How Distributors Are Driving the Future of Supply Chain Innovation

Editor’s Note: Andrew Butt is Co-founder and CEO of Enable

There’s no doubt that we’ve entered an era of customer centricity – from the increasingly firm expectation that companies will deliver highly personalized products and services to the ever-expanding range of consumer needs. This has led to a fundamental shift in the relationship between suppliers and distributors – the distributors that rely on data-driven methods for anticipating consumers’ demands (often based on insights gathered from their retail partners) and working with suppliers to meet them will be in a much stronger position moving into 2021 and beyond.

The era of customer centricity is giving distributors more leverage, as they’re more and more attuned to consumers’ needs and capable of influencing purchasing decisions. This doesn’t just mean distributors have more power in their relationships with suppliers (as the ability to work with retailers to directly affect consumer demands and behavior allows them to set the terms and conditions of these relationships) – it also means they’re becoming seamless extensions of supply chains by bringing production and distribution into closer alignment.

Cloud-based platforms that allow suppliers and distributors to more effectively manage their relationships are facilitating these changes, which is why companies will be making larger investments in digital resources in the coming years. No matter what digital tools companies use, the trend is clear: more collaboration will lead to greater efficiency and sales for companies on both ends of the supply chain.

Making supply chains more customer-centric

Relationships between consumers and the companies they do business with have undergone a major transformation in recent years. Consumers no longer want to be treated like numbers – they want companies to treat them as individuals with their own unique needs and concerns. This means suppliers, distributors, and retailers have to build their operations around customers’ increasingly specific demands.

According to research from Epsilon, consumers are 80 percent more likely to make a purchase when companies offer personalized experiences. Meanwhile, PwC reports that 63 percent of consumers would be willing to share data for a product or service they truly value. While the demand for personalization imposes new requirements on companies, it also presents opportunities. Now that retailers and distributors can use consumer data to rapidly respond to changing market conditions, predict shifts in demand, and track other changes in consumer behavior, they can work with producers to orient supply chains around these insights.

Because distributors are closer to consumers – especially considering their direct relationships with retailers – they have better access to information about customer demand, satisfaction, and so on. The insights distributors derive from this information should be at the core of their relationships with suppliers – by ensuring that supply chains are built around economic reality and what consumers actually want, companies will make them as adaptable, resilient, and efficient as possible.

Distributors are the linchpins of digital supply chains

Many retailers already have robust digital infrastructure in place when it comes to their customer-facing operations – from customer relationship management (CRM) solutions to customer experience (CX) platforms that cover all aspects of consumers’ interactions with a company. However, companies have been slower to digitize back-end processes and operations like supply chain management.

This status quo will change in the coming years. McKinsey predicts that supply chain digitization will lead to lower operational costs (through improved processes such as the automation of planning tasks), more sales, and improved forecasting. These are the reasons companies are increasingly investing in supply chain technology – as Gartner reports, the digital supply chain management market rose by 8.6 percent in 2019, a trend that will likely continue.

Retailers and distributors are the key drivers of this trend. McKinsey observes that one of the main engines of digital supply chain innovation is the fact that companies are “leveraging all available POS data/market intelligence,” which allows them to make more accurate predictions and account for changes in demand. Because retailers have direct points of contact with consumers – and distributors are the liaisons between retailers and suppliers – the proper use of consumer data can make the entire supply chain more efficient. That’s why the integration of distribution and production begins with the former.

Aligning incentives between distributors and suppliers

Although distributors are at the forefront of supply chain digitization, suppliers have an interest in developing stronger relationships and improving interactions across the supply chain. According to a 2020 Forrester study, 80 percent of supply chain, procurement, sales, and finance leaders say they need to accelerate the digitization of their procurement operations.

It’s no surprise that 77 percent of respondents say improving collaboration is a priority, but 45 percent of U.S. businesses admitted that they have no processes to collaborate with strategic suppliers, while 48 percent say they lack processes to collaborate with their broader supplier base. More than three-quarters of businesses say the best way to work more closely with suppliers is to focus their key performance indicators on collaboration, while 63 percent emphasize investments in digital tools that will help them share information. Almost 90 percent of suppliers say they will be more willing to collaborate with a company if it’s transparent about payments and when they will be received.

Suppliers and distributors clearly have a mutual interest in data sharing, more streamlined communication, and the development of other digital processes that will help them collaborate with one another. Effective supply chains are built on healthy relationships, and distributors have more digital tools to forge and maintain these relationships than ever before.

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