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| 2 minutes read

Feeling the Squeeze, Part 1: Are Wholesale Distributors Trapped by Disruption?

The 2022 AlixPartners Disruption Index was released this week… and the headlines were profound. Disruption is clearly a top-of-mind issue for leaders spanning multiple industries. 70% of the executives surveyed report their company has experienced high levels of disruption over the past year and 57% worry that their company is not adapting fast enough to stay ahead of disruption. 94% of executives say their business models must change within the next three years! By all measures, we live in a world with an unprecedented pace and magnitude of disruption, and it appears disruption is not only here to stay, but is the new normal.

Whether we “feel” disruption every day at work, during a trip to our favorite restaurant when we find out our favorite menu item is currently unavailable, or when we purchase new car tires and discover they are much more expensive than the last set we purchased, we are all impacted by the pace and magnitude of disruption in some way or another.

While we understand the impacts we “feel” are caused by disruptive forces – the restaurant has trimmed its selections to make it easier to plan the menu in the face of volatile demand, raw material costs have increased and therefore tire pricing has followed – we may not have an appreciation for the reach of the disruption and the vast number of entities affected along the way. 

Take wholesale distributors (WDs) for example. Whether you realize it or not, WDs fill a vital role in many supply chains by purchasing products from manufacturers or producers and distributing them to downstream markets. These supply chains relate to nearly every part of modern life - think food and beverage, technology products, automotive parts, building products, maintenance and industrial supplies, chemicals, and many others. A WD likely purchased the ingredients for your favorite menu item and sold/delivered them to your favorite restaurant. A different WD likely purchased those new winter tires from a manufacturer and sold/delivered them to your tire installer. 

Seems like a pretty simple business model, purchasing goods and selling them for a profit, right? WRONG! Consider, first, that WDs have long been active in defending their position in the supply chain against manufacturers, producers, and “new” competitors like Amazon tempted to sell direct to consumers. Next, take into account the impacts of disruption that surround WDs. Customers (and their customers’ customers, consumers) have dramatically shifted what and how much they buy and suppliers have updated the cost and availability of products. And finally, consider the significant impacts to the cost and capacity for WDs to store, handle, and transport products. WDs are clearly feeling the squeeze. But are they trapped by disruption?

In our work with WDs as operators and consulting partners, we can see that the pace and magnitude of disruption will continue to have a profound impact on them and the markets they serve – the squeeze will continue. WDs can counter the squeeze by making significant progress in a number of areas, including:

  • Defending and strengthening their position in the supply chain 
  • Winning the war for talent 
  • Digitizing business processes, tools, and systems 
  • Targeting markets and ensuring sales teams are effectively managed and organized to execute 
  • Delivering the right product, to the right place, at the right time (at both the right price and cost)
  • Right-sizing SG&A functions and redesigning business processes to support changing needs

Stay tuned for more in this series where we discuss (1) key disruptors broadly impacting most WDs (e.g., freight costs/availability, labor costs/availability, lead times and local vs. overseas sources, and others), (2) key disruptors impacting specific WD industry segments (e.g., shift in food service vs. grocery mix, lack of cold storage warehousing supply, and others for food), and most importantly (3) deeper insights into strategies and actions for WDs to successfully counter the squeeze and thrive surrounded by disruption in the new normal.

While we understand the impacts we “feel” are caused by disruptive forces, we may not have an appreciation for the reach of the disruption and the vast number of entities affected along the way.

Tags

supply chain, logistics, operational improvement, operations, transportation, disruption
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