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The Distribution Channel: Times Are A-Changing

Technology and other factors have transformed the underlying dynamics of procurement to the extent that distributor relationships are changing radically.

According to a UPS and analyst firm TNS survey of over 1,500 procurement professionals, changing customer expectations, direct-from-manufacturer selling, e-commerce, and the emergence of millennials among buyers are having profound effects on the distribution model.

“It is clear that most buyers are taking advantage of the options before them, and are reevaluating the value of being loyal to an established supply base,” UPS said in the report. “Distributors are at the center of unprecedented market pressures. Their customers, both manufacturers and industrial products buyers, have access to more ways to research vendors and products, and to buy and sell than ever before.”

As the dust settles in this new distributor model, supplier loyalties are also changing. For example, 38% of online industrial product buyers sourced products from a new supplier (vs. 34% in 2013).

Also, 72% of those surveyed said they would shift spending to a distributor with a more a user-friendly website, according to the study. In the 2015 study, 66% of industrial buyers surveyed said they mainly made industrial purchase online compared to 57% of those surveyed in 2013, according to UPS.

Source: UPS

Source: UPS

“It is clear that most buyers are taking advantage of the options before them, and are reevaluating the value of being loyal to an established supply base,” UPS said.

UPS detailed the four main ways buyers' relationships with distributors are changing and what distributors must do to react to these changes:

  1. Customer demands: Price, quality and value are mainstays during the distributor-selection process, while customer service is nearly equally important. “Today's buyers seek and demand an experience that best suits their needs, and they are gravitating in greater numbers to the distributors who meet them. There is no one-size-fits-all definition of a good customer experience,” UPS said. “Bridging the distance between what a buyer wants and a distributor offers will take honest introspection and potentially difficult organizational change. Yet this study shows that buyers are not waiting for distributors to evolve.”
  2. Direct-from-manufacturer purchasing: Direct purchasing is becoming widely adopted among industrial products buyers. “It's fair to view direct buying as a symptom that buyers fail to see the value of working through an intermediary for certain transactions,” UPS said. “Given the willingness of sellers and buyers to establish direct connections, distributors must deliver perceived and quantifiable value that is difficult to match by both manufacturers and other distributors.”
  3. E-commerce: Online purchasing is, of course, a main purpose of distributors' websites, but a distributor's overall online presence is “seen as a strategic foundation upon which most services and transactions take place into the future,” UPS said. “With a strong strategy in place, procurement systems work with inventory management and customer service systems, and so on, offering a seamless pathway for customers, employees and vendors across every selling and service channel,” the study said. “This study reinforces that distributors who fail to embrace e-commerce will face serious challenges in their efforts to attract and retain customers.”
  4. Millennials: Distributors will be challenged to adopt their business models to meet millennial demands in the future. “Millennials are the most likely of all age demographics to shift spending to a distributor with a more user-friendly website. Only 1% have not considered purchasing direct-from-manufacturers,” UPS said. “This age group has been raised on technology and they bring high expectations to the buying process. However, they need information they cannot always find from their vendors. Getting in touch, and then ahead, of this generations' demands will be vital to success.”

However, the human factor will continue to play a key role in the buyer/distributor relationship, although in different ways than it did in the past. When researching a new distributor, for example, 60% of those surveyed still relied on word-of-mouth references during the vendor selection process.

“This means that personal relationships remain important, while buyers are using other methods to research distributors, making face-to-face interactions merely one channel in a long list of influences on buyer behavior,” UPS said. “So is the traditional distributor value proposition dead? No, but this study implies that it's being redefined by the momentum of major market forces.”

Let us know in the comments section below about how you see the relationships you have with your distributors evolving. 

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