digital strategy in distribution: path to profitable services...distributors use a variety of...

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Digital Strategy in Distribution:

Path to Profitable Services

Whitepaper: Path to Profitable Services 2


A common theme emerged in the recent Infor/MDM “Path to Profitable Services” survey: Most distributors believe the combination of exceptional customer service, unparalleled technical expertise and unmatched product knowledge differentiates them from the competi-tion in the eyes of their customers.

But as customer demands evolve beyond these basic value propositions, distributors can tru-ly set themselves apart from competitors – while also increasing the wallet share of customers and improving profitability – by adding services that their customers want and need.

From next-day or same-day delivery to technical training to multiple payment options to product kitting to third-party logistics, a distributor can use value-added services to further embed itself in customers’ operations and thereby lessen the chance they will take their busi-ness elsewhere.

A deeper look into the survey results and responses, however, indicates that distributors approach additional services differently and achieve varying degrees of return on those offerings. According to the survey, distributors segment the services they provide primarily by customer size, with one respondent saying “larger customers pay little to nothing for extra services; smaller customers are charged the full service rate.”

Other distributors segment the services they provide by the customer’s business sector. For example, one respondent said that its industrial customers get automation training while construction customers will get wire cutting.

While many distributors understand how to segment the services they provide, they don’t know the ROI of them because they don’t track the costs or benefits. Some respondents do measure ROI through profitability software and other processes such as activity-based cost-ing and their ERP systems.

One issue that can confound the cost and benefits of added services is whether or not to charge customers for them. Asking a customer to pay for an extra service risks sending that customer to a competitor that might not charge. Not charging a customer for an extra service risks cutting into the bottom line.

Distributors have two options when it comes to considering whether or not customers will pay for services – implement fees without asking or conduct customer surveys to assess a customer’s willingness to pay. In the Infor/MDM survey, only 16.5 percent of respondents conducted surveys to assess whether or not customers would pay for services. Of those who tried implementing fees without asking, 58.2 percent received little or no pushback, while 25.3 percent received significant pushback.

This whitepaper shows where distributors believe they bring value to both their customers and suppliers, specifically the services they provide, the tools they use to offer those services and their overall approach to digital innovation.

Survey Analysis



The survey results presented in this whitepaper are the result of an online survey of readers from MDM (www.mdm.com) in September and October 2017.

MDM is the only specialized information business that provides high-level in-depth resources to executives who are in or serve the wholesale distribution industry. It completed a survey in conjunction with Infor (www.infor.com), which builds business applications with last mile functionality and scientific insights for select industries delivered as a cloud service.

Most survey respondents (63 percent) identified as wholesale distributors; 17 percent were manufacturers, with the remaining identifying as hybrid models or other, including service providers to distribution and manufacturing.

Almost half (44 percent) of respondents identified as an executive (CEO, COO, CFO, etc.) or owner of their companies, with the remainder indicating they are at the vice president, manager or director level.

Most distribution sectors were represented, including Industrial (30 percent), Electrical (12 percent), Building Materials & Construction (6 percent), JanSan (5 percent), Power Transmis-sion & Bearing (4 percent) and HVAC (4 percent).

Size distribution of respondents was diverse with 4 percent of respondents below $2 million in annual revenues; 16 percent between $2 million and $10 million; 20 percent between $11 million and $30 million; 6 percent between $31 million and $50 million; 16 percent between $51 million and $100 million; 11 percent between $101 million and $250 million; 7 percent between $251 million and $500 million; 7 percent between $501 million and $1 billion; and 13 percent over $1 billion.

Methodology



Distributors provide an array of services to their customers. Below are the top 10 services offered by distributors. Next-day and same-day delivery was the top response, with almost 90 percent of survey respondents offering this.

What types of services do you provide?

50%

60.2%

61.2%

61.2%

62.2%

64.3%

68.4%

74.5%

75.5%

88.8%

Service and repair

Bundled invoicing

Kitting/break bulk

Shipment tracking

Multiple payment options

Jobsite delivery

Inventory management (VMI, CMI, vending, etc.)

