Several people who missed my presentation at the Industrial Supply Association in April asked me to provide a quick overview. It’s impossible to capture the entire 75 minutes into a one-pager, but here’s the general idea….
The industrial distribution landscape is likely to consolidate more rapidly than most people expect. Within a decade or two, large distributors will control about 80% of the market. The smaller distributors that survive will differentiate themselves by offering technical services not offered by the larger distributors.
This channel shift will have two profound impacts on suppliers. First, suppliers that do not offer uniquely different products will be forced to consolidate in an effort to establish scale sufficient to have leverage with larger distributors. Second, all suppliers will have to work exceedingly well with their distributors because more sophisticated distributors will simply not accept the level of partnering that suppliers provide today. To be effective with channel partners, suppliers need to build capabilities in 10 key dimensions:
- Strategy and associated actions
- Product offering
- Channel alignment and management
- Technical support
- Commercial arrangements
- Ease of doing business
- Tactical planning,communication and execution
Research by our company implies that most industrial suppliers struggle to exhibit these characteristics…and that will be problematic for them as distribution channels consolidate. For suppliers to improve, they need to build an understanding of what they need to improve. The best way to do that is for suppliers to ask their channel partners how they are performing against these dimensions in a structured, anonymous way then build a plan to improve. Suppliers that ask the questions and are willing to embrace their improvement opportunities are much more likely to thrive through the consolidation.