Evolving wholesale distribution in the E-commerce era

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Roman Bukary, VP of Manufacturing and Wholesale & Distribution, NetSuite, argues that wholesalers need to step cautiously into the world of direct sales in order to maintain profitability.
 
It's been another tough first half of the year, with the worsening Eurozone crisis, bad weather and banking scandals knocking consumer confidence and spending. Whilst retailers have remained positive about their prospects thanks to the Queen's Jubilee and current sporting boom, business leaders in the UK wholesale market have been significantly less optimistic about their sales growth, with new research showing that over a third of WD companies expect growth to remain static or shrink over the next year.

 
Unlike their retail counterparts, however, WD companies aren't necessarily known for their end-user innovation shiny websites and mobile apps seem like the province of B2C retail companies; large pallet-driven stockrooms the province of WD firms. However, with direct sales forecast to add 16bn to WD company turnover in the year ahead according to the Cebr, there is a clear path to growth here for British wholesalers.

A different industry

For all that WD and retail companies are all in the business of selling products, they inhabit very different worlds, and simply building a website and adding a direct sales channel may not always be sensible. Margins need to be re-evaluated and price points set for direct-to-consumer offerings that compensate for the additional administrative burden managing direct sales can entail. The business model that allows a company to sell 1,000 units at 1 each doesn't allow it to profit from selling the same product for 1 each individually.
 
Beyond this, however, operational efficiency is vital in the addition of a direct sales channel. A business that specialises in large value, low volume sales historically may not have needed slick, seamless processes in quite the way a competitive online retailer might. But when you make the move to low-value sales in larger volumes, the time it takes to manually update multiple systems with each order placed may not be worth the revenue you gain from the sale!

Growing pains

A wholesale distribution company we worked with, Justoffbase, previously maintained stock, order information and accounting information in multiple systems (spreadsheet-based for inventory, an accounting system etc) while managing orders from customers and to suppliers via email and phone/fax. By placing all of this into a single system AND building dynamic integration into its suppliers, Justoffbase braced for and successfully managed five-fold growth in their business without the manual integration pains their staff had to contend with their legacy systems.
 
This is not a unique situation. Nearly a third (30%) of companies place orders with suppliers by manual or telephone ordering and it seems many of these suppliers feel that this kind of information sharing could be done more efficiently.
 
Our research shows that 56% of WD companies feel that competition from online retailers able to offer better prices, together with the worsening economy (48%) are reasons to be nervous about growth. So how can a WD company hope to make meaningful revenues from a direct sales channel?

Delivering the experience

The average WD company spends just over 100,000 on its online presence, compared to more than 200,000 for the average retailer. How, then, in a world of Amazon and eBay, can the wholesaler compete?
 
The answer is not to bury your head in the sand. Three quarters (76%) of wholesalers think that the failure to expand their business through investment in e-commerce channels could present a risk to their business. Amazingly, however, more than a third (36%) of wholesalers don't have a website!
 
Another route to be avoided is that of investment in an expensive, bespoke system the cost for which could take years to recoup but instead look to pre-built 'commerce as a service' systems that deliver large webstore functionality on top of your existing systems. Slick integration into your existing systems will preserve your margins for your direct sales channel, and protect your wholesale revenues as well.
 
However, trying to do this with legacy client-server systems can be painful. In our research, more than half (52%) of WD companies cite integrating e-commerce systems into their core ERP systems as a barrier to adding a direct sales channel to their business.

Running a smooth operation

The challenge of tapping into the 16bn direct sales opportunity is one that wholesalers are exploring, and many are taking on the challenge of shoring up their systems to cope. More than half (54%) of wholesalers are communicating data with their retail or supply partners through online order placement or purchasing facilities, 42% through electronic stock monitoring systems and 42% via automated stock ordering. The goal should be to take a holistic, 'one system' view of all aspects of your wholesale and e-commerce operations; integrating automated order processing, inventory management, demand planning, shipping integration, financial management and sales force automation capabilities.

Going direct

It seems then that savvy WD business leaders are already exploring multi-channel sales strategies in pursuit of growth. The challenge will be to do this in a way that evolves their business model, streamlines and automates their workflow and delivers profits alongside that growth. Whilst their retail counterparts have been leading the way in e-commerce and m-commerce, the WD industry is starting to wake up to their potential. With the potential boost from these channels worth up to 16 billion, it's urgent that the wholesale distribution industry evolves its approach.