Here’s the thing for every distribution business, regardless of the product involved: this is a line of work which absolutely depends on efficiency and accuracy. In distribution, margins are typically thin. If an order is botched and has to be sent back or amended, it means additional handling and freight, and that can mean the difference between profit and loss.
Those new to New Zealand (yes, we are a nation of immigrants!) are often surprised by just how fragmented some vertical markets are in a country of around 5 million people. The IT service provider industry is just one example, where there are a multitude of small operators, all of which are quite capable of running profitable business. Distribution, which is an activity taking place within the IT sphere (for both hardware and software) itself is fragmented, with a very large number of niche operators each addressing highly specific portions of the market.
It’s a similar story across multiple other industries, with a high number of relatively small organisations handing the distribution of various products, facilitating easy access to these products and services by the Kiwi public.
This is also why distribution is, and has always been, a volumes game: the value added by a distributor is in holding stock and making products available when and where they are required. Doing this effectively requires warehousing space, it depends on accurate demand planning and it absolutely depends on highly efficient logistics. With thin margins, volume and, I’ll say it again, accuracy and efficiency, is where a sustainable profit is made.
When the entire nation consists of 5 million people - the size of a large city – achieving high volumes has an obvious ceiling. That leaves accuracy and efficiency as the sole areas of focus where the New Zealand distributor can drive margins and grow profits.
Now, perhaps obviously, as an existing distributor, you clearly know your business. This, after all, is why you are in distribution, whether it is canned fruit, farm equipment or indeed computer software.
But that is also no cause for complacency, as you’ll no doubt appreciate.
Like businesses of all kinds, there are always new and growing competitive pressures. For distributors, the obvious one is the internet. As e-commerce matures, it is increasingly feasible for your customers to bypass the channel altogether and simply order direct from other distributors abroad, or indeed from your principal (some vendors, of course, work to limit the so-called ‘grey market’, and many do not sell direct).
The answer to this challenge is primarily an examination (or re-examination) of your own value-add. What is it that you put on to the goods you’re supplying, that cannot be added by a competitor? Often, it boils down to that all-important question of stock. It also routinely consists of second-line support, honouring of warranties, and other service-oriented activities. What distributor hasn’t had to deal with an irate customer who purchased ‘out of country’, but now demands YOU resolve their issue!
With the examination complete – and it can be a very good idea to get the help of an external consultant in this process, because you very well may not see the wood for the trees – you need to focus on efficiency and accuracy.
It’s a focus on your customers. Only by being better than your competitors, with faster, more accurate service at the same, or very close to price, can you be assured of their custom. The old saying holds, ‘if you want loyalty, get a dog’. While that mightn’t be a blanket statement, because people do business with people, it is nevertheless not enough to rely on loyalty. After all, economic principles plainly state that for every dollar which doesn’t have to be spent, another dollar doesn’t have to be earned; you’d probably save the money if put in the same position.
One of the best ways to step up your game is to take a look at the technology systems underpinning your distribution business. Thanks to the power of the cloud, which irons out the requirement for capital expenditure (yes, we know distribution is also all about careful capital allocation!), highly capable solutions are now within reach of even relatively niche operators.
Ready on day one
With SuiteSuccess, we deliver pre-defined user dashboards that are specific to your role and developed from our years of experience with businesses just like yours. There’s no waiting to get started. Your business is ready to grow from the start.