by Nash Stamenkovic
Business is good! Why change now?
Digital transformation is a journey not an end-goal!
Manufacturing will face large disruption in coming years with looming recession (or not). Not all manufacturing segments will be affected by such disruption (at least not yet). However, as newer, leaner, more agile startup manufacturing companies get going this trend will become a live or die for many manufacturing companies out there (and possibly encompass all of supply-chain businesses) as customers continue to look for cheaper, faster, bigger selection.
Simplest way to explain – think what happened to travel agencies with coming of Internet and E-Commerce self-serve services and ability to book your own flights online.
Travel agencies are very rare these days for a reason. They used to be on every corner. Now they are mostly specialised boutique shops that more or less use same systems you’d use yourself to book flights.
If you are not comfortable making your own ticket purchases, or need help in finding a good vacation spot – you don’t care to read thousands of reviews on Trip Advisor – travel agencies still do leg work for you.
Or maybe they just push you into buying vacation package on which they can make most money (your experience may vary). But mostly – vast majority of people purchase flight direct from either global brokers such as Expedia, or direct like Air Canada, WestJet, British Airways, etc.
In manufacturing – manufacturer sets their sales channels. For example – they sell direct to customers when they are large enough to buy in bulk directly from manufacturers (think Walmart or Costco).
Manufacturers also use their own and 3PL warehouses as service to have their bolts and widgets distributed across wider geographic space – to be able to quickly serve OEM and Distributors on demand. If they are large – they rarely sell direct to consumer – especially when we start thinking of commodity manufacturing (such as a part that is used in conjunction with other parts to make or deliver end product for consumer – think building materials as an example).
Manufacturer can also sell to distribution partners who purchase in bulk and sell their bolts and widgets to consumers in smaller packages.
Problem is – Distributors are becoming the “old school Travel Agencies”. If they are not providing some kind of “boutique customer experience”. Distributors are mostly brick and mortar shops that are about to become obsolete if manufacturers start selling direct to consumers. Why not cut out the middle man? Especially in commodity business where margins are low.
The Idea
In this is scenario I will focus on describing how a manufacturing company can help their distribution partners and customers by revolutionising old set-in-stone process by using Technology.
With E-Commerce, 3PL, partnerships, manufacturers finally have ability to serve their products globally with high level of efficiency (self-serve portals or B2B/B2C E-Commerce portals).
It’s important to note – there is a strategic business decision to be made for a manufacturing business.
Manufacturer should not jump over its distribution network and completely phase them out. That is unless they feel confident that they can deliver all products to consumer directly at same speed, with same or better customer service, and offer it all in more geographic areas.
This is where THE KEY is. They can not. Or rather, they can not do it in practical and affordable way (many try and many fail to build near monopolies, some succeed). Global B2C distribution is not a core strength of any manufacturer, and if it is – they are in wrong line of business.
Manufacturer needs to to create a symbiotic relationship with its distribution partners. They can also try to develop their own B2C distribution business – which may also pit them against all their past distributor partners (it means war) and drastically strengthen competitors.
There are pros and cons to consider when you choose your path. It will largely depend on products you produce, market, agility, etc. Thread carefully.
The Enablement
Manufacturer should launch a service (Ecommerce) and use their network of distributors as literal warehouses, creating distribution network!
Manufacturer taking orders globally, shipping out orders directly or from distribution partners, passing them the earnings they would typically achieve on their own.
Inverse “third party seller Amazon model” – it becomes “third party distributor model“.
Typical issues, and why would you do this…
Distributors don’t support your product with attention you require. Your product is one shelving unit in their huge warehouse. They don’t have resources or process to promote, market, and cross-sell, upsell, your products and thousands of other products – to give them all same level of attention – and let’s be real – some have higher margins than others – so which one do you think they will focus on the most?
Distributors can be selling products from your competitors. How can you be sure that all customers ordering your products and your brand are not being sold competitive products or worse quality products that are coming in from China with better earning margins?
Some distributors are better and some are worse at what they do – can you fully depend on every distributor handling your products with care? Does every distributor represent your product the way you’d want your product represented? Do they understand your product the way you do? Do your distributors have E-Commerce portals to make purchasing for consumer quick and easy? What about same day delivery? Do you think that they can invest and provide this service to your customers? Distributors should focus on one thing – having availability in range of products to deliver to consumer quickly and efficiently.
DISRUPTIVE idea for manufacturers to embrace: deploy E-Commerce portals, and use network of distributors as inventory pools.
All distributors together with your inventory – world wide mesh network of inventory at your fingertips – you take orders and dispatch deliveries. Use Technology!
As orders come in, either pass orders to distributors to fulfill if they have stock (if they decided to carry item – it will add incentive for them to do so) or ship out yourself. If you as manufacturer receive order from your large customers (OEM accounts) and don’t have stock to fulfill, you can leverage your distributor’s stock and ship it out until you are able to replenish your inventory. It comes with increased cost – but you have flexibility and in that to serve your “golden goose” OEM accounts with prime level of service.
Participating distributors are happy, all customers are very happy, and you as manufacturer will be very happy!
Distributors can continue selling same way they currently sell to all their customers, their business model remains unaffected and investment is negligible on their part. You must simply ensure that distributors are at ease and trust is established that you don’t cut them out of this loop. Although non-participation would likely lead distributor to turn to your competitor, their sales would quickly get overshadowed by this crowdsourced network built to serve customer and provide much better service than competition.
