Untangling complexity in distribution systems
To manage the increased complexity within distribution and logistics, companies are turning to creative technological solutions to help build resilient businesses
Oleg and Elena Dmitriev were unwinding with a glass of red inside their Edinburgh home when they dreamt up a plan to launch their own premium wine business. They spent the following months sourcing suppliers across Italy and coordinating with distributors, with the aim of renting two shops, one in Edinburgh and another in London. Then disaster struck.
As the pandemic spread and high streets turned into ghost towns, the husband-and-wife duo realised the costs of running the shops, paying business rates and working with distributors were simply too high to turn a profit. They decided to pivot and launch an ecommerce business, with the aim of becoming the best online Italian wine merchant in the UK.
As well as saving money on running physical stores, cutting out the traditional distributor was key. “We work directly with small family-run Italian wineries; there is no middleman involved,” says Oleg Dmitriev. The pair also invested in a third-party fulfilment centre, while Oleg Dmitriev has used his expertise as a software developer to create an automated CMS that takes care of orders from their online store and communication with their fulfilment centre, enabling him and Elena Dmitriev to focus on developing the business.
The Dmitriev’s story is a window into the new and complex world of distribution. Traditional distributors that bought from manufacturers and sold to retailers or end users, such as hardware firms, are facing huge disruption from the rise in ecommerce businesses, and online marketplaces such as Amazon. They also face the threat of disintermediation from manufacturers and retailers that are delivering directly to consumers via online stores.
These disruptors are using AI and cloud technology to replace distributors, cut costs and boost profits. Cutting-edge ERP systems enable distributors to run their businesses on one single platform, facilitating a host of key functions, for example orders, invoices, POs and inventory management. Historically, these systems were hosted on company premises but cloud technology is changing that and giving a new era of tech-savvy distributors an advantage over their traditional competitors, many of whom have been slow to respond.
Ian Heller, co-founder and chief strategy officer of Distribution Strategy Group, conducts research on the latest disruptive trends in distribution and advises leaders how to respond. “I tell distributors that they need to have a state-of-the-art ERP if they’re going to compete and there are lots of good companies out there who can deliver that,” he says. “My view is that everything is going on the cloud, if you’re a distributor that is trying to hang on to this on-premises model, you're making a mistake.”
Heller says those distributors that adopt cloud technology stand to reap a host of benefits “You can have mobile access to your ERP wherever you are, massive data storage, super-fast processors and the other big thing is data security. Who would you rather have looking after your data – Dave from IT who has done a couple of courses or a software company with PhD-qualified experts who run data security for big data centre owners?”
Many distributors are adopting hybrid business models to provide a wider range of services, for example kitting, assembly, light manufacturing, rental, servicing and subscription billing to reduce the risk of disintermediation. Infor, a multinational software company, is supporting distributors that have undergone this transition though cloud-based tech. CloudSuite Distribution Enterprise is an ERP solution that handles this array of value-added services in one platform, so that distributors can quickly change their business models and then grow at speed.
Who would you rather have looking after your data – Dave from IT who has done a couple of courses or a software company with PhD-qualified experts who run data security for big data centre owners?
Fetim Group, a 103-year-old distributor of home improvement products, delivers to more than 40 countries from its distribution centre in Amsterdam. The company recognised the need to innovate and digitise to avoid losing market share to online marketplaces like Amazon and ecommerce businesses. For much of its history, Fetim was a B2B business, but five years ago the company began to sell individual pieces to individual consumers, who now make up a large share of their annual sales.
The strategy shift created a big challenge; the company had to adjust its entire software and logistics system at speed to cater for this new demand. Fetim was an early adopter of Infor’s cloud technology solutions. Previously, each of the company’s operational warehouses had individual IT centres and staff, but cloud tech enabled the company to centralise that entire operation in its Amsterdam central office and save a large sum of money in the process.
By digitising distribution and handling, Fetim has also been able to use ERP tools to optimise warehouse management, inventory levels and product forecasting, while boosting visibility of stock across the entire supply chain so they’re in sync with suppliers and customers. The result has been the creation of a high-speed fulfilment service to individual customers that demand a premium B2C online service and a growing, thriving business.
Speed is a continued challenge for distributors as they bid to keep up with the pace of change in technology. Old-fashioned ERP systems required major migration every two to five years; a process that was both time consuming and costly and required the input of key talent. But modern cloud ERP systems deliver monthly updates that are swift and non-disruptive, much like the regular software upgrades on smartphones.
Cloud technology offers distributors a portal in which to rethink and simplify existing systems and add value to their relationships with suppliers and customers. But that alone won’t be enough to halt the relentless march of disruptive online marketplaces and the risk of disintermediation as they continue to eat up market share with a simplified distribution model.
ShelfNow is an online distribution marketplace that cuts out traditional distributors by connecting manufacturers and buyers directly. Artificial intelligence enables the platform to suggest potential partnerships with high levels of accuracy thanks to an algorithm that quickly and continuously learns the wants and needs of each company, much in the same way Netflix suggests movies based on a user’s viewing history.
Distributors are investing in their technological capabilities
Most important investments (out of 5)
Infor and MDM, 2021
ShelfNow’s founder, Philip Linardos, says small- and medium-sized businesses are turning to the company to solve two key problems with traditional distribution. “The current distribution model is outdated,” he says. “SMEs often find it impossible to access mainstream distribution networks and even when they are able to. It costs too much money to leverage and they are not able to make enough money to stay in the game.”
Linardos says distributors have also neglected some retail and food service companies that don’t want to source products from big manufacturers. “Wholesalers are limited in terms of what they can offer customers that want to purchase from small, medium sized brands, new companies, and innovators,” he adds. He says ShelfNow’s tech has resolved inefficiencies not addressed by distributors. “Tech has enabled us to innovate the old distribution model and cut costs. It’s a much fairer and [more] efficient system.”
Distributors now face a dilemma over the course of action to take to stay relevant, add value and meet the changing needs of suppliers and customers so they can continue to grow long into the future. “Distributors can no longer just buy and sell goods,” says Heller. “That’s not sufficient. And if that’s all that you do then you’re very vulnerable.” Behind the scenes, distributors are deciding what to do next to survive and thrive in this new era of disruption.