DISTRIBUTION 2000
Distribution experts predict what the channel will look like at the turn of the century
By Staff -- Industrial Distribution, 1/1/1998
What will the distribution channel look like in the years ahead? And what will be the driving forces that will impact the channel?We asked these questions to a number of distributors, manufacturers and industry consultants in order to compile this special Distribution 2000 report. In the following pages, you'll find the answers those experts provided. Not surprisingly, several experts identified technology as playing a key role in determining the future progress of industrial distribution. Distributors who lag behind their counterparts in adapting to new technology could be forced out of business as we enter the new millennium, some experts say.
Bar coding, electronic data interchange, and computer upgrades are not a panacea for the problems manufacturers and distributors are facing. As one respondent noted, technology is only a tool. How well the industry recruits, hires and trains its future employees and eliminates redundancies in the channel are the real keys to its success.
Industrial distribution has undergone some major changes in the last decade. Mergers and consolidations, increased customer demands, reduced margins, alternative sources of supply, and a change from volume discounts to an activity-based discount structure are just some of the trends that have greatly impacted the channel and the manufacturer-distributor relationship.
Many of these challenges were identified in a major industry study conducted by consultant Frank Lynn and released at the ASMMA/I.D.A. Fall Convention in November. A summary of his report is included in our special section. In addition, ID magazine will present reaction to that study in our next issue.
Changes, like those Lynn talks about, will continue to affect the distribution channel. But the reality has been -- and will continue to be -- that distributors who provide customers with quality service, products at competitive prices, fast delivery, and act as "consultants'' to their customers will be around for a long time. Count on it.
ID editors would like to thank all those industry experts who contributed to this special report. Their thoughtful comments will help us -- and the industry -- to focus on many of the changes that will impact the channel as we prepare to enter a new century.
A View from the Experts
Question: What will be distribution's greatest challenge at the turn of the century?
Bruce Merrifield
Merrifield Consulting Group, Inc.
Chapel Hill, N.C.
"The integrated supply trend is the beginning of the end for producer-invented and controlled channels of distribution; they will be finished off by exponentially growing and improving interactive Web commerce -- every 50 days equals a Web year! Traditional channels will be replaced by reconstructed, end-user dominated channels that will be clearly emerging by 2000.
"Today's channel players who start with the end-user and create new value-chains backward using Web technology in new ways will seize market share. Their mission statement should be: to give the end-users whatever they want and to let them buy anytime, anywhere, any unbundled way, faster and for less.
"There will be a race to facilitate an accelerating amount of channel information flow to and from the end user via the Web. The new, successful [information providers] will capture the lion's share of the new channel's value-added potential. Making and physically distributing commodities will be an even tougher business.''
Jay Smith
Alabama Eminent Scholar of Industrial Distribution
University of Alabama at Birmingham
"An important factor will be obtaining the leadership necessary to strategically develop and utilize both human and capital resources. This will help companies to successfully compete in a changing market by providing outstanding customer service while improving profit margins.
"The threat of increased competition from mega-organizations, the escalation of technology, recruitment and education of a qualified workforce, reduction of cost without diminishing expected customer services, and the realization of the opportunities in a global market place will provide an increasing business challenge for distributors. Implementation of a successful strategy to improve the performance targets in terms of volume, profitability, sales productivity, and customer satisfaction levels by leaders in every firm will be mandatory for achieving the profitability demanded in the world's economic environment.''
Craig Stainbrook, C.P.M.
TRS Partners
Waterloo, Iowa
"In a word...Technology. Once the "root of all evil,'' it has now become the "root of all change!'' Changing technology will only grow in intensity, with increased cycles of change, over the next decade. Surviving supply management businesses will need to understand product improvements of every kind and how to apply them to the industrial business world. Shortened cycles of technological change will make being prepared for each new wave of improvements extremely difficult. It's hard to estimate just how much more frequent the cycles of change will become, but be certain it will happen with mind-dizzying rapidity. Paradigm of technology challenges:
* Rapidly changing, and improving industrial products
* Rapidly changing and improving communications technology
* Rapidly changing and improving computer technology
* Manufacturers opening historically closed channels of distribution
* The vanishing position of purchasing agent as the customer's point of contact (elimination of intermediaries of every kind)
* Customer management that mandates zero product possession cost.''
Question: What role will technology play in distribution at the turn of the century?
Steve Epner
BSW Consulting
St. Louis, Mo.
"Y2K or Year 2000 problems will force revolutionary and unknown changes on all business to business commerce. It is already too late to fix existing systems, so economic triage will be necessary. Survival will require quick, technology-based responses among closely aligned partners. Delay will not be an option.
"Shared information in standard formats will encourage the development of new ways to do "things.'' Duplicate effort, waste and therefore dollars will be removed from the channel. Simply shifting costs to others will not be an option.
"The new work force will be technically literate and will demand access to the tools they have grown up with. The information worker will have arrived. Minimum wage employees will not be an option.
"Options for success will be found. The winners will be decision-makers willing to look at the future as something other than an extension of the past.''
Scott Stratman
The Distribution Team
Colorado Springs, Colo.
"Technology has drastically changed the look and feel of distribution over the past 20 years as more and more distributors get up to speed on the "information highway.'' The feature-rich operational software packages being developed for distributors have allowed them to "do more with less,'' a goal that many have sought for years.
"Technology will continue to be a key ingredient in the success of distributors well into the next century. Those distributors who have invested wisely in technology will continue to do so as more "leading edge'' technology tools are developed. Some distributors will continue to be hesitant, and may actually lag further behind in technology's rapidly changing environment. Technologies like electronic data interchange, bar coding, electronic funds transfer, warehouse automation, route planning and executive information systems will be commonplace in the next century. However, just as in years past, the largest return on a distributor's technology investment will be realized by acquiring the most comprehensive purchasing and inventory management software available.''
Grant Howard
Grant W. Howard Co.
"With distributors facing shrinking markets, margins, and bottom lines, technology oriented towards efficiency and customer service will continue to be a major contributor to a distributor's staying power. With EDI taking a firm hold, DMI/VMI rising from the horizon, and the Internet starting to blossom, technology will yank the distributor into the next century. But it will also continue to increase the gap between those who have it and use it properly, those who have it and don't know what to do with it, and those who don't have a clue.
"Distributors are slowly and painfully learning that technology is just a tool and not an answer in itself. It still takes good people and education, good processes and procedures, and good planning and communication to make it all work and get the real benefits. Technology is and will continue to be successful for the distributor that doesn't forget these other essential parts of the technology equation.'' I
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