Expert Paper

An itelligence Expert Paper

The Evolution of Wholesale Distribution: Trends and Predictions

The Evolution of Wholesale Distribution: Trends and PredictionsAn itelligence Expert Paper

IntroductionIn many ways, the wholesale distribution industry looks much as it did in previous decades.

Distributors are focused on improving profitability, expanding their margins, and outmaneuvering the

competition. However, new technologies, changing market dynamics, and increasingly demanding

customers have fundamentally reshaped the way today’s distributors do business. In fact, 40% of CEOs

and IT executives now view IT as a competitive weapon [Source: “Facing the Forces of Change®”].

Those who remain technology laggards in the distribution industry face a tough future. Throughout the

industry, even core technologies such as demand management systems are surprisingly underutilized.

This means that the companies with modern ERP systems in place already have a competitive leg up

and will be in a better position to adapt and innovate as the pace of technology evolution increases.

In our work with some of the industry’s most innovative distributors, we have a front row seat for the

trends that are altering the competitive landscape in wholesale distribution.

Following is a summary of the top trends we’re seeing:

TREND #1:

Operational Efficiency is Still Priority One

Regardless of size, geography, and specialization, achieving operational efficiency is still the top

priority for distributors. Even as they look to the future and the transformational potential of new

and emerging technologies such as mobile and cloud, many are focusing on issues such as demand

management, warehouse operations, transportation planning, and logistics. The day-to-day agenda

continues to be balancing the books, knowing what’s in the warehouse, and giving customers

timely information on pricing and availability. Many believe they can’t achieve the operational

and competitive advantages promised by the latest technologies without first getting their existing

operations in sound order, which often means optimizing and standardizing processes within the

enterprise as a foundation for innovation and growth.

Content

2August 2014

THE FUTUREThe fact is that smart business will always be good business. However, tomorrow’s market leaders will

capitalize on the latest technologies to squeeze out the inefficiency and latency within the enterprise

and extend that mindset to their broader partner universe - whether they choose to do so through

on-premise technology or rely on cloud-based solutions to manage core processes in the effort to keep

pace with the accelerating churn of new technologies.

NEXT STEPSThe SAP experts at itelligence can show you how you can create the enterprise platform that

accommodates emerging technologies that promise greater innovation, while preserving your existing

investments and minimizing disruption to ongoing business.

Content

3August 2014

TREND #2:

Improving the Understanding of Customer Profitability

Distributors are changing the way they manage customers. For years, many have devoted the most

time and effort to keeping their biggest – and their loudest – customers happy, with little or no

insight on the return from their investment. The mass of data trapped in outmoded legacy systems

and ad hoc spreadsheets couldn’t answer basic questions such as “Is my biggest customer my

most profitable? Is keeping this customer worth the time and budget? Which areas of customer

service deliver the best ROI?” With the emergence of advanced analytic tools, more distributors are

evaluating their customer relationships with a more data-driven mindset to better understand the

“cost to serve.” The results may often be counterintuitive, but they’re helping distributors achieve

higher margins by operating in a more lean and profitable way.

THE FUTUREDistributors will expand their analytic focus beyond customer relationships to other areas of the business

to uncover the inefficiencies and trapped potential that have previously gone unnoticed. Advancements

such as in-memory technology such as SAP’s HANA allow distributors to crunch data faster than ever

before, resulting in the ability to track trends and be more strategic in applying sales resources.

NEXT STEPSYou can’t improve what you don’t measure. Establish the metrics that can help you understand and

dissect customer behavior as the first step toward creating the analytical context needed to refine

your strategy.

“Customer stratification is a measurement process for managing and improving customer relationships. It identifies areas and strategies for improving net margin, and sales with each individual customer. Best practice distributors are using customer stratification in a variety of ways. From creating and penetrating core customers to the most effective design and deployment of sales force and marketing efforts, the

possibilities seem endless.”

- Dr. F. Barry Lawrence,

Director, Global Supply Chain

Laboratory, Texas A&M

University

TREND #3:

Demanding Customers Get More Demanding

Just selling great products isn’t enough. In today’s market, customers are looking for total solutions —

turnkey approaches that combine products and services in a way that accelerates time-to-value. At the

same time, their expectations for core service offerings continue to grow. Today’s customers want the

same delivery times for special orders as they get with off -the-shelf products. In a market with more

competition and more choices, loyalty isn’t what it used to be. Distributors need to give their customers

a reason to come back, and a wider, more personalized lineup of services is often the answer.

THE FUTUREStreamlining the order to cash process will be key to your success, and speed to serve will separate the

winners from the rest of the pack — while the ability to provide up-to-the-minute status information on

transaction progress becomes increasingly important.

NEXT STEPSThe itelligence team can help you navigate the complexities of integrating inventory information from

your supply chain partners, while improving collaboration with your transportation providers on

shipping statuses. Customer self-service portals, integrated system-generated alerts and custom apps

can help you meet the higher expectations of your customer base and improve satisfaction and loyalty.

Content

4August 2014

TREND #4:

A More Consolidated and Competitive Market

Bigger is now better. Across the industry, distributors are racing their competitors to expand their

footprint, enter new markets, and increase efficiencies. Distributors are under pressure to operate

around the clock, and global competition is resetting the market’s expectations on pricing. And

distributors face a host of new competition from non-traditional sources as well. Traditional

distributors are now competing directly with big-box retailers and online portals, and more

manufacturers are selling via direct channels.

