Historically, wholesalers and distributors have played a crucial role in the supply chain positioning goods from different manufacturers and suppliers closer to the consumer. However, “The Times They Are A-Changin’,” per the title of the famous Bob Dylan song, reminds us that change is everlasting.
Few would have predicted the social and economic changes that have taken place since this song was released in 1965 and, more recently, with the global shift of manufacturing and the digitization of businesses.
Wholesalers and distributors continue to play a crucial role. Per the National Association of Wholesaler-Distributors (NAW), affiliated wholesalers and distributors employ more than five million workers throughout the United States. Approximately 35,000 wholesale distribution companies operate in 150,000 places of business across North America.
CEOs of these companies must empower their organizations to face the disruptive challenges of today’s distribution environment. Let’s look at some of the key distribution management challenges.
Internet-related Disintermediation
The explosion of the direct-to-consumer (DTC) or business-to-consumer (B2C) model has demonstrated that people want and enjoy doing business online, including buyers engaged in direct and indirect procurement. While wholesalers and distributors are increasing market share with DTC sales, to truly compete, these organizations must find ways to decrease delivery times (DTC buyers expect fast and free delivery) and reduce costs while providing personalized value.
As for business-to-business (B2B), although the internet has not fully replaced traditional channels (in-person, phone, email), the desire for buyers to have an ‘Amazon’ experience will only increase with time.
The fact is that distributors have an edge when it comes to e-commerce. Most have a specific niche in which to perform and, as a result, have a better understanding of their target audience.
To avoid challenges in distribution management and losing market share, your organization’s distribution and logistic processes must evolve to seamlessly support B2B and B2C. Time is of the essence while many manufacturers lack the infrastructure to manage the buy-flow and fear alienating existing channels.
Achieving the Perfect Order
The perfect order score is an important metric which provides a measure of how well your current workflows are meeting customer expectations. Keep the calculation simple. Let’s say you received 1,000 orders in the space of a month and 50 of these involved some kind of error, the calculation is as follows:
50 / 1000 x 100 = 5% error rate
This would give your business a perfect order rate of 95%. Is a 95% score good or bad? To find out, benchmark this metric against your peers.
Let’s break down the perfect order to gain a better understanding of where errors may occur.
1. Efficient and accurate order capture
Computer-to-computer communication eliminates manual exchanges thereby streamlining the order flow for both parties. The benefits associated with electronic data exchange justify the implementation cost. However, onboarding a customer can be quite challenging. How challenging depends on the level of sophistication of your IT department as well as the customer’s IT department. Without knowledgeable people, modern technologies and proper documentation, the onboarding exercise is likely to fail at great cost to both parties.
2. Warehouse picking and packing
Paper-based processes in the warehouse lead to more picking errors. Failing to implement modern barcode and digital technologies puts your business a step behind the competition. Best-in-class warehouse operations are making use of robotic technologies to increase productivity while reducing errors. Picking errors can be outrageously expensive and could lead to more challenges in distribution management and, eventually, the loss of a customer.
3. On-time delivery of undamaged goods
Market expectations have risen with many consumers demanding same and/or next-day delivery. Delivering on time requires inventory availability and optimized warehouse and delivery operations. On-going supply chain disruptions have hindered suppliers, manufacturers and distributors hence a careful examination of cross-functional workflows is required to ensure a streamlined, error-free order flow that minimizes distribution management challenges.
4. Communication of an error-free invoice
An error-free invoice is a representation of the physical shipment with the correct product, quantities and price. Mistakes on the invoice make your organization look bad. Invoicing provides an opportunity to better serve your customers by customizing the invoice format and delivery methods (email, EDI, XML, etc.).
Because an error in the above four areas typically will involve a customer credit, capturing a reason code that identifies the source of the error will allow you to better understand which workflow requires attention.
Rising Costs
Per the annual report published by the Council of Supply Chain Management Professionals (CSCMP), “Business inventories dropped to near historic lows, but the costs associated with storing, handling and finance for these items rose considerably. Inventory-carrying costs rose by 25.9% in 2021, and transportation costs jumped 21.7%.”
Evidently, the cost of carrying any excess inventory has increased significantly over a short period of time and this trend is likely to continue. Consider using “days of inventory on hand” as a simple metric to gauge your inventory health.
Days of inventory on hand (DIO) = (average inventory for period / cost of sales for period) x 365.
As DIO increases over time, so does money tied up in inventory and the associated carrying costs are decreasing margins. When DIO decreases over time, verify that your perfect order rate is stable.
More than ever, it is imperative that inefficiencies in your supply chain be identified and addressed. Many businesses lack the tools to provide a broader vision on their performance or, worse, lack completeness of data. Your business data must be mined to reveal opportunities for improvement.
Beyond product profitability, it is critical to know customer, market and channel of distribution profitability. Dynamic, graphical reporting tools provide the information your organization needs to recognize and address evolving distribution management challenges.