Issue link: https://www.e-digitaleditions.com/i/919877
8 FEDA News & Views Industry Insights R emember the turbulent old days, back in the late 1990s, when Y2K was going to bring down your business overnight? And, if you survived it, there was the threat of being disintermediated by a dot-com online storefront. Life is much simpler now, right? Ha! Back then, threats were framed around e-catalogs and large national distributors with the capacity to invest in these channels to create a competitive advantage. But other than new forms of digital (Amazon) and new nontraditional competitors, is it really that different? From the nature of mergers-and- acquisitions activity to the way manufacturer-distributor-customer relationships are defined today, digital disruption is fundamentally changing the competitive dynamics of wholesale distribution. But after 30 years of observing the 19 major product sectors and many more subsectors of this $5 trillion industry, I think there's a critical perspective all FEDA members should keep top of mind. None of the current distribution model disruptors, largely driven by digital, effectively attack the core value localized distribution has always brought to the market, namely the ability to meet the time-sensitive needs of customers in the selection and application of process-specific supplies. Differentiation comes in the form of customized solutions that range from low-tech, highly- qualitative personal relationships to high-tech just-in-time supply systems that require deep knowledge of complex product and customer variables. Relationship and customer knowledge is critical. The real threat today is that the traditional outside sales model—the foundation of every distribution sector—has not changed and has been disrupted by the shift of customer expectations and more price-competitive selling models. Distributors have historically been response-driven, and thus focused on buying more effectively to generate profit. But, multiyear slow-growth economic conditions call for much stronger demand-creation skills. Most distributors and manufacturers are still focused on the traditional sales model. What's changed is the critical need to develop a more proactive, lower-cost selling model to target new customers and markets, along with a changing mindset that no longer expects the old model to be the stable revenue stream of yesteryear. Competitive advantage in the future will be defined more by how distributors sell rather than how effectively they buy. That's a leap for many companies to make, but one that will shape EBITDA and success. Regardless of position in the channel, profitability is a more elusive target today and requires a more agile and lean multichannel selling model, one that fully leverages customer relationships and an efficient approach to the new ways they want to interact. You can't apply a cookie-cutter approach to these new hybrid B2B distribution channels and cling to what used to work in B2B. Exhibit A is the thorny and often dysfunctional structure of rebate programs. That ship is springing leaks as all markets become increasingly more commoditized. There's also the risk of getting too carried away with technology or competitors. Stray too far from the underlying business model and leaner cost structures necessary to compete in this digitally-disruptive environment, and you can lose sight of the evolving needs of your customers. That's when you get to the point of winning certain battles but ultimately losing the deeper relationship war. There's a meme bouncing around the Internet that's attributed to a Walmart banner that hung at its headquarters many years ago. It read something like this: " You can't out-Amazon Amazon." Great advice! But if you proactively build a strong strategy and leaner model from your core strengths, you can out-distribute and out-compete any type of competitor. ■ Fighting the Digital Disruption War: The Next Distribution Model Thomas P. Gale CEO Modern Distribution Management www.mdm.com Competitive advantage in the future will be defined more by how distributors sell rather than how effectively they buy. That's a leap for many companies to make, but one that will shape EBITDA and success.