Executive Briefings

E-Commerce Magnifies Complexity of Wholesale Distribution

The wholesale distribution (WSD) market is huge. At $4.8tr in annual revenues, WSD industry revenues are nearly 100 percent more than sales of consumer packaged goods, and slightly greater than U.S. retail sales revenues.

E-Commerce Magnifies Complexity of Wholesale Distribution

WSD is a fragmented market, with many subsectors, including grocery and foodservice, oil and gas, pharmaceutical, motor vehicle parts, computer equipment and software, agricultural products, apparel, building products, industrial products, office products, home furnishings, chemicals and plastics, hardware and plumbing, and beer, wine and liquor. Every aspect of consumer and industrial products are in some way influenced by wholesale distribution.

Despite its enormity, the WSD market is currently experiencing the impact of several challenging industry-wide factors, not the least of which is being immersed in a heavy period of industry consolidation. In the midst of this environment of corporate change, WSDs are dealing with rising offshore product procurement costs. Ninety-five percent of product brought into wholesale distribution facilities, for certain sub-sectors, is now sourced offshore. Fueled by increasing offshore labor rates and heightened transportation costs due to steady increases in fuel, inventory carrying costs are continually being driven up. Because of long lead times, offshore supplies increase the need for more inventory, yet excess inventory leads to poor cash flow, excessive debt servicing, higher interest expense and lower operating profits. A tight balancing act, but one that can be advantageous for wholesale distributors who can provide precise inventory planning, deployment and management — critical to realizing expected gross margins. But now, even this model is coming under serious challenge, as WSDs grapple with the necessity to accommodate direct-to-consumer e-commerce orders and the needs of their retail customers involved in e-commerce fulfillment.

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WSD is a fragmented market, with many subsectors, including grocery and foodservice, oil and gas, pharmaceutical, motor vehicle parts, computer equipment and software, agricultural products, apparel, building products, industrial products, office products, home furnishings, chemicals and plastics, hardware and plumbing, and beer, wine and liquor. Every aspect of consumer and industrial products are in some way influenced by wholesale distribution.

Despite its enormity, the WSD market is currently experiencing the impact of several challenging industry-wide factors, not the least of which is being immersed in a heavy period of industry consolidation. In the midst of this environment of corporate change, WSDs are dealing with rising offshore product procurement costs. Ninety-five percent of product brought into wholesale distribution facilities, for certain sub-sectors, is now sourced offshore. Fueled by increasing offshore labor rates and heightened transportation costs due to steady increases in fuel, inventory carrying costs are continually being driven up. Because of long lead times, offshore supplies increase the need for more inventory, yet excess inventory leads to poor cash flow, excessive debt servicing, higher interest expense and lower operating profits. A tight balancing act, but one that can be advantageous for wholesale distributors who can provide precise inventory planning, deployment and management — critical to realizing expected gross margins. But now, even this model is coming under serious challenge, as WSDs grapple with the necessity to accommodate direct-to-consumer e-commerce orders and the needs of their retail customers involved in e-commerce fulfillment.

Read Full Article

E-Commerce Magnifies Complexity of Wholesale Distribution