Distributors adjust business strategies based on policy and technology changes
Industry experts have cited disintermediation as a major threat to American distributors ever since e-commerce started booming. In short, disintermediation refers to providing consumers with direct access to products, usually through a wholesaler. Direct product access puts distributors at risk, especially in retail. But on the flip side, technology has also been a blessing to distributors. Macola’s 2017 Business and Technology Trend Report for the distribution industry shows how distributors are adjusting their business models based on technology innovations, the new presidential administration and more. These trends are expected to continue into 2018.
The Internet of Things motivates distributors to change their business models. 73% of Macola’s respondents stated that emerging IT and technology innovations provoked them to change their business models in the past 12-18 months. The Internet of Things (IoT) was the most reported innovation that respondents have adopted. Also known as connected machines, IoT enabled equipment includes sensors that report product use data to a central board, which helps companies predict and prevent product failure. Tablets with voice recognition for order placing was a close second place (55%) and virtual reality came last (48%). Other technologies to be used in the future are 3D printing, drones, wearables and facial recognition.
Example: Many electronics distributors educate OEMs on how to use the IoT to enhance and develop products. Symmetry Electronics is the only global authorized distributor for sales, tech support and distribution of wireless, video and embedded semiconductors. The company’s vast knowledge of the IoT ecosystem allows them to provide each customer with the right platform. Additionally, Symmetry has an e-commerce store with design, application, and product guide documents so customers make educated decisions before a purchase.
Automation software increases revenue, visibility and control. Business automation software is popular in field service for reducing paperwork and storing files digitally rather than by file cabinets. By automating repetitive tasks, companies have time for bigger jobs and can hire fewer administrative workers. Macola’s survey showed that wholesale distributors mainly automate IT data entry, followed by payroll, order management and onboarding. 68% of distributors that automate earned more revenue and reduced their business costs. Other respondents reported reduced errors (58%), increased productivity (45%), and increased efficiency (29%). Of businesses that automate, 77% gained more visibility and control within their organizations. For example, workers may accidentally delete records. An employee can retrieve this record by simply looking through the user actions log. This technique also helps leadership evaluate employee performance.
Amazon threatens and enhances wholesale distribution. Amazon is one of the biggest online shopping retailers in the world, and continues to excel in rapid delivery and logistics service offerings. Macola’s respondents cited Amazon as their biggest industry competitor, followed by wholesale distributors and manufacturers. However, 68% of wholesale distributors stated they are using Amazon’s logistics services and Fulfillment by Amazon to better their business. In fact, 85% of wholesale respondents said that their online sales have grown 20-40% last year because of Amazon. Deloitte has also reported that Amazon’s Marketplace is growing at twice the rate of Amazon Direct, and many companies pay a commission to use amazon to sell.
Companies either raise or lower prices in response to potential trade regulation. President Donald Trump wants to tweak U.S. trade policies such as NAFTA to better benefit Americans, and distributors are already anticipating how this will change their business models. Macola found that 62% of wholesale distributors believe trade deregulation will benefit their companies, while just 7% are unsure. Respondents took a mix stance in terms of how they’ve adjusted prices based on these potential changes. 42% of respondents have increased their prices while 38% have reduced prices. Some other actions respondents took include: investing in technology (34%), hiring more U.S. based employees (33%), and speeding up plans to open global offices (34%) and halting plans to open global offices (29%).
Example: Robotic Process Automation technology uses Artificial Intelligence and machine learning to do high volume, repetitive tasks. According to Deloitte, RPA can greatly reduce operational costs in a company. Unlike traditional automation software, RPA captures worker actions, manipulates data, and can fix errors without human interaction. For example, if a form lacks certain required information, traditional automation software would alert employees, who would fix the error themselves. But RPA can self-correct these mistakes. Most commonly, RPA speeds up back and mid-office functions like HR management, finance, supply chain and accounting. Though potentially costly to implement, RPA is a cost-effective alternative to outsourcing, which saves time and money. By the year 2025, RPA technology is estimated to eliminate almost 140 million full time jobs, but will also create more jobs related to maintaining and implementing RPA.