Tech Investments at the Core of Distributors’ 2022 Growth Strategies

• Those with basic e-commerce capabilities look to move from plug-and-play to customized solutions. 

• Distributors are focused on building more robust online catalogs.  

• Artificial intelligence and machine learning are fueling distributors’ automation capabilities.  

The onset of the pandemic turbocharged the development and deployment of e-commerce sites as customers sought to conduct more of their business online. Don’t expect this to slow down in 2022, say respondents to MDM’s annual Trends survey. Another driver for e-commerce sites, as well as the overall use of digital tools, is the evolving customer base. Whether placing an order, checking inventory, or looking for an invoice, younger generations want to conduct their business online.

While developing e-commerce is a big-ticket item, there’s also a subset of technologies that distributors are embracing heading into 2022, including customer relationship management (CRM), personal information management (PIM), vendor management inventory (VIM), as well as automation capabilities using artificial intelligence and machine learning.

As is the case with many new technologies, there are also cultural hurdles to overcome as family-owned distributors move into the digital era. IBC’s Scott Bebenek, vice president for Industrial Buying Group, says that one of the biggest challenges for IBC is encouraging members to streamline their manual process while establishing an online presence for their businesses. “In 2019, I was trying to put a centralized database together for them so they could easily access rich content and image supplier data to build their own catalogs,” Bebenek says of working with IBC members. “I was just getting lukewarm interest from quite a number of the members. Other ones looked at this and said, ‘This is exactly what we’ve been waiting for.’”

Some of the reasons cited by IBC’s members for not embracing digital processes at the time included not wanting to be like Amazon, which they felt meant the loss of a personal touch with customers, and not wanting to build an online catalog due to being close to retirement. 

“These are misguided opinions,” Bebenek says. “More and more, end users are wanting to do business the way they want to do business. From a resource and financial standpoint, it’s virtually impossible for a $50 million or less distributor to build a robust catalog economically by themselves.”

The distributors that were reluctant to embrace online catalogs in 2019 now stand to benefit from the more robust, centralized PIM database that IBC is building. The result of implementing the online catalog this year is now IBC’s members can put in a plug-and-play catalog on their site. But plug-and-play should not be the end of the road, he adds. “As long as they agree with me that that’s not the road you want to stay on, then I would be the first to say that it’s better than having nothing at all,” Bebenek says. “But it’s not the road you want to stay on because you’re feeding a two-headed monster for one. And secondly, e-commerce is not about having an online site that looks like your competitors’ around the corner.”

In addition to the work on e-commerce, Bebenek says IBC has done an ERP upgrade to support the national contract side of its business as well as work on electronic data interchange (EDI). “The e-commerce gives them the ability to offer an online store to their customers,” he says. “And then with EDI, we have a kind of automated PO-to-payment process for them to order from suppliers. It’s to reduce manual processes internally and let their ERP system do the purchasing for them.”

For IBC members who were reluctant to get their feet wet last year on building out their e-commerce capabilities, this year has been an opportune time for them to start having conversations with their customers about how to generate more revenue going forward. 

“This is a perfect example for you to go back and re-engage with your customers, for two reasons,” Bebenek says. “One, you’re going to find out how much they’re buying online when you start asking them questions about online sites that they like, and features that they like. You’re going to learn about how much you’ve been missing. And secondly, because they’ve been doing it, they’ll tell you exactly what to build.”

Going into next year, Bebenek and IBC will focus even more on increasing the engagement on distributors’ networks by continually encouraging them to use the digital tools to streamline manual processes, establish online branches and differentiate their businesses from the competition. 

For distributors that have their e-commerce sites up and running, the initial success of those platforms has bred the need for even more capabilities going forward, according to Matt Christiansen, president of Distribution Data Solutions.“With the ones who were already online, what we’re seeing is they’ve been tasked with doubling their online catalog or tripling their online catalog,” Christiansen says. “Before, we always complained that [e-commerce] was moving too slow. I still think it’s moving a little too slow, but the adoption is increasing.”

Christiansen says even small-to-medium-sized distributors are doubling down on their e-commerce investments because they’ve seen an increased number of use cases. 

Mallory goes deep on CRM

Updating, improving and implementing CRM software is a recurring theme in MDM’s survey. With CRM, distributors are looking to streamline sales processes while giving managers more visibility into the sales pipeline. Ultimately, the hope is that improved CRM will lead to increased conversions that will grow their revenues. 

“We’re deep in the process of CRM,” says Mallory’s Andy Mitchell, vice president of sourcing and supplier relations. “Right now, we’re fine tuning it as a management staff. We’re going to be rolling it out this fall to our sales reps. So, we do see it as a bit of a game changer.”

The new CRM will also include some automated marketing capabilities that will help Mallory, an industrial and safety distributor, push more marketing into specific customer segments or geographic areas. 

“We think it’s going to be a pretty big change not just to better manage our sales team. It will really help engage our customers more and find out if we can continue to grow within our existing business,” Mitchell says. 

Mitchell says that Mallory is also applying a new program for inventory to enable the company to provide a higher level of service to its customers while also tightening up its inventory. “Through some acquisitions, we did inherit a fair amount of inactive inventory that we’re working on liquidating,” he says. “So, we have a large focus on doing that. That will of course, make our distribution centers leaner and meaner and free up cash. 

“I don’t think really, overall, we’re looking for massive cost reductions. If anything, we’re going to continue to invest in our business. We’re continuing to look at ways that we can automate things using EDI in the order processing with our customers. I think that’s something that the whole market is looking at.”

Artificial intelligence and machine learning on deck for automation

Another tech trend identified by survey respondents is the use of artificial intelligence and machine learning to automate back-office functions or improve customer service operations. While there has been some hue and cry that automation will lead to a reduction in the human workforce, automation could help alleviate the ongoing labor shortage issues. 

Matt Christiansen, president of Distribution Data Solutions, says AI and ML could also be used by distributors and manufacturers to categorize product content more quickly for their e-commerce sites. AI and ML can speed up the categorization and normalization of product data for manufacturers.

“The huge bottleneck for distributors is categorizing the products into their kind of unique taxonomies,” Christiansen said. “Distributors have hundreds or thousands of manufacturers that they work with and no one delivers the content in a uniform format in North America.” 

AI and ML are already widely deployed by some large distributors. Amazon Business in particular has been able to tap into both AI and ML based on the internal work Amazon has done for years. “If you look out two to three years, I think we’re going to see increasing acceleration of the trend toward backoffice automation, customer service automation, and AI solutions,” says Andrew Dun, president of Amerisafe Group. AI will drive more efficient order to invoice to cash processes for distributors and allow them to operate their businesses with fewer employees, says Dun. 

But AI and ML may not be a good fit for all distributors at this point due to the size and lack of resources by some of the smaller companies. “We try to embrace some of the areas out there like AI and virtual reality,” IBC’s Bebenek says. “I haven’t quite ascribed into those having quite the impact on the industry right now. We have to get going on e-commerce right now so I’m not overly concerned with the immediacy of those trends.”