For years, top Hi-Tech industry distributors like Arrow, Avnet, Future Electronics etc. have been the omni-channel bridge between industrial customers and manufacturers. The industry that has always been plagued with the challenges of wafer thin margins, counterfeits, obsolete components, and compliance is now waking up to a new possibility. Increased digitalization, market consolidation, and changing customer needs are impacting the B2B distribution business and changing it from the way it was run traditionally.
In this paper, we’ll look at how these shifts are bringing about a business model transformation in the industry and how industry players will need to leverage IT solutions to stay relevant and lead the next wave of growth.
The hi-tech distribution business model is changing
From fragmented, local markets, today top 50 players hold 30% of the global market and they are looking at new products, new markets, and value-added sales as growth drivers . In addition, there has been a rise in marketplaces, like Amazon, as a key distribution channel for the hi-tech industry. These new players are also bringing in more digital maturity in the industry that was lacking in traditional industrial distributors.
In addition, the customer demand of a B2C like experience in B2B purchases is also creating a need for procurement to become more simplified, consolidated, and transparent. That means hi-tech distributors need to have a wider product range, available easily in streamlined operations, or lose out to players who do. The three vectors of change are pushing the distribution industry towards digital transformation and IT will play a key role in driving this change.
At the same time, a hi-tech distributor business model is very different and is largely partner ecosystem driven. End customers expect near-real time pricing updates and relevant certifications, and the distributors must address these requirements and guidelines. This usually means extremely thin margins, and puts the distributor focus on sales volumes and improving operational efficiencies.
Also, as the hi-tech industry itself is moving to a servitization model, the distributors cannot continue to make one time sales. They have to shift and adapt to this model and look at recurring revenues and subscription based solutions.
These shifts are giving rise to many questions for the industry:
- How do we drive more revenues from digital channels and become a coveted marketplace for end customers?
- How do we improve customer and partner experience?
- How do we make operations more streamlined and cost effective?
- How do we manage optimal inventory and create categories for maximum gain?
- How do we drive the end-to-end process and drive configure-price-quote (CPQ) in real time?
- How do we use data to make better decisions and recommendations?
Key priorities for hi-tech distributors
To stay tuned with market changes, hi-tech distributors need to focus on some key areas:
- Drive more revenues from digital channels and become a coveted marketplace for end customers: Study ecommerce models like Amazon Business to adopt best practices. Incorporate a new value proposition for industrial marketplaces to change the game and set new expectations from B2B customers.
- Focus on annuity business: Align with suppliers and shift to recurring revenue based business model. Invest in building the right E2E solutions to provision, meter, and bill for recurring revenues.
- Create a seamless experience for customers: Become a one-stop shop for the entire CPQ process and make it touchless and seamless for improved experience.
- Boost partner experience: Make white labelling end customer services, onboarding, renewals, revenue recognition, and cross sell/ upsell easier via partner friendly portals. Create better, more flexible back office systems to support dynamic changes in partner offerings such as pricing changes, while being cost efficient to maintain profitability.
- Maintain pricing accuracy: Sensitize systems to frequent price fluctuations by connecting with vendors in real time via APIs. Configure discounts and rules accurately.
- Run marketing, sales, and operations optimally: The need is to create seamless means to connect with vendors and customers, run campaigns, and deliver white labelled sites faster. Become a marketplace that is so much more than just e-commerce and more of an E2E experience.
The role of IT in enabling this shift
IT can bring in solutions that enable distribution industry players to meet these strategic priorities. Understanding the need to capture incremental efficiencies and drive seamless experiences, most distributors are making significant progress in technology-led transformation. The demand is for IT platforms that can deliver a seamless experience from the time an order is entered to when it gets converted into revenue. They are also working with IT partners to evaluate and implement the right platforms and tools and put in place the right processes that can drive this transformation for them.
Data and analytics can be a big game changer for distribution. Data-based insights can help distributors understand improvement opportunities in their spends and processes, refine and streamline their product assortments based on customer and competitive insights and keep their offerings aligned to market needs, and negotiate with manufacturers and suppliers for volume discounts and better pricing to improve margins. Data can also help distributors capture user behavior and offer intelligent recommendations. Tracking and monitoring systems can also help deal with the challenges of counterfeits and obsolescence.
AI and automation could similarly improve spend management, onboarding, and contracts management, and can significantly improve the efficiency and experience of partners and customers. In addition, streamlining and outsourcing non-core activities like procurement, HR, Finance, and IT services could free up a lot of administrative spend and improve overall efficiency of the system.
Toward a digital and resilient future
Digital is the way forward for the distribution industry if they want to stay relevant for their partners and customers and not lose out to new competition or emerging direct-to-customer models. Technology will be crucial in defining this new path forward and shaping interesting partnerships between hi-tech players and distributors.
Where do you see the industry going? How can they leverage technology? To learn how Wipro is helping hi-tech distributors deliver transformation, please reach out to us at email@example.com.