NAW's latest report outlines the key trends to shape distribution over the next five years.
The fifth report since 1982 in a series of ground-breaking studies on the future of wholesale distribution has just been released by the National Association of Wholesaler-Distributors (NAW), Washington, D.C. Facing the Forces of Change: Four Trends Reshaping Wholesale Distribution, takes dead aim on 2003 and lays out the path distributors must follow to make it there.
Given how on-target the previous studies in this series have been, you should read the latest report with care. Intriguingly, much of what was said in the NAW report echoed in the thinking of the electrical distributor executives EW gathered late last year for a roundtable. That "Conversation on Consolidation" appears in this issue (page 24).
The four major forces expected to profoundly affect the distribution industry? Electronic commerce, strategic alliances, supply chain integration and globalization. "These trends are not only coming at the industry with great force, they've also intertwined," the NAW study points out. As if these changes were not enough to handle, distributors must still deal with other continuing trends--like consolidation, outsourcing, technology and Year 2000 issues. The following excerpts from the study summarize the findings:
Electronic commerce. The flexibility and interactivity the Internet offers will revolutionize the distribution industry, says the study. "In the age of the Internet, power increasingly resides with companies that find new ways to share information and change it into knowledge, rather than hoard it."
The NAW study predicts distributor sales over the Internet will increase dramatically, as much as 20-fold. Suppliers, customers and competitors will drive distributors to adopt electronic commerce; and by 2003, it will be the expected way of doing business.
At the same time, electronic commerce will increase competition and consolidation among distributors. The report also warns of the threat presented by business entities that do business entirely over the Internet, bypassing the distributor entirely.
Electronic commerce will change the distributor's role. Distributors will have to shift from the physical movement and storage of goods to the delivery of information and services.
Strategic alliances. Distributors who fail to form strategic alliances may be exposed to competitive threats from those who do. More distributors will enter alliances allowing them to pull, rather than push, products through the channel. Distributors see growing competition from these alliances, and expect other distributors and entities to enter their markets without establishing a physical presence.
Supply chain integration. The need to reduce redundancies (and thereby costs) and increase efficiency stood out. According to both distributors and suppliers, current channel performance is mediocre. Between suppliers and distributors, and between distributors and customers, holding costs represent the largest single source of redundant costs. Suppliers and distributors agree that the importance of the distributor's traditional functions will decline, while other functions, like providing technical service, will rise.
Globalization. With electronic commerce and worldwide shipping erasing the barriers of time, distance and physical space, distributors will have to consider both the possibility of competition from foreign entities and the opportunity to sell into foreign markets themselves.
To obtain the full report Facing the Forces of Change: Four Trends Reshaping Wholesale Distribution in book and/or video format, as well as information on pricing, contact NAW Publications at 202-872-0885.