Every business school student knows the 4P's of the Marketing Mix: Product, Price, Promotion and Place. Place, also called placement or distribution, is how a product or service finds its way to the person or company consuming it. Although it’s one of the 4 P’s, Place often feels like the Rodney Dangerfield of the mix (“I get no Respect!”), as people overlook it when thinking about next-generation business models.
When I started calling on distributors in the 80s, they picked product, packed it up and shipped it – that was their entire business model. Since then, I’ve observed them evolve and add a multitude of value-added services to their product fulfillment offerings.
One of the first services to emerge (and one that remains today) is white-labelling where distributors re-brand shipments, masking the fact that a shipment is coming from a third-party and making it invisible to the end consumer. It became very common in the 1990s and helped to usher in the notion that distribution could do more than just pick, pack and ship: They could become a key element in a manufacturer’s supply chain.
“Everything-as-a-service isn’t just a new revenue stream or business plan – XaaS is a strategic and operational blueprint that may soon begin upending business and operational models, along with redefining the fundamental goals of core modernization.” Deloitte
As the “everything as a service” (XaaS) trend has grown, it shouldn’t come as a surprise that distributors, with their unique place in the middle of the supply chain, have developed and embraced a service model that is beneficial to both manufacturers/vendors and to downstream partners.
The XaaS model offers a range of benefits including continuous revenue streams but it also helps build stronger ties with the customers.
The Rise of Fulfillment as a Service (FaaS)
The white-labelling services of the past have continued to evolve to a point where distribution companies are now becoming the sole warehousing and logistics arm for their customers – handling products from the time they arrive at international cross-dock facilities to delivery to retailers and end customers. The benefit is that a large electronics or technology vendor doesn’t need to maintain large warehouses and have shipping and logistics staff – the distributor has taken over that role.
Distributors get paid to act as warehouses for these large vendors while lending their extensive expertise in logistics to connect both ends of the supply chain. With connections to both manufacturers and partners in place, distributors are in a unique position which makes them the perfect business partner for this service right now, and the opportunity to take it to the next level in the future.
Speeding Just in Time
Companies like Amazon are raising the bar for deliveries and that’s increasing pressure on all logistics players. Where the Just-in-Time inventory and distribution models transformed the way companies stocked products, e-commerce giants are once again transforming logistics by pushing faster turnarounds and exceptionally high service levels.
“The need for greater reach without excessive costs will encourage manufacturers to explore alternative ownership models: outsourcing warehouse operation to specialist providers, for example, or sharing facilities with customers or other players.” McKinsey
The model described by McKinsey is exactly what distributors are already delivering. They own the warehouses, have the logistics expertise, they cover the buying marketplace and can deliver a clean and just-in-time flow of products.
All of this is leading to an expanded view of what a distributor can do and firmly positions them as a “Logistics Enabler”.
Cost Efficiencies Delivered
There are a few reasons this model makes sense for all parties.
- It reduces the need for vendors and manufacturers to maintain independent warehouse space.
- Both parties gain logistics expertise and capabilities without needing to staff their own internal departments.
- Distributors get a predictable fee-for-service structure to help fund their logistics engines.
Companies that have done a proper cost-burden analysis on their business quickly realize that running their own warehouse often doesn’t make fiscal sense. Once a distributor makes the investment in the warehouse space, they can amortize the costs across hundreds of companies, making the service much more cost-effective and efficient for all parties.
Where does it go from here?
So, what does the future hold for FaaS? I think the model will continue to evolve and become even more integrated and cohesive.
As systems evolve, we will see increased co-ordination across the ENTIRE supply chain, enabling the sharing of instantaneous market data or fulfillment intelligence! Think about that — a sale from a distributor to a partner in Rio or Reno could automatically trigger a work order at an ODM in Shenzhen! When that happens, it’s a whole new ballgame. I’ve said before that distributors have a unique position in the supply chain. On any given day, distributor websites are being hit millions of times, they are talking to tens of thousands of customers, and they are shipping hundreds of thousands of line items. They are in contact every day with the companies that buy products and see demand signals & trends much faster than anybody else!
It's all about the Data!
Distributors are already investing in AI and data analytics to tap into the power of the market intelligence they’re collecting, and that fulfillment intelligence will become invaluable for manufacturers and vendors as the supply chain becomes more cohesive.
Distributors aren’t merely a cog in the middle of the supply chain. Their data insights and logistics capabilities are setting them up to be the primary gear that drives the efficient supply chains needed to stay competitive in the 21st century!