The future of distribution has a variety of potential outcomes. Whether it’s a slight downturn or a rapid recovery, many leaders need to adapt to the challenges that exist. Success is based in resilience. Therefore, it pays to understand how the market is being shaped and to do this, it’s important to look to the top of the food chain to see what the industry giants are doing.
Consolidation at the Top: Merger and Acquisition Activity Set to Pick Up
Mergers and acquisitions in 2020 were a bit complicated. With most of the white collar staff working from home during the lockdowns, due diligence investigations were easier said than done.
This, however, is expected to change in 2021. Leaders have found themselves adjusting to the new normal, distressed companies may find themselves in play, and those who were able to weather the storm of 2020 may have regained a taste for M&A.
This consolidation will be driven by those at the top, with Ferguson vowing to get back into their normal acquisition schedule. The company, who started 2020 with six acquisitions before pausing in March, sees residential distributors in play and could be targeting these firms to offset potential softness in the commercial construction market.
Considering that in the past few months, the company added Old Dominion Supply Inc. and Atlantic Construction Fabrics Inc., the company appears poised to go on the offensive.
For the average distributor, this means one of two things—you could be in play or you’re going to be competing with the scale of the giants. In turn, leaders need to increase their profits to maximize potential in the event of a buyout or take steps to address the continued economies of scale as giants enter your market.
Fight Back or Join: Addressing Amazon’s Increased Impact
Amazon Business, who now appears third on the top industrial distributor list, continues to change the way people purchase. MDM notes that 2019 was marked by the “Amazon effect,” a phenomenon in which distributors focused their 2019 efforts on ecommerce, self-service, and online ordering. But 2020 solidified this.
For many, lockdowns forced a closure in brick-and-mortar locations, pushed companies into new methods of serving customers, and the like in order to keep moving forward. For example, Fastenal made a significant shift to an ecommerce and omnichannel approach, closing locations, consolidating inventory, and moving to ecommerce.
But for some distributors, fighting back this aggressively isn’t the only option. Many could benefit from fitting into the Amazon Business sphere. Running an ecommerce initiative on your own website is a challenge, and some may find it easier to list products on Amazon’s website—a small sacrifice in margins for a massive bump in sales.
One example of this is MIBAR client JAM Paper and Envelope, who has expanded into a variety of marketplaces to sell their wares. However, when moving into this, they learned that processing remittances for 30,000 invoices each month was a bit more challenging than anticipated. That’s why we built our Online Marketplace Fee Accounting and Payment Reconciliation for NetSuite. Able to handle remittances from a variety of sources including Amazon, Walmart, Staples, and more, this company was able to save time and money in the processing on a marketplace. Learn more about their story here.
A Focus on Margins
Margin compression has been one of those problems that’s existed for years. It wasn’t until 2020 that it truly became a problem. According to MDM’s epaCUBE pricing survey, pricing has always been a challenge. In fact, they’ve never found a distribution sales team who believed their prices were more competitive than those of their competition.
A challenge from the top to the bottom, the reason for this is the fact that price is the only thing that a sales team can change. Distribution primarily serves demand rather than creating it. Changing how much a customer buys is hard. Selling them products not on their P.O. is hard. But the one sales variable you can easily change is the price.
The problem here is that 2021 could create a “perfect storm” for margin compression. Especially in the wake of supply chain disruption, sales teams may be more tempted to get down to the minimum floor levels. MDM recommends resetting floor pricing—even temporarily—to keep margins stable.
But there are many ways to address margins. Especially in a world where supplier switching is easy, you can work to eliminate redundancies, deliver visibility, and more, each of which will have some effect on margins. Sales transformation appears to be the next era in the distribution space, and integration will become more and more important.
A Challenging Future with a Whole Lot of Opportunities
The future of distribution will be won by those with resilience. For small and mid-sized distributors, adapting to the market will require different approaches that allow for better visibility, increased agility, and improved outcomes.
Resilience is critical and business leaders need to discover new ways to compete in the rapidly changing landscape. Recovery is a pivot, but if you’re buried in manual processes, the changes you make could be too slow or inaccurate to work.
If you’re looking to improve accuracy and become more resilient to change in the distribution space, look no further than MIBAR. With three decades of experience helping the wholesale distribution world get the most out of their business, we know what it takes to implement, train, and support your journey to resilience. As a leading ERP Implementation Partner, we can help minimize the risk of an ERP project and are excited to help you get the most out of 2021. Get to know more about us, our products, and learn more with a free consultation here:
- NetSuite for Distribution: Supercharge your order processing with NetSuite.
- Acumatica for Distribution: Automate processes and reduce errors in purchasing, order fulfillment, inventory tracking, and customer support.
- Business Central for Distribution: Delivers the familiarity and functionality you need to track, ship, receive, and manage inventory anytime and anywhere you want.
Additional Distribution Resources
Regardless of Scenario, Cash Flow is Key: How Distributors Can Step Up AR
If You Can’t Beat ‘em, Join Them: What to Know about Selling on Online Marketplaces