure to let them know. If they continue to drop the ball on fulfillment opportunities, they risk losing opportunities to fulfill certain product lines or may get kicked out of the marketplace altogether.
“So in the same way that the distributor evaluates the vendor’s performance, Amazon is evaluating the distributor as a vendor for their performance,” says Hess. Those distributors who don’t measure up will ultimately lose out to their competitors.
There has never been a more important time for distributors to transition to an intelligent digital core. Automating key elements of back-end operations enables businesses to increase productivity, realize efficiencies and cost savings, and handle a variety of shipping styles with agility.
Distributors operating with an intelligent digital core will be able to rise to the occasion and fill the void left by big-box retailers who haven’t able to keep up with the distribution game. They will also be able to handle the pressure and nuances of companies like Amazon that have forced them to improve by building intelligence and automation into their business models.
For more on the importance of a digital core, download our free guide, Comparing Quickbooks with SAP Business One.