Most electrical distributors survived assaults by dot-coms and industry consolidation in the late-1990s and will weather the current recession.
But they must proactively plot their future to withstand the challenges awaiting them in the early years of the 21st century, according to the National Association of Wholesaler Distributors' (NAW) Distribution Research and Education Foundation (DREF) study, “Facing the Forces of Change: Future Scenarios for Wholesale Distribution.”
The sixth edition of the NAW/DREF study officially was publicly released during an Oct. 10 Webcast sponsored by NAW and Industrial Distribution magazine, and covered four different “scenarios” on how the future may look for distributors.
More than 600 distribution industry personnel tuned into the Webcast, said Greg Erickson, NAW's director of communications. Also on the panel for the Webcast were Michael Marks, managing partner, Indian River Consulting, Melbourne, Fla., and Jack Keough, chief editor, Industrial Distribution magazine.
Adam Fein, president, Pembroke Consulting Inc., Philadelphia, who directed his company's research and writing of the study, said these four scenarios are “postcards from the future” for distributors: bricks-and-clicks, coordinated channels, an unbundled supply chain, and a common platform.
In the bricks-and-clicks scenario, distributors remain the primary route to market for manufacturers, but blend select e-business technologies to offer customers online communications options.
With the coordinated channels scenario, customers seek more information directly from manufacturers, but distributors continue to take a customers' order and provide local inventory and fulfillment. The information that manufacturers provide would include product descriptions, detailed technical data and the other product data that customers need to make their selections.
In the third scenario, an unbundled supply chain, product manufacturers and customers only pay the distributor for the specific supply chain and marketing channel activities that they require. In this scenario, wholesale-distributors would compete with supply chain organizations (SCOs) that specialize in a single channel function or supply chain, such as transportation, warehousing or logistics.
With a common platform, the fourth scenario, groups of large customers form open and neutral nonprofit online exchanges that manage and automate the data-translation and order-placement processes between supply chain partners.
During the Webcast, viewers could vote for the scenario that seemed most applicable to their company or industry. Viewers believed the coordinated channels scenario was most likely with 40 percent of the votes, while approximately 34 percent of the viewers selected the bricks-and-clicks scenario.
Fein said distributors can use these scenarios in their strategic planning.
“Scenario planning is a way to organize the fire hose of information that the distributor is being deluged with,” he said. “They are designed to be a trigger for action, not an intellectual exercise.”
He said the four scenarios in “Facing the Forces of Change 2001” are designed to help distributors anticipate upcoming trends, discover strategic options and spot early-warning signals of change. One specific example that he cited was to use scenario planning to determine what a company would do if it lost its largest customer, and to build an “early-warning system” to prevent that from happening.
The scenarios are also designed to answer the following questions:
How quickly, if at all, will customers adopt new methods for purchasing and interacting with their supply chain?
How effectively will different Internet business models compete with distributors?
How much of a distributor's revenues will come from service fees instead of traditional markup margins on product sales?
Which types of channel systems and supply chains will customers prefer?
Will suppliers and manufacturers react by supporting wholesale distribution or authorizing alternative routes to market?
Which new competitors are distributors likely to face?
The study also identified human resources as a key challenge for the distribution industry in the future. According to its findings, two-thirds of the distributors contacted during Pembroke Consulting's research believe they will lose potential employee prospects because of the perceptions of better jobs in other industries. About 80 percent of the manufacturers, distributors and customers who responded said distributors are already faced with a shortage of qualified personnel.
Pembroke Consulting's work on the study included surveys of 1,600 manufacturers, distributors and customers across 50 different industries and 75 in-depth interviews with supply chain and distribution channel experts. Pricing and ordering information for the study are available at www.nawpubs.org/ftf.html or by calling the NAW at (202) 872-0885.
In addition to the book, NAW/DREF will release a companion “Facing the Forces of Change” workbook and videotape that distributors can use to apply these scenarios to their businesses. In the videotape training program, Fein is joined by Michael Marks of Indian River Consulting Group.