How today’s technology investment will drive tomorrow’s distribution business models

March 6, 2017
With value-added services and micrologistics centers emerging as tantalizing new business opportunities for distributors, the annual industry survey by IDC Manufacturing Insights is pointing to mobility, analytics, cloud, and social business as the essential technology investments that will turn the potential into profitability and growth.

Those technology priorities haven’t shifted much in the last couple of years. But they’ve become steadily more urgent in an intensely competitive marketplace that is transforming before distributors’ very eyes, IDC reports in its Wholesale Distribution 2016-2017 Investment Guide.

“In addition to the traditional services provided by wholesalers (sorting, assembly, break-bulk, repackaging, and distribution), we see wholesalers expanding to offer services such as light manufacturing, offering direct-to-consumer fulfillment, and supporting trade promotion and assortment planning,” IDC reports, based on its survey of CIOs and IT business leaders with 146 US-based distributors.

“While the core of the business remains, these value-added services are providing wholesalers new avenues to generate revenue, and they typically are doing so at a higher margin than the traditional wholesale services,” where returns typically cluster in the two to five percent range.

IDC also sees scope for distributors to push beyond the traditional business model, creating “micrologistics” centers to break up the full pallet before it ever leaves a manufacturer’s facility. While manufacturers might try to take that step on their own, “it is also possible, perhaps likely, that the role will fall to external partners like third-party logistics providers or wholesalers that are used to handling large volumes of smaller orders.”

It’s a stunning vision. And it all depends on software.

“For the wholesale industry, we see investment in modern technology as a critical element in both achieving the identified initiatives and also as a lever to delivering the value-added services that are helping drive revenue and profitability for the industry,” IDC reports. Other industries are increasingly leveraging “digital transformation initiatives, Internet of Things (IoT), advanced analytics, cloud, 3D printing, and even robotics to improve their operations,” the report states, and “the incentive is there for the wholesale industry to do the same.”

Read more about IDC’s Wholesale Distribution 2016-2017 Investment Guide.
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