How To Compete With AmazonSupply

Like it or not, you’re competing with companies like Amazon, Walmart, Target, etc. Here are three areas industrial distributors should explore when looking for competitive advantage.

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The power has shifted from seller to buyer. Amazon recently expanded its same-day delivery capabilities to more metro areas and as many as 1 million items to serve a growing population of customers who don’t want to wait for their purchases. One can assume this will soon be provided by AmazonSupply. The nation’s most recognized retailers are increasingly promoting buy-online, pick-up in-store capabilities and are experimenting with same-day services in a number of markets — all of this in an effort to give customers what they want. With more options than ever for getting the products they want, when they want, at the price they want, customers are more demanding than ever. Their behavior and expectations have evolved over time. And those consumers are bringing those same expectations and behaviors with them to the B2B markets they work in.

Like it or not, you’re competing with companies like Amazon, Walmart, Target, etc. They’re influencing your customers’ expectations — setting a high bar for all companies. In addition to speed, what customers really want –nay, demand — is a simple and seamless experience across all of your channels. To compete, you have to offer something your competitors can’t.

Here are three areas industrial distributors should explore when looking for competitive advantage.

Focus on Service and Sharing Expertise

Amazon Supply is intent on winning the commodity business (MRO and other non-specialty items, like gloves, cleaning supplies and others that don’t require technical support). This completely changes the competitive landscape for those SKUs. Industrial distributors used to benefit from providing “one stop shopping,” selling both specialty and MRO items at good margins. And customers generally took advantage of that convenience, but now they are only one click away from a greater number of options — often at better prices. If MRO business is diminished, the result will be smaller orders which are more expensive to service and which create additional pressure on margins.

And if Amazon is able to win on price with commodity items, the challenge for industrial distributors will be “how to protect that part of the business while leading with your specialty items?” To compete for business on the remaining specialty items, Tier One suppliers may need to offer improved service or risk squeezing margins further to retain customer loyalty.

But industrial distributors should be able to compete on service.  Amazon and big box retailers can’t be experts on every product they sell. And it doesn’t appear they are willing to invest in that higher level of service and expertise. So, put your extensive product knowledge to work for you. Give customers a way to interact with your product experts online and in-person through social, chat, phone, etc. Customers look to the reviews and recommendations of people they trust when making buying decisions — friends, colleagues, peers and other customers. Make that easy for them. But you can offer even more than that — access to product experts who can advise on which product is best for the customer’s needs and share expertise on how to use the product. Helping customers solve problems they don’t even know they have is the greatest form of service you can offer.

To make it easy for wholesale customers to manage their inventory better, you might consider stocking products in vending machines at the customer’s location. The value of “use one, replenish one” service extends beyond lower inventory carrying cost. The integration this requires positions you as the “go to” source for other items and helps cement customer loyalty. It allows you to provide your customers with business data that gives them the visibility to actual use patterns and the ability to make better purchasing decisions.

Even without automated systems, you can offer value-added services like replenishment on-site through a dedicated and experienced sales force. Customers are people — and people rely on other people who can be trusted to provide assistance when business decisions become complex. The knowledge of your sales associates is an asset you can leverage against competitors who provide little more than a sales portal.

Focus on Speed

Can an industrial distributor really compete against AmazonSupply on speed — with Amazon Prime and its next-day shipping promise? MSC does. An order that comes in at 7:59 pm is on a truck by 8:30 pm. Speed is a differentiator, with the first to get the product to the customer as the winner. But to deliver on the promise of speed and making it easy for your customer, can really make it more complex for you.      

The right automation is one way to take time out of the fulfillment process. But different business models require different levels of automation, flexibility and investment.

  • Automation can help increase fulfillment speed, yet requires systems to support. MSC Industrial moved from 4 hours to 30 minutes by automating the redundant processes in the DC. To do that also requires back-end systems that are integrated to make it possible to perform all upstream order processing with unparalleled speed as well (inventory availability and location(s), credit checks, sourcing decisions, allocation of inventory).
  • Automation technologies like Goods-to-Person (GTP) can increase speed and save labor, but require significant investment. In a shrinking labor market, availability, cost and quality is an issue. GTP technology improves ergonomics and reduces labor requirements and cost. In places where land is also in short supply or expensive, like Europe, this technology has been widely adopted and proven. And this is now gaining acceptance in the US as well. The investment may take longer to pay back, but the business case is there and the return over the longer horizon is huge.
  • Automation solutions offer more flexibility than before. For example, packaging solutions can be implemented to increase speed in a single part of the fulfillment process. UPS’ recent announcement about the move to dimensional pricing makes the business case for automated packaging optimization even more compelling. Transportation is 60 percent of supply chain costs. And the benefits of automated packaging go beyond reducing the cost of shipping air and wasted fill.

Another way to increase speed is to take advantage of opportunities to bypass the DC with drop ship from the manufacturer and/or cross-docking products. More and more business customers are requiring suppliers to deliver store-ready shipments (pre-packed and marked for a specific store or branch) which can then be cross-docked in the DC to facilitate faster delivery to the retail channel. The key is making sure these options are seamless for the customer.

Focus on Seamless

Industrial distributors need to realign their thinking to view the purchase from the customers’ perspective. Even something as simple as packaging (how a product looks when it’s presented to the customer) can make the difference. While packaging has always been important in retail, for the most part industrial distributors are playing catch-up to meet omnichannel customer expectations that products look and cost exactly the same, whether they come from the warehouse or the branch. These distributors are accustomed to being judged on product quality and price, but now they have to consider things they never did before, like whether the box is damaged or dirty and whether prices are consistent between the branch, call center and online. But there’s a silver lining in this — omnichannel customers tend to spend more and drive more repeat business, so making sure that you deliver a truly seamless experience for them is worth it.

True omnichannel commerce is seamless to the customer — systems are integrated, inventory is shared, and service levels and communication are the same in all channels. But to make it easy for your customer makes it complex for you. 

What does that mean — to deliver a seamless experience? Seamless to the customer means they can order how and where they want and get it delivered when and where they need it. They want to know whether or not the item is available and when it will be delivered before they place an order. They expect you to have a unified view of their relationship with you — their history, preferences and needs. Customers expect you to offer consistent service across channels allowing them the freedom to do business with you through whichever channel is most convenient at the time and switch channels without having to recreate the relationship each time. And communication is a critical component of a seamless experience. Make certain your communications are consistent and proactive in giving the customer accurate and timely information that matches their service expectations.

Summary

Companies that recognize and respond to the shift in power to the customer are winning hearts and wallets. The key is not to get hung up on trying to save a penny.  Investments will need to be made. Companies need more aggressive goals around creating and sustaining competitive advantage. Think bigger. Think long term. Focus on service, speed and a seamless experience.

For more information, visit www.fortna.com.

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