Flexible shipping methods

Technical/product training

Next-day/same-day delivery

Third-party logistics


Engineering/design services



While most survey respondents said they offer next-day and same-day delivery, only about half (55 percent) charge for them. Many distributors, in fact, offer services as a value add and don’t charge their customers.

Which services do you charge for?

Private labeling

Jobsite delivery

Technical/product training

Kitting/break bulk

Safety training

Third-party logistics


Engineering/design services

Service and repair

Next-day/same-day delivery

12.5%

13.8%

18.8%

20%

20%

22.5%

25%

27.5%

43.8%

55%



Only 16 percent of survey respondents said they’ve conducted surveys to assess whether or not customers would pay for services. Most (58 percent) implemented fees for services with little to no pushback, while a quarter implemented fees and received significant pushback.

How do you know if customers will pay for services?

Two-thirds of companies don’t charge for services because they say their customers expect that service at no cost.

Tried implementing

25.3%

Conducted surveys16.5%

Implemented 58.2%

It’s a nice thing to do

Other

Doesn’t significantly increase our costs

We gain more value by not charging

My competitor does not charge for it

My customers expect this service at no charge

3.7%

8.6%

14.8%

44.4%

49.4%

67.9%

If you don’t charge, what prevents you from doing so?



Most companies (92 percent) promote the services they offer through their salespeople, while a majority promote them on their website (59 percent) and in print marketing materials (57 per-cent).

How do you promote the services you offer?

An overwhelming majority of distributors says that demand for services has increased in the past year, with 24 percent claiming it has “significantly” increased and another 42 percent saying it has “slightly” increased.

How has demand for services changed in past year?

I don’t know

Significantly decreased

Slightly decreased

Significantly increased

Stayed about the same

Slightly increased

Other

Through our sales people with existing clients only

Email and online marketing efforts

In our print marketing materials

Openly on our website

Through our sales people with exist-ing and prospective clients

1.2%

1.2%

1.2%

24.1%

30.1%

42.2%

6%

37.4%

48.2%

56.6%

59%

91.6%



One-third of distributors said they think customer relationship management (CRM) software would help them better promote their services to customers or channel partners.

What platforms do you use to manage your services?

Distributors use a variety of technology platforms to manage their services, with a standard ERP enterprise resource planning) system as the most popular (75.6 percent).

Event management tools

Configurator

Other

Cloud

Field service management tools

Mobility

Business intelligence tools

Customer relationship mgmt. software (CRM)

E-commerce

Standard ERP system

Other

Standard ERP systems

Event management tools

Configurator

Cloud

E-commerce

Mobility


Field service management tools

Customer relationship mgmt. software (CRM)

7.3%

8.5%

11%

15.9%

23.2%

28.1%

39%

46.3%

47.6%

75.6%

4.4%

8.7%

11.6%

13%

17.4%

17.4%

23.2%

27.5%

29%

33.3%

What tools would help you promote your services?



Slightly more than a third (36.4 percent) of survey respondents said they have what they consid-er a comprehensive digital strategy that includes all types of software and solutions, while 29.9 percent of respondents said they have no digital or technology strategy at all and another 27.3 percent have a general strategy, meaning they are always evaluating options.

Digital strategy

How does your company decide how to allocate its technology budget?

Companies allocate money to digital or technology needs in a variety of ways, with most (35.5percent) dedicating a specific amount to an overall IT budget each year. Slightly fewer compa-nies (21.1 percent) report that they spend money on technology when an individual makes a specific request.

What approach does your company take toward its digital strategy?

Comprehensive digital strategy

36.4%

General strategy 27.3%

Don’t have a strategy

29.9%

Only what we absolutely

need 6.5%

Have a specific amount

35.5%

Assign a specific % of profits

11.8%

Have minimum amount set aside

15.8%

Individuals lobby for

budget 21.1%

Many depart-ments allocate

15.8%



Close to two-thirds (61 percent) of survey respondents said they plan to invest in e-commerce in their businesses, while slightly more than half (54.5 percent) plan to invest in CRM (customer rela-tionship management) software. Almost half (47.8 percent) of survey respondents plant to invest in business intelligence, followed by ERP (44.2 percent) and mobile technology (40.3 percent).

