Playing To Win?

For several years now, change has been the name of the game in the industrial distribution business. It’s just not as stable and predictable as it used to be, and this has forced distributors to ask themselves some tough questions – first and foremost among them: Are you playing to win? Or are you playing not to lose?

If all you want to do is survive, just batten down the hatches and hope that 2025 goes well enough for you to stick around another year. But if you want to thrive, you’ll need to make bold moves and take upcoming challenges head on. Here are some of the top concerns for distributors in the coming year and my advice for addressing them:

1. Economic uncertainty, including market fluctuations and inflation. The most important thing you can do in the face of an uncertain economy is ignore the noise and focus on the customer. As frustrated as you may be with inflation and supply chain issues, remember that your customers are facing economic challenges too. Talk to them about their economy-related pain points and figure out what your company can do to help address them. As much as it’s a problem to be solved, for industrial distributors, an uncertain economy is also an opportunity to demonstrate and provide value.

2. Supply chain disruptions due to ongoing labor shortages, geopolitical tensions, and transportation issues. While the B2C channel has mostly recovered since the onset of the COVID-19 pandemic nearly five years ago, the B2B channel is still struggling with supply chain snags. For example, the lead time for an order of 400 KVA transformers can be as long as 24 months and you can’t even get a price until a few months before shipment due to copper price fluctuations.

As a distributor, your move should be to look at your supply chain and turn your most reliable suppliers from vendors into partners. In other words, which suppliers are really worth hitching your wagon to? Once you’ve figured that out, start strategically increasing your sales for those valuable partners. Gather and share data related to new and core products that suppliers typically struggle to get good intel on. The more attractive you can make your organization to your partner suppliers, the more likely you’ll be able to lean on them during times of uncertainty.

Even the best suppliers will occasionally run into supply chain issues, of course. But strong strategic partnerships with suppliers who are good at controlling what they can control will always pay off in the long run.

3. The urgent need to invest in emerging technologies and make more data-driven decisions. Distributors have greater access to more data than ever, and it’s foolish to not use that data to transform your sales model to be more efficient and productive. Any technology you invest in should in some way support that new model.

If a distributor still has general line sales reps with a geography that they cover alone, they’re way behind the leaders in the industry. In fact, they’re on the verge of becoming a minority. Many distributors no longer have any field salespeople at all, instead leaning on branch managers, assistant branch managers, business development reps, and a team of inside sales reps to own customer relationships and drive efficiency. These firms are not eliminating the work that field sales rep did; they have just specialized the roles and amplified them with digital so they are both more effective and cost less.

The opportunity costs of not investing in new enterprise technology are significant. Geography-based sales teams that work on commission cost too much money and don’t produce enough to justify the expense. A strategically deployed sales team where the field rep transitions from a Lone Ranger to becoming the point of the spear that uses intelligent selling tools can sell much more by segregating market-making from market-serving. And with early adopters of such tools already seeing returns, the gap between the leaders and followers is only going to get wider. If you haven’t made a move on tech in 2024, you better get ready to make a big one in 2025.

4. Experienced workers continuing to retire as younger people with much different expectations enter the workforce. Baby boomers have been retiring in droves, and even the youngest of that generation are rapidly approaching retirement age. All that valuable experience is gone, and it isn’t coming back. Which means that if you want to tap into the current labor market, you really only have one choice: Throw out the employee handbook and invest in people and talent.

If you continue to operate under dust-covered policies, when taking leave time was frowned upon, you’ll have no hope of attracting (much less retaining) the best young talent. They value flexibility, opportunity, and work-life balance, and trust me: They don’t think it would be a great privilege to work for you. They’re not “entitled”; they simply know what they want, and they’re willing to wait until a company offers it to them. You can cling to your old employee handbook, but you’ll watch all your forward-thinking competitors scoop up the most capable candidates while you do it.

A friend of mine recently decided to go into consulting and sold his distribution company for a very impressive sum. When I asked him how he got such a great offer, he smiled at me and said, “Mike, what I did is, I got the very best people. And because I got the very best people, we got the very best customers. And when I had the very best customers, I could have any supplier I wanted.”

And how did he get the best people? It was by meeting them where they are and understanding what they want out of a distribution job.

5. Shifting customer demands. Just like with your employees, you won’t get anywhere if you don’t listen to your customers. Do some customer journey mapping by conducting formal interviews with customers and using what you learn to improve your processes. The basic steps of customer journey mapping are:

1. Set a goal for what you want to learn and plan for who you’ll interview.

2. Create a brief list of questions designed around what each customer values.

3. After you’ve done the interviews, build a list of pain points, focusing on the biggest areas of friction.

4. Map out the steps for lean processes that will address those pain points.

5. Implement your solutions using as much automation as possible.

6. Plan to do it all again in the future because customer needs will inevitably change.

Don’t assume you know what the customer wants, even if they told you at some point in the past. The dominance of e-commerce has created a generation of B2B buyers who expect the same level of convenience and personalization they get as consumers. When their needs change, they expect distributors to be able to meet them. The only way to do that is by asking them explicitly and adjusting the way you do business accordingly. Go ask ChatGPT how to do journey mapping and look at the thousands of image examples on Google.

6. Increasing consolidation in the marketplace. When considering your competitive positioning in a market where larger firms are buying up smaller ones and private equity groups are adding more distributors to their portfolios, think about the long-term growth of the company. You’ll need to be the right size for what you’re trying to do. Are you too small to scale? Do you need to be a part of something bigger in order to scale? If you miss your window to grow, you need to pivot and prepare your business for sale a couple of years down the road. Missing your window isn’t the end of the world, but if you ignore it and do nothing, you’ll arrive at a dead end with a non-investible business.

DISTRIBUTION IS STILL A PEOPLE BUSINESS

2025 is all about defining your game plan, being proactive, and avoiding doing the same old same old. Recognize that despite all the changes, distribution is and will remain a people-business. It’s about relationships. And if you’re doing it right, it should be fun. Sure, you might get knocked down sometimes, but all you have to do is get back up and fight back. That doesn’t mean sitting around worrying about costs; it means creating opportunities for your employees to grow in their careers and your company to grow in the market. Relationships built around trust are still required but they are no longer sufficient to earn your share of wallet.

Finally, if you’re reading this, I want you to remember that what you do is essential. The distribution industry touches everything out there, delivering what people need to do everything from building skyscrapers to performing surgery. So, when you play to win, you’re ensuring that the rest of the country wins, too.

INDUSTRIAL SUPPLY MAGAZINE

The November/December issue of Industrial Supply magazine features an in-depth cover story about Kimball Midwest. Plus, we're featuring articles by contributing writers Dirk Beveridge, Frank Hurtte, and Mike Marks, as well as interviews with numerous product and distribution industry experts.