Executive Briefings

Distributors Need Menu of Value-Added Services to Be Competitive

Facing numerous challenges in today's market, industrial distributors can improve sales and form long-standing relationships by offering more value-added services in exchange for a fee.

When Lynn Daniel looks around at the current industrial distribution landscape, he sees a highly fragmented space comprising companies that seem to "get it" and those that have fallen by the wayside when it comes to keeping up with customer preferences, supplier demands and other competitive forces.

"The industrial distributor has been a marketing mainstay in many business-to-business market segments," says Daniel, president of The Daniel Group in Charlotte, N.C. "But the changes in most distribution markets are forcing customers and manufacturers to look for the most effective ways to either buy or sell their products and services. Sometimes, the industrial distributor doesn't fit anymore."

In 2014, the industrial distribution segment in the U.S. comprised 300,000 firms that represented approximately $2.3tr in sales, according to Daniel, citing a recent Industrial Distribution survey. According to the survey, the typical distributor has average annual sales of around $11m, is family-owned, and has been in business for 38 years. That distributor is facing far more challenges right now than it ever has in the past, including:

Customer consolidation. Customers are getting bigger as a result of growth, mergers and consolidation. These bigger customers are demanding, and getting, more services and better prices. These bigger customers are in some cases seeking to bypass the distributor altogether and buy direct from the manufacturer.

• More information. There is more product information available – information that in the past would have been available only from the distributor. Many manufacturers are offering "configurators" free of charge. With these, customers can develop their specifications rather than relying on the distributor representative. 

• Manufacturer expectations. Many manufacturers have volume-purchasing requirements. These requirements force distributors to "stock up" so the best prices can be had and contracts can be satisfied. These requirements can sometimes force less desirable strategies for distributors.

• New technology and new techniques. Information technology makes customer transaction details available to manufacturers. Integrated supply chain management techniques and just-in-time inventory management processes have forced distributors to share this information with manufacturers.

Daniel sees value-added services as one of several strategies that distributors can use to improve their competitive positions and profitability. He coined the term "value bucket" to describe the way in which distributors can position themselves for long-term success by not only making more money (via value-added services), but also by making themselves invaluable.

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When Lynn Daniel looks around at the current industrial distribution landscape, he sees a highly fragmented space comprising companies that seem to "get it" and those that have fallen by the wayside when it comes to keeping up with customer preferences, supplier demands and other competitive forces.

"The industrial distributor has been a marketing mainstay in many business-to-business market segments," says Daniel, president of The Daniel Group in Charlotte, N.C. "But the changes in most distribution markets are forcing customers and manufacturers to look for the most effective ways to either buy or sell their products and services. Sometimes, the industrial distributor doesn't fit anymore."

In 2014, the industrial distribution segment in the U.S. comprised 300,000 firms that represented approximately $2.3tr in sales, according to Daniel, citing a recent Industrial Distribution survey. According to the survey, the typical distributor has average annual sales of around $11m, is family-owned, and has been in business for 38 years. That distributor is facing far more challenges right now than it ever has in the past, including:

Customer consolidation. Customers are getting bigger as a result of growth, mergers and consolidation. These bigger customers are demanding, and getting, more services and better prices. These bigger customers are in some cases seeking to bypass the distributor altogether and buy direct from the manufacturer.

• More information. There is more product information available – information that in the past would have been available only from the distributor. Many manufacturers are offering "configurators" free of charge. With these, customers can develop their specifications rather than relying on the distributor representative. 

• Manufacturer expectations. Many manufacturers have volume-purchasing requirements. These requirements force distributors to "stock up" so the best prices can be had and contracts can be satisfied. These requirements can sometimes force less desirable strategies for distributors.

• New technology and new techniques. Information technology makes customer transaction details available to manufacturers. Integrated supply chain management techniques and just-in-time inventory management processes have forced distributors to share this information with manufacturers.

Daniel sees value-added services as one of several strategies that distributors can use to improve their competitive positions and profitability. He coined the term "value bucket" to describe the way in which distributors can position themselves for long-term success by not only making more money (via value-added services), but also by making themselves invaluable.

Read Full Article