Endless Possibilities
Want to bring in smaller manufacturers into your group that create your products to offset some crunch time? Perfect!
Want to include products manufactured across the world globally at cheaper costs into your product sales strategy to maximise on profits? Let supply-chain planning AI do it!
Open APIs as service to others who wish to become part of your club – assign them roles – setup real-time transparency and a truly global business.
Use your portals and make sales of your pooled inventory – provide some percentage profit in kickback or set rules based on regions, volumes etc.
Set prefered distributors and manufacturing facilities as key partners – treat them as resources and allow them monopolies on certain regions. Word of warning – be careful in doing this as it quickly diminishes competition between dributors and does not serve your customer even though it might serve your pocketbook in short-term. Creating open system only to close it up as walled garden can have some benefits if used as stepping stone towards completely open system of the future.
Add products from other manufacturers – integrate them to cross-sell or upsell scheme – sell together with your product line – taking on a role of virtual distributor for these other manufacturers – without need to hold any of their inventory.
Competition would completely and quickly lose market share, unable to react and provide such quick and effective service. Possibly asking for permission to join your team of “manufacturers” in order to survive.
You can also tap into third party B2C E-Commerce platforms with an APIs such as Amazon, or Alibaba or eBay, etc. extending your reach and increasing margins significantly.
Now you can truly focus on Marketing as a manufacturer!
You can take Marketing online also! Not just trade shows or trade magazines! There are many great online tools that can help you pinpoint people you are trying to reach. You can roll over competition with great success – because guess what!? Your competition does not market to end-consumer at all!
Working together with distributors and building this network together as partners – as manufacturer you get to standardise your sales pitch, develop best strategies, communicate, see what works and what does not.
You receive feedback as manufacturer, and you become more informed and a smarter manufacturer. Enabled by real-world relevant data – it allows you to pivot at any time with new found ability to interact directly with customers.
Added Benefits
As B2C distributor you need to be ready! There is work to be done!
There are so many other distributors out there that are shuffling same products – what sets you apart?
Your focus on customer and your ability to provide amazing value-added services.
Would you like a preview of what a distributor looks like that sells multitude of products using APIs, or EDIs, E-Commerce integrating their ERP systems with manufacturers, enabling sales through secondary sales channel partners (if distributor is large enough)?
Look no further than Best Buy. Best Buy sells products they purchase from manufacturers. They also enable smaller distributors (shops) to sell through their online (Ecommerce) service as secondary stock option for their customers.
“NEW” Best Buy almost sounds like Amazon with brick and mortar stores! … NOT!
I’m sure everyone thought this would be an amazing idea when it was pitched in some boardroom ten years ago.
Best Buy thinks they can compete with Amazon having brick and mortar stores and being creative allowing third party sellers on their platform – that their platform will catch on… Problem is – they are not focused on platform, customer or customer experience.
Best Buy might say they are customer and customer experience focused. It might seem they are with in person professional service at store. Service with real person and a smile. It’s better than Amazon!? No? IT IS NOT!
This is when having real-world applicable BS meter would come in handy. It all sounds great on paper but reality is is that we get better information about a product from reading hundreds of comments on Amazon and looking up other review websites about a product to see if it fits our needs. Salesperson at Best Buy can not provide this service and they never will – they are meant to sell – not tell you that product sitting on their shelf catches fire!
As for the platform – Best Buy has no sales platform backed by value proposition like eBay, Alibaba or Amazon. It’s an add-on, or afterthought. It’s a slow death model which will become very evident the moment “recission-like” symptoms hit our economy. O yeah, just to throw another company under the bus – Costco will have same issues if they don’t adapt.
Best Buy is trying to play soccer, basketball, and golf with a pingpong ball – because that is all they know! Today company has to be very good in multiple competencies – Tech is one of those.
What’s the future for Best Buy?
Now imagine if Apple, Cannon, Beats, Samsung as manufacturers had direct integration with Best Buy to sell their products on their websites, and product gets delivered to you next or same day anywhere within 50km of Best Buy store. Not having requirement as consumer to engage with Best Buy at all! Unless it decides to become product review site – Trip Advisor like or small showrooms leased out by Amazon or Apple or Samsung – which it already kind of is! See where I’m going with this – Best Buy is being pushed into a corner by market, not willingly, because their core competency was replaced, disrupted and is no longer required in market! They are reinventing themselves under the table, but fear to completely step away from their business model and reinvent themselves. This is opportunity for startups. Have you seen
Have you seen the empty malls lately? If your city used to have one every for every 10-5km they are likely empty. Does no one get what’s happening? Or are we too scared to come to terms with reality?
OK so, can you now see the actual role Best Buy will fill in the future?
As more manufacturers adopt this model and integrate with distribution partners in these symbiotic relationships – world will change. If you as a manufacturer, or other supply-chain based entity, are not ready to pounce and own a piece of it – find your core competency in new world – embrace reality – or you will die off.
What’s the catch?
If you are looking for Technology Exec in Toronto area to join your group, check out my RESUME and give me a call. I wrote this. I know every aspect of process and Technology involved to get any company well on the way and ready to compete in modern markets.
However, I do plan to honor all my current commitments (you may find me happily employed depending on when you read this article). Regardless, I’m eager to hear from everyone that can use my help, and we can certainly discuss all future long-term plans.
