Inflation has hit wholesale distributors hard and the interest rates intended to stop inflation continue to influence costs, financing and resources. Wholesale distributors need superstars to beat inflation with optimized pricing.
Superstar Wayne Gretzky dominated professional ice hockey for over 20 years. They called him “The Great One.” Many business leaders still follow his vision: “Skate to where the puck is going, not where it has been.” That’s easier said than done for folks like me, trying to skate and score in today’s economics.
You might remember a pre-pandemic economy as an era of financial stability, low unemployment, positive growth and global supply chains. I’m sure there’ll be no return to that “normal.”
As those indexes collapsed, governments flooded providers and consumers with financial incentives. This spending solved some problems and motivated some reforms. However, it also triggered continuing inflation. Professional economists say this inflationary ecosystem may be our new normal.
Here’s the problem
Inflation affects wholesale distribution directly and indirectly. It increases the prices charged by manufacturers and the cost of day-to-day operations. Inflation drives distributors to adjust pricing to dynamic trends in customer demand and competitor marketing. It’s hard to see “where the puck is going.”
Noted economist Alan Beaulieu told steel executives this past August, “Inflation will be with us for the rest of the decade, at an on-again-off-again capacity.” At an October meeting of The Association for Manufacturing & Technology, Beaulieu dug deeper. He sees good news and bad news in lessons learned during the pandemic.
- Companies see value in shortening and tightening the distance between maker and buyer, securing growth in manufacturing and construction.
- Individual companies will increase compensation as they compete for talent.
- Increased interest rates discourage financing, lending and investment.
- Unemployment will increase as inflated prices reduce customer demands.
The issue for wholesale distributors lies in ensuring and sustaining profit margins in an economy flattened by shallow phases of inflation and recession. Beaulieu and other leading economists insist, “The only hope for companies to survive is to drive efficiencies by adopting automation and other advanced technologies.”
Here are the facts
It’s getting harder to shoot for the goal. A company’s success largely depends on effective decision-making. Quality decisions depend on accurate, timely and accessible information. But the context surrounding these decisions has changed.
You might find signs of change in The American Supply Association (October 2023) survey of 30,000 plumbing contractors. I know this represents a narrow market niche, but the survey results include valuable takeaways:
- Larger and commercial contractors still like to deal with Outside Salespeople. However, contractors aged under 45 prefer working with Inside Sales Support.
- Product availability and dependable delivery are the top two reasons survey respondents select distributors.
- Contractors have increased orders by email and online, encouraging distributors to increase automation that reduces time-intensive manual processing.
- While call-in phone orders lead ordering, new-generation buyers have turned to website and mobile B2B channels.
- Contractors expect more from distributor ecommerce. They want website access to product information, specific pricing, and real-time inventory.
These challenges urge savvy wholesale distributors to pursue new strategies if they expect to capitalize on new opportunities.
Traditional wholesale pricing strategies add a desired profit margin to the cost of manufactured goods plus the overhead incurred. This absorption pricing method needs more flexibility and market awareness.
Tomorrow’s distribution business requires dynamic, differentiated capabilities. It takes optimized pricing that recognizes how different buyers will pay different prices for the same product in various contexts.
Price is the dollar customers willingly pay. However, direct and indirect marketing conditions will affect their “willingness” to pay. Distributors need the talent, tools and technology to determine agile pricing in synch with marketing, purchasing, and competing trends.
The solution is here
Rock star talents have the experience, skills and willingness to take risks. A rock star doesn’t want to lead a garage band. There is no time to waste on a cover band devoted to last year’s hits. This year is the time to act because 2025 could be too late.
The global economy will accelerate if supply chains survive today’s geopolitical stressors. However, the growth will drive purchasing and labor costs. Now is the time to employ new operating efficiencies and pass expected increases on to customers. You act proactively now or find yourself reacting later.
We all know that technology can be an excellent tool for managers. Surprisingly enough, not every leader thinks this way. Instead, they continue doing things the old way because “that’s just how you do your job.”
Technology is an integral part of decision-making and problem-solving. For wholesalers to succeed, they must use advanced technology and data analysis to develop pricing solutions.
For example, artificial intelligence and machine learning can optimize prices that outperform competitors. Agile pricing will enhance the buyer experience while increasing profits. Price optimization triggers sales recommendations that ride the waves of supply chain irregularities, erratic inflation and marketing trends.
A real-world example
If you’re a distributor, you know how important it is to keep your costs up-to-date. But, with the recent inflation in the U.S. and Canada, receiving list prices from vendors has become more frequent and time-consuming. And let’s face it, manual processes just aren’t cutting it anymore!
What about having a fully automated process with an algorithm that takes data from different vendor files and converts them into one file you can import easily into your ERP system? No more wasting time and labor on manual updates.
Rock stars make organizations more efficient and successful by keeping costs accurate and the business agile and flexible.
You, too, can be a rock star
A wholesale distributor’s success largely depends on how effectively it can gather the information locked in its data. Economists warn of impending and continuing pricing challenges.
You can also be a rock star distributor if you act now before the next financial crisis hits. You must move to introduce process efficiencies, automate in the face of labor shortages and optimize pricing ahead of the storm.
Nelson Valderrama, CEO of Intuilize, is a skilled data-driven strategist focused on boosting profits for mid-size distributors. With 25-plus years of experience in all aspects of the wholesale industry, Valderrama continues to support businesses in discovering hidden competitive advantages and leveraging data's potential in the modern Digital Economy. Nelson has pioneered AI-driven pricing and inventory optimization, providing decision-makers with accurate, visible and real-time-ready data adjusted to the market, customer and competition. He has collaborated with renowned companies like GE and Private Equity firms. And he is ready to help your distribution business thrive. You can reach him at firstname.lastname@example.org or visit www.intuilize.com for more information.