Manufacturers and distributors have spent the past 24 months navigating the complexities brought on by the COVID-19 pandemic. Whether it was upending the typical sales interaction, supply chain disruptions, or widespread inflation, there were no shortage of challenges demanding focus. While there is some uncertainty with what comes next, the impact of the pandemic on day-to-day lives has receded, inflation is showing early signs of slowing in certain key areas, and the global supply chain is smoothing itself out. Furthermore, trends that existed before COVID-19 including: the rise of millennials entering decision-making positions, investment in e-commerce, and distributors’ rising expectations of their suppliers are persisting.
In preparation for the new year our team sat down to outline four key trends impacting the B2B distribution channel that we are keeping an eye on.
1. Sales teams refocus energy on selling
There are two trends that have been top of mind for salespeople in our industry since the pandemic started: disruption of global supply chain and inflation. This forced sales teams to shift their focus from selling to ensuring products are in stock, helping customers find alternative solutions for out-of-stock products, and managing price increases. However, with the untangling of the supply chain and signs that inflation is slowing, sales teams will refocus their energy on selling.
Expect to see a more proactive selling motion for both manufacturers and distributors as end-users are looking to consolidate assortments, rationalize vendors, and lower total cost of ownership. Those sales teams who prioritize understanding their customers’ challenges and present solutions addressing said challenges will win in the long-term. Additionally, the pandemic may have impacted customer’s purchasing needs and behaviors. Manufacturers and distributors alike should reexamine their sales playbook to ensure they are bringing relevant programs to their partners.
2. Inside Sales (Virtual Sales) will become more prominent for both manufacturers and distributors
COVID-19 shut down the world, and while most participants in the distribution industry were deemed essential businesses, the in-person sales interaction that we were all accustomed to was turned off. This forced the sales process online giving buyers little choice but to accept the new virtual-led relationship. The in-person account planning meetings and product demos moved to a virtual video interaction. While face-to-face sales calls have started to return, and we expect it to continue to grow, the “new normal” will be a fraction of what it was pre-pandemic.
With the market’s general acceptance of both virtual relationships and work from home we’ve seen both distributor sales reps and merchants become less constrained by geography. Said plainly, it’s normal to see a salesperson based in California who’s responsible for customers in South Carolina, or there are merchants who are based in Vermont while the distributor’s HQ is in Illinois. Moreover, millennials – who favor virtual relationships and rely on the internet to support their purchasing journey – are increasingly moving into decision-making roles within their respective companies. Buyers’ acceptance of a virtual-led relationship will be the norm, not the exception.
This change in the buying process presents an opportunity for distributors and manufacturers to augment their coverage model. Those who build strong inside sales teams will increase the number of customers they cover at a reduced cost per headcount. One independent distributor who Highlands partners closely with tested the waters by hiring one inside sales resource. Within months they were diverting all sales headcount investment to their inside sales team. The return on investment was too high to ignore.
3. E-commerce’s role in the purchasing process will continue to grow
Early in the pandemic there was a sharp rise in demand for PPE and disinfecting products, which traditionally had predictable seasonal demand. This initial demand shock was followed by widespread disruptions snarling the global supply chain. Finished goods, component parts, and raw materials that were reliably available pre-pandemic suddenly had an unpredictable supply position. Buyers were forced to look outside their traditional supplier partners to find product availability, or they had to find an alternative product to meet their needs. The combination of needing to find alternative sources of supply – whether it’s with new supplier partners or alternative SKUs within existing supplier partners – coupled with the decline of in-person sales engagement pushed buyers to the web to find what they needed.
Moreover, there are several trends that existed pre-pandemic that are continuing to impact the buying process. Distributors are continuing to deemphasize static, periodic catalogs in favor of a rich e-commerce experience built for product discovery and simplifying the purchasing process. Leading distributors are investing in enhancing their website, improving search capabilities, expanding their connectivity with eProcurement solutions, and building mobile applications. Furthermore, leading distributors are expanding their standard stocked assortment with a more dynamic “endless assortment” that includes a wide array of products fulfilled via third parties. The improved e-commerce experience full of rich product content, first class search, and a wide array of capabilities makes it more appealing than ever for customers to look online as they make purchasing decisions.
The pandemic accelerated buyers’ adoption of e-commerce within the buying process, much like the pandemic forcing buyers to become comfortable with virtual-led relationships. Buyers will continue to lean into using the web within their purchasing process as distributors continue to invest in creating a superior online experience. Manufacturers who partner with experts in product content syndication and optimization will reap the benefits this trend will create.
4. Procurement teams switch gears from managing cost increases and supply challenges to cost out and SKU/supplier rationalization
Over the past 24 months procurement teams spent most of their energy on ensuring there was a consistent supply of critical goods and on managing cost increases. This means manufacturers, distributors, and end-users alike established relationships with new suppliers, sourced alternative products, and passed along increases – or they absorbed the increase impacting their profitability.
While we aren’t in the business of predicting inflation there are signs that it’s receding in certain areas (ocean freight and line haul rates declining with raw material prices beginning to fall), and the global supply chain is regaining strength.
Here are a few things to look out for:
- Price increases will be met with scrutiny and resistance.
- Price increases in 2023 will require well documented evidence that your cost structure is changing and be prepared to negotiate the timing and terms.
- Distributors will examine their line structure to reduce duplicity and drive out costs if inflation continues to recede.
- Distributors expanded their assortment to include alternative suppliers for critical parts to ensure they had sufficient supply, and they accepted an onslaught of price increases. They will look to reduce complexity in their supply chain and recover costs as line haul, ocean freight, and raw material costs continue to fall.
- Like distributors end-users will contemplate releasing RFPs for key categories.
- End-users faced the same expansion of their assortment and cost pressure that distributors have. They will look to reduce their assortment complexity and negate increases in cost through the RFP or contract negotiation process.