Is Distribution Dead?

It’s difficult to talk to any owner of a small distribution business without hearing complaints about competition from the Internet. Their criticisms are pretty universal, regardless of the goods being distributed.

• “Customers call with prices they claim to have found on the web, and expect me to match them.”
•  “People buy things from online vendors, and expect me to honor the warranty.”
• I tried putting up a web site, but it only attracted people who called to ask for a better price.”
• “I can’t compete with vendors who carry no inventory and only drop ship when they get an order.”
• “I can’t use my website to compete on price, because my regular customers might see it.”
• “I get calls from people who try to self-install equipment purchased over the Internet, and then get themselves into trouble. If I charge a lot they are angry. If I only charge my regular installation fee without selling the equipment, I lose money.”

All these complaints are true, but they don’t explain why distributors remain one of the better selling small businesses in the country. Unless we figure that business buyers are universally strategy-challenged, why would they still seek businesses that are getting crushed by the World Wide Web?

The business school definition of a distributor is “someone who provides time and place utility.” In other words, you have the product the customer seeks, when and where he seeks it. Cleary, the customer can’t buy on the Internet if he really needs it now.

Small distributors can’t fight back on price. Their best weapon against the Internet is service. Unfortunately, many still believe that service consists of largely of traditional personal contact, expensive rush deliveries as repeated “favors” for a regular customer, or maintaining a deep inventory so they can always fill in when a customer runs out.

Distribution businesses still have value because they can benefit tremendously from technology. Among businesses, distribution is one that can best adapt to automated improvements. A successful company has:

• CRM software that proactively announces when a customer is past an expected order date, and profiles what he is buying from you and what he isn’t.
• Pricing comparisons for different suppliers and terms
• Rapid cost/benefit analysis to take advantage of purchasing opportunities without overstocking, along with rapid e-broadcast capability to judge customer interest level in a deal before placing your order.
• Customized ordering capacity for customers, where they can look at information about their usage and projections online.
• Economic Order Quantity and inventory optimization software
• Routing, fleet maintenance and fuel consumption programs

As a distributor, your best weapon against technology is technology.

Amazon has announced the opening of scores of satellite warehouses to permit same-day delivery of their faster moving items. They are catching up in time and place utility. Amazon’s advantage isn’t that they have guarantee the lowest price. Their same day delivery might be useful for a last-minute birthday gift, but why would they invest in all that brick and mortar for the occasional retail purchase?

They wouldn’t. I think they are investing  with an eye towards wholesale distribution. If they are, then they don’t plan on doing it by having a zillion salesmen in the field buying lunches for customers. They will do it with technology, and small distributors who want to survive should respond in kind.