5 Threats Facing B2B Manufacturing Distributors
The role of distributors has changed drastically over time. It has gone from representing manufacturers to representing buyers, and it’s still shifting.
Today, the role of distributors continues to change, and not necessarily for the better. The distributor business model faces bigger challenges and threats than ever before. With the growing influence of online retailers and supply chains over the last several years, relationships between consumers and manufacturers are shifting.
This means that distributors are scrambling to keep up with these changes to stay in the game and stay relevant to both manufacturers and customers.
Before we can look at solutions to this dilemma, we first must know and address the root problems. So, let’s take a closer look at some of these challenges and how they might affect, and even threaten, the distributor business model.
The Top 5 Threats to the Distributor Business Model
- The customer is in control — A self-service consumer model is emerging more than ever before. This means that customers aren’t relying on distributors as much as they used to for information about the products they want to buy. Instead, they’re turning to the internet to do their own research or going to the manufacturers themselves to fulfill their buying needs. This changes the entire dynamic of the previous distributor business model because the end customer is now essentially driving it themselves. And with that in mind, it’s easy to see why customers might not understand the importance or relevance of having a distributor on their side. If you can do it yourself, why would you go somewhere else?
- Direct selling — This development is creating a new relationship between buyers and manufacturers that essentially cuts out the middleman, which unfortunately happens to be the distributor in most cases. As expected, this kind of direct selling relationship can lead to lower-quality products being sold to less-knowledgeable customers. Naturally, this isn’t really what we want to see happen. Where the distributor used to cross the barrier between buyer and seller, we can now see how it’s breaking down over time. In fact, statistics suggest that 78% of manufacturers expect to begin selling directly if they aren’t doing it already. That’s a huge shift from the past. In the end, quality declines on the manufacturer’s end to keep up with business, and buyers get disposable products and poor customer service.
- Marketplaces have exploded in the last 5 years — Marketplaces used to start out their businesses very focused on one or two areas (such as electronics or furniture for example). Now, we’re seeing them expanding from specific areas and adopting a wide variety of products for consumers. Amazon is a great example of this shift. They started out selling books, but now customers can buy just about anything they want from Amazon online. More marketplaces are starting to follow this business model, which means that fewer manufacturers are going to need distributors to coordinate between them and the buyer. As mentioned previously, this will likely result in less regulation of product quality which was a key benefit from having a distributor role between the company and customer.
- Supply chain logistics — The supply chain companies are encroaching more and more on distributors as they go directly to manufacturers to get the product to end customers within the 24-hour window. New competitors will continue to come into the business with more warehouse space and technology. We’re also seeing more providers coming to manufacturers offering localized businesses more national coverage for their inventory. With so much investment going into these supply chains, no wonder it’s so hard for distributors to compete. After all, demand is often focused on fast and inexpensive delivery, and not necessarily on the quality of the product.
- Consolidation in the market — Consolidation is increasing at a record pace. The big companies are getting bigger and regional businesses are going national. This leaves small businesses to struggle in the wake. They can still have value to their local customers, but it can be harder to work around because of increased focus on the big national companies and chains. Not only are they getting the most attention, but they’re also receiving priority status while smaller, even higher quality, businesses are getting pushed out. This isn’t necessarily good for the market, the manufacturer, or the end customers. Unfortunately, distributors must deal with these consolidation consequences.
The Way Forward
These threats to the distributor business model do not mean that it’s impossible to succeed today as a distributor. After all, there are still manufacturers who don’t want to sell directly, and you still have value to them and their consumers. However, there is more pressure on distributors today, and you’ll have to prove yourself more than ever before. Rising to the challenge could make all the difference to your success in the coming years.
What you need to do is to start building a modern business strategy and evolve it holistically as you’re faced with these threats.
The key is to understand and recognize the threats and actively work to be competitive and relevant despite them. It’s also good to know the answer to these questions: Who do you want to serve? How are you building meaningful relationships with manufacturers and end customers?
Distributors who are aware of the threats and keep improving their strategies will have a better chance of surviving, and even thriving, amidst the challenges they face.
Thoughts? Questions?
As always, feel free to reach out to talk in greater depth about these and other issues impacting your business.