However, the drive toward more mergers and acquisitions comes with growing pains. The challenges

of integrating data, processes, and operations can delay the efficiencies that merging companies expect

to realize. Those who can readily consolidate their systems and operations and present a unified front

to the market have the best chance of success.

THE FUTUREAs prices level out in a more consolidated competitive landscape, distributors will need to find

other areas of differentiation – such as speed, service, and unique product offerings.

NEXT STEPSClarify what differentiates your business from the competition as a prelude to refining your strategy

for your specific sub-vertical and customer base. Technology acts as a strategic enabler only when

you understand your position in the market.

TREND #5:

Expansion Into Online Channels

As competition heats up, distributors are scrambling to find new sources of revenue and innovative

ways to engage customers. The “Amazon.com revolution” in the retail experience has ramped up the

market’s expectation in the B2B sphere as well. Currently, around 80% of distribution CEOs plan to

invest in e-commerce channels in the near future. [Source: “Facing the Forces of Change®”]

Today’s more innovative distributors have already deployed the always-on, mobile-ready self-service

channels to complement their traditional channels. The distributors that allow customers to do

business wherever, whenever, and however they want will continue to outpace and outperform the

companies that can’t give their customers viable online choices.

THE FUTUREMore distributors will take a cue from their retail counterparts and focus on providing an “omnichannel”

experience where transactions and data move across the distributor’s channels in a seamless way. At the

same time, distributors will increasingly capitalize on social media to better understand and engage with

their customers. The boundaries between wholesale and retail will continue to blur, and B2B companies

will explore ways to use the technology and practices that have proven successful in B2C markets.

NEXT STEPSConsider using SAP’s Hybris and/or custom mobile apps to open up new touch points and

communications channels with customers in the effort to improve customer satisfaction and increase sales.

Content

5August 2014

TREND #6:

Dramatic Increases in Speed of Sales Analytics to Be Able to React Faster to Market Changes

The pace at which distributors have to adjust product mix to meet consumer demand for a continual

stream of innovative products is increasing. Today’s customers have choices. If one distributor can’t

deliver, they will quickly find someone that can. Distributors need to anticipate demand changes and

ensure that the right products are available to capitalize on evolving preferences. More companies are

leveraging metadata from the point of sale and the supply chain to accelerate this process.

THE FUTUREThe ability to collect and analyze vast amounts of product, market, and customer data will

transform areas of the business beyond product mix and availability, including rework, KPIs, and

supply chain relationships.

NEXT STEPSSAP Business Suite on HANA can help you identify and analyze the impact of changing market

tastes and customer preferences — information that can then be used to ensure that you have the

right products to accommodate changing demand. The SAP experts at itelligence can show you how

the combination of HANA and advanced demand planning and forecasting tools can help your

organization manage these changes faster and more efficiently to adapt to shifts in global markets.

TREND #7:

IT Strategy Gets Clearer as it Becomes Cloudier

Cloud-based solutions continue to grow in popularity as business leaders are drawn to the promises

of streamlined access, lower IT overhead, and continual innovation. Scores of companies have begun

exploring the viability of Cloud-based applications, with trial runs of applications in areas such as

HR and Finance running in the public Cloud. These initiatives are often a first step toward moving

a greater share of mission-critical applications into a private Cloud architecture. However, many

businesses are also finding that Cloud computing isn’t an all-or-nothing proposition. Some enterprises

still prefer to maintain the bulk of applications on site, whether for security, competitive, or economic

reasons. In the near future, many IT environments will be a heterogeneous mix of on-premise, hosted,

and Cloud-based deployments as companies learn from experience which applications are best suited

to run in private or public Clouds.

THE FUTUREAs more organizations experience the benefits and value of point solution Cloud deployments, of

point solutions, an increasing share of the enterprise IT footprint will migrate to public and private

Clouds. Widespread deployment of Cloud-based ERP is still five or more years in the future as

companies determine which business functions and processes fit best with the Cloud paradigm.

NEXT STEPSLook at using HANA based solutions such as GRC, Analytics, and Procurement, in the Cloud to raise

the bar and explore the next frontier. The right mix of Cloud-based solutions can help you achieve

your company’s strategic goals and objectives.

ABOUT THE AUTHOR

Stefan Hoffmann, Wholesale Distribution Industry Principal Stefan Hoffmann is Industry Solution Principal & Global Director Trade Industries. In this role, he

is responsible for the development and accreditation of vertical industry solutions. Stefan specializes

in providing organizations with enterprise resource planning and e-business solutions. He has more

than 25 years of business technology experience, including more than 10 years in senior management

positions. Prior to his position as Industry Solution Principal, Stefan served as Project Manager and

Business System Architect for itelligence from 2000-2004. During this time, he implemented SAP

solutions for companies such as SCM Microtech Inc. US, Pinnacle Inc. US, Hillyard Inc, C&H Sugar

Company, and Lastar Inc. Prior to joining itelligence, Stefan was Project Manager and SAP Consultant

for a German consulting company, where he was involved in the configuration and implementation of

various SAP systems.

Content

itelligence, Inc. - Cincinnati Office (US Headquarters)10856 Reed Hartman Highway n Cincinnati n OH 45242 n 1-513-956-2000 n www.itelligencegroup.com