FUTURE OF DISTRIBUTION
What is the future of distribution? The advent of Amazon Business and two-day delivery has signaled the death knell for the distribution business. Will distributors be able to adapt to the changes rapidly and morph their businesses and their models? Or will the distribution business itself change or become extinct.
You can see some parallels in what’s happening with brick-and-mortar retailers. Retailers are losing business to online sales. Manufacturers are increasingly switching channels, and some have even taken the bold step of only selling online. Can you imagine a scenario when a valve manufacturer or a fastener supplier decides to sell only online through their Amazon Business store or something similar on Alibaba or Mercado Libre?
We live in a bipolar world where life works differently at home and at work. Sometimes it appears that the world turns slowly whilst we are work. Change comes slowly and the pace of change is often driven by competition. The notion that things have always been this way often drives the way we work. Materials management in an Enterprise is often the last function to adopt change rapidly
But with increasing participation of generation X, Y and Zr’s in the workforce the dichotomy between work and home is continuously being challenged. Companies will find it increasingly difficult to recruit participants to the work force if they let this disparity between work and home continue.
We must issue a purchase order (PO) at work to buy things and have to deal with the inefficiencies and approvals that our work practices demand. On the contrary we come back home, kick back and relax on our couch and with just a few keystrokes on our smart phone order supplies online for our home that shows up at our doorstep in 2 hrs. to 48 hrs. based on where we live.
Not too long ago I had the experience speaking to a distributor about poor deliveries and stock outs at a remote rural warehouse location. The response I got was that most of their parts are stocked at a large central warehouse. The parts make it to a regional warehouse on scheduled times during the week. Their local delivery guy picks up parts from the regional warehouse once or twice a week to bring it to their rural warehouse setting. The final leg of the delivery then happens from the local warehouse. So, the cycle time could be as much as seven days from when an order is placed. In today’s world you could pick the part from their central warehouse usually located in a big city and drive to the rural location in 6–8 hrs. You can envision flying a drone with the parts in much less time. I was flabbergasted when I heard that response. It just struck me that these businesses were not keeping with the times and the needs of their customers. Businesses today are looking to have just in time deliveries. No one wants to hold inventory, and everyone wants the parts to be there when they need it. You could probably use Amazon Business, Fed Ex, DHL, UPS, a drone or to get a part within a day or less. The logistics and associated costs and the lack of understanding of their customers’ needs and expectations is challenging the distributors business model.
Now why can’t the manufacturers start setting up a direct channel and have Amazon host their warehouse and sell their goods. I am sure that idea is slowly starting to take shape. Now one might wonder how one will guarantee the integrity of a part purchased online. Walmart has already demonstrated through its pilot blockchain project with IBM how they can reduce the traceability of mangoes from 7 days to 2.2 seconds. I can imagine a future where an online purchaser can use a blockchain based interface to trace the history of a product from a steel mill to foundry to machine shop to heat treat, plating and final assembly. In that world the manufacturers from across the world can make their products available for sale online through Alibaba or Amazon or Mercado Libre and use the distribution capability of these mega e-trailers. I wouldn’t be surprised if Wal-Mart and Target and FedEx and UPS and DHL pivot their business models this way. The Pharma industry is getting ready to implement this to meet the requirements of the Drug Supply Chain Security Act. Let’s hope the manufacturing industry is not waiting for an act of Congress.
Clearly the time is ripe for industrial manufacturers to get ahead of the game to start preparing themselves for the future and get their MTRs on the blockchain. I remember 25 years ago as a young engineer designing seat bolts that were compliant to the Federal FMVSS 209. This regulation was implemented as part of the Fasteners Act passed by Congress to ensure the material integrity of the seat belt bolts. This act was implemented after it was proven that poor quality seat belt bolts caused the seat belt bolts to shear off and caused multiple fatalities in automobile crashes. Imagine if blockchain based track and trace was available then. Full scale adoption of such technology would have helped us buy gray market MRO with confidence as we could have tracked the origins of our purchase easily.
How quickly can this track and trace be implemented? A large super e-tailer like Wal-Mart could get this done across their food supply chain within a few months. I predict that large and small manufacturers will soon find themselves at a loss if they don’t have this capability. OEMs and other large customers will soon start demanding this if they aren’t already doing so. Amazon Business or FedEx can probably implement such a system in short order. If only they can see the opportunity. The commercial opportunity of being the universal distributor is as big as the B2C market. Once they can tweak their models to separate their retail and commercial business models, we will start to see the large distributors feel threatened by these companies. Will the distributors survive? Can they develop the logistics capabilities that will let them compete against the Amazon’s and the FedEx’s. That’s the Million Dollar Question?
