Commoditization in Industrial Distribution

Commoditization in Industrial Distribution

Like many other businesses, the industrial distribution business has not been spared the “commoditization” syndrome. This is especially more evident during these bleak economic times. The CEO of one industrial distributor even lamented that “customers are going to drive us to bankruptcy with their insistence of lower prices!”

The CEO of that business missed the point with that statement. As with every other business, mass commoditization has come, eventually, to industrial distribution. Working with operational models that served the industry well ten years ago and as far back as fifty years ago will no longer suffice. There may be Walmarts just about every ten miles or so from everyone in time to come! However, among the sea of look-alikes in any business, all vying for the same purse strings of the customer, some companies stand out and do a roaring trade despite low prices, commoditization or convenience. Examples abound with the likes of Southwest Airlines, Marriot Hotels, Nordstrom, Target Stores, CNN, The Body Shop, and Gillette leading the pack.

There is also no shortage of business consultants, gurus and industry pundits who will tell you the “secret of success” is in such a marketplace. Almost invariably, customer focus, commitment to quality, innovation, Six Sigma, Lean thinking and such-like phrases are bound to make the list. Having weathered the major part of this recession, it is safe to say that most of these secret antidotes are not far off the mark. If anything, the recession has made quite a number of distributors question their models of operation. Fundamental questions on sales, distribution and warehousing are being asked – some for the first time in many years.

Lean thinking is finding its way into more distributor vocabularies as they discover that merely pushing sales harder is not a viable proposition that will ensure survival in the coming years. The leaders of the pack are fast-realizing that internet sales are becoming an important avenue for directing traffic to their web-sites and support people. Investment in this arena is expected to be at an all-time high this year and the next as distributors pour money into developing more customer-friendly web-sites that promote self navigation, have FAQs by product category, and also Live Chat capability.

The industrial distribution business has lagged major industry categories in their marketing and operations practices. The current and prolonged economic crisis provided the catalyst for a fundamental review of the models currently in place. Sacred cows such as the Inside/Outside sales models are being questioned, just as airlines began questioning the hub-and-spoke models several years ago and arguing for a more de-centralized approach in certain markets. Centralized support by Subject-Matter-Experts (SMEs) manning a phone center to handle queries from customers and call overflows from branches are being deliberated and implemented in some situations. Incentive plans for Outside Sales are being revised to include not just new accounts to call on but also new industries. Finer segmentation within SIC codes for targeted marketing is being reviewed as are internal operational overhauls to the distribution models.

Obviously, having a slick web-site and chat rooms by themselves, are not going to propel distributors to the top of the sales charts nor give them a competitive advantage. They have to have the rest of the basics covered – committed sales support, optimal operations, training, customer care, a spirit of continuous improvement, an innovative spirit, etc. However, capitalizing on technology advancements, from a distributor perspective, is a “low-investment-with-high-return” choice as opposed to other options available. Hence, while the current economic conditions have been very trying, and downright debilitating with some businesses in the industry, the silver lining in this cloud was the wake-up call for a comprehensive review of the entire distribution operations.

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