Where companies plan to invest

Other

WMS

Artificial intelligence tools (AI)

Pricing

Marketing automation

Product information management

Cloud ERP

EDI

ERP

Mobile

E-commerce

CRM


2.6%

40.3%

37.7%

33.8%

27.3%

26%

15.6%

15.6%

10.4%

61%

54.5%

47.8 %

44.2%



Manufacturers who completed the survey offered keen insight into their technology expectations of distributor partners. For example, 87.1 percent of manufacturer respondents said knowledge-able salespeople are a key differentiator, followed by excellent customer service (77.4 percent).

Knowledgeable salespeople and excellent customer are also the most important services that manufacturers believe their distributor partners can provide.

Manufacturer response

How can a distributor differentiate itself from the competition?

What are the most important services your distributors can provide?

Other

Knowledgeable salespeople

Excellent customer service

Relationship

Product knowledge

Strong marketing program

Data sharing

16.1%

87.1%

77.4%

51.6%

38.7%

25.8%

25.8%

Other

Knowledgeable salespeople

Excellent customer service

Product knowledge

Relationship

Strong marketing program

Data sharing

12.9%

71%

61.3%

45.2%

38.7%

29%

25.8%



Manufacturers said that the most value distributors bring to the channel partnership is “providing more feet on the street to sell and service our products” (70 percent), followed closely by “get-ting inventory closer to the end customer” (66.7 percent). To better provide this value, distribu-tors should have some additional tools at their disposal, according to manufacturers, including point of sale information (65.5 percent) and automation (58.6 percent).

Manufacturer response

What value do distributors bring?

What tools should your distributors have to better work with you?

Other

Point of sale informa-tion sharing

Automation

Real-time visibility into transactions

Ability to have integrated product/order system

Internet of things capability

Other

Provide more feet on the street to sell and service our products

Get inventory closer to the end customer

Provide a stronger local presence

Better equipped to store and manage inventory

Better equipped to handle small orders

16.7%

40%

46.7%

63.3%

66.7%

70%

24.1%

48.3%

48.3%

51.7%

58.6%

65.5%



There is a path to profitable services, one where a distributor can increase customer loyalty, increase customer spend and increase the bottom line – but it begins by asking these ques-tions:

• What services do your customers want and need from you, and are you asking them on aregular basis?

• How are you using services to create more stickiness with customers?• How do you measure the added services in terms of cost and its impact on the bottom

line?• How are these added services aligning with your company’s overall digital strategy and

technology resources?

Creating value for your company in the supply chain is the goal of every distributor, and this whitepaper helps companies benchmark themselves against the industry standard and make informed decisions about how to add services and remain profitable.

This perilous path begins with a single step – understanding the value you bring to your channel relationships. If you can’t identify what sets you apart from your competition, how can you prove your value to your suppliers or your customers? The path should also include conversations with your channel partners – your customers and suppliers – about their expec-tations for the services you provide.

The path must also entail implementing the right technology and talent, and approaching your digital needs strategically instead of tactically. Don’t just react to a need, but instead develop a comprehensive plan that will address current as well as future needs.

Survey Conclusion



About MDM

Designed for progress™

Infor® is committed to being the market leader in wholesale distribution enterprise business applications. We build beautiful solutions with last mile functionality and scientific insights, and provide our customers with what they need today and the innovation they’ll depend on tomor-row.

Worldwide Headquarters641 Avenue of the AmericasNew York, NY 10011

Toll-free: 800.260.2640

Modern Distribution Management is the only specialized information business that provides high-level in-depth resources to executives who are in or serve the wholesale distribution in-dustry. With MDM’s information services, you’ll find fresh analysis, accurate reporting and good ideas to practice across many lines of trade. We provide original, in-depth thinking - and you won’t find MDM’s content anywhere else.

MDM’s editors have received several Editorial Excellence Awards from the Specialized Informa-tion Publishers Association and are regularly recognized by industry groups as content leaders in wholesale distribution.

2569 Park Lane, Suite 200Lafayette, CO 80026

Phone: 303.443.5060Toll-free: 888.742.5060

About Infor

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