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1 Introduction These are exciting times for wholesaler-distributors seeking to capitalize on opportunities in e-commerce, mobility, and social networking; embrace the full potential of advanced analytics; and reimagine both their role in the value chain and the structure and functions that make up their organizations. Add to these factors an economic outlook that retains uncertainty about tepid macroeconomic growth, pernicious and persistent unemployment and underemployment, and government intransigence on deficits and debts, and it is clear that the landscape will remain dominated by change. Over the next 3 to 5 years, these trends will transform the industry, changing the way distributors interact with customers and suppliers, transforming the roles of individual functions within the distribution business, and driving the imperative for true business-model innovation. In such an environment, the need for a clear value proposition as part of a robust, well-informed, and aggressive business strategy is greater than ever. Given the pace of change, business strategies must be living and breathing entities, capable of anticipating and responding to market forces and subject to regular review and refinement. In 2010 s Facing the Forces of Change : Decisive Actions for an Uncertain Economy¹ (www.naw.org/ftf10), we argued that distributors must strive for a predictive and proactive posture. In this 2013 report Facing the Forces of Change : Reimagining Distribution in a Connected World we push this notion further and suggest that leading distributors will be those who embrace the forces affecting the industry and harness their transformative potential. Although the economic headwinds have abated somewhat, the new array of forces is no less powerful and will be no less important in separating leading distributors from laggards. Underpinning many of the forces of change highlighted in this year s report is a deeper message about the need for distributors to innovate. This innovation imperative extends far beyond developing new products and services to meet customer needs. Distributors must fundamentally and continuously evaluate and innovate their value propositions and their business models. Though many of the forces are enabled or created by the innovative application of technology, the distributor s focus must remain squarely on the needs of the business, in particular those of customers and suppliers. Only by deepening their understanding of these shifting requirements will leading distributors retain their relevance and differentiation. The technologies themselves are compelling, but it is their application that creates advantage. Take mobility for 1

2 example. Giving your sales force tablet computers would not by itself significantly improve their productivity or effectiveness. However, if you educate the sales force on how to collaborate with customers in real time by leveraging video, simulations, integration with back-end systems, and online financial modeling and analytics tools, and innovate your business processes, then you ve transformed the customer experience. This comprehensive approach to innovation delivers meaningful, sustainable sources of competitive advantage and differentiation. This report begins with a discussion of how three significant forces e-commerce, mobility, and social networking are likely to affect distribution. These are much more than technology trends. Individually and collectively, they will reshape the distribution landscape, creating new sources of differentiation, new competitors, new customers, new services, and new ways to engage with customers and suppliers; these forces will also drive greater transparency in areas such as product specifications, application, availability, and pricing. What s more, they will lower barriers to entry and open the door for new competitors able to deliver the innovations that a new generation of suppliers and customers expect. Leading distributors will anticipate and exceed those expectations. In the area of e-commerce, most leading distributors already have a robust presence and are investing heavily to sustain the early adopter competitive advantage they have developed. Others are embarking on their journey with big expectations about revenue growth, market share gains, and improved customer satisfaction. Not all these expectations will be met. Leading distributors will leverage some of the e-commerce trends reshaping the retail industry and the business-to-consumer world with concepts such as omnichannel e-commerce (in which they aspire to deliver a seamless customer experience across all channels, including mobile, web, branch, face-to-face, catalog, call center, and so on), delivering a better customer experience and enabling customer self-service. Leading distributors also will integrate their go-to-market channels into a seamless, interactive, customizable experience. That experience will harness the potential of mobility and social networking to allow customers to interact however, whenever, and wherever they want with functionality such as being able to buy online via smartphone and pick up the purchase at the branch. Leading distributors will also continuously refine their offerings based on insights developed through advanced analytics that can optimize website functionality, segment customers, and prioritize offers and offerings to those segments. However, much of the industry will struggle in the near term to see the potential of social networking which encompasses both social media and online collaboration but leaders are already leveraging available tools for recruiting, offering promotions, and 2 Introduction

3 prospecting, as well as for fostering internal collaboration and knowledge management. In the social media area, hundreds of distributors are already active on Twitter, many have a presence on LinkedIn, and a growing number are active on Pinterest. Their activities in these channels will evolve and mature, creating new customer and stakeholder touch points, new sources of insight, and new opportunities for engagement. In the social networking area, leading distributors are more effectively harnessing the collective power of their organizations via the online project management, document management, chat, and community functionality available through numerous software applications. These factors demand that distributors experiment, iterate, and innovate more than ever, while retaining their focus on operational excellence and continuous improvement. This is a delicate balance indeed, and it requires that distributor executives empower their subordinates, understand and manage risk, and evolve their business models. This dynamic highlights a recurring theme in this year s report, that of integration. More than ever, the decisions made in one area of the business will affect the rest of the organization. For example, executive aspirations of growing e-commerce revenues will have a direct influence on many functions throughout the wholesalerdistributor s organization: Information technology (IT) function delivers the website and other functionality Finance function manages pricing, credit, privacy, and risk considerations Sales function considers implications for customer relationships as well as the function s overall role in managing the relationship Human capital function needs to acquire the skills necessary to develop and maintain the e-commerce functionality Operations function executes the experience from both a delivery and availability perspective and the all-too-critical reverse-logistics dimension. An important implication of increasing integration is an elevation in the importance of the marketing function. Recognizing this, a growing number of distributors have created a dedicated executive position responsible for marketing. The mandate for this marketing function extends far beyond sales enablement and increasingly will drive business strategy and go-to-market decisions within the distributor organization. Going forward, the marketing function at leading distributors will be led by an empowered, visionary executive and will actively manage the distributor value proposition, external messaging, branding, and stakeholder engagement activities. Introduction 3

4 The innovation demanded by macroeconomic trends also mandates that distributors reposition IT in the business. To capitalize on e-commerce, mobility, and social media trends, IT cannot be positioned as a support function. That 44% of distributor CEOs aspire to leveraging IT as a competitive weapon is clear recognition of this. Going forward, chief information officers (CIOs) and the IT functions they lead must deepen their connections to the business, evolve to a more consultative role within the organization, and accelerate the adoption and integration of new technologies. Likewise, the finance, operations, sales and marketing, and human capital functions will also see major shifts in their responsibilities as the forces of change take hold. Consistent with the 2010 Facing the Forces of Change report, this year s report dedicates a chapter to the importance of analytics. We again focus on this area due to the continued evolution of core analytics in areas such as customer segmentation, pricing, and inventory optimization, as well as the nascent analytics revolution that is frequently referred to as Big Data. As distributors investments in core IT systems mature and data become a readily available currency across the organization, the transformative power of analytics becomes more apparent and attainable. Leading distributors will continue to augment their analytics capabilities in core areas, striving for increased frequency and granularity, as well as enhanced what-if capabilities. Leading distributors will quickly build from benchmarking, reporting, and scorecarding to predictive and prescriptive analytics. They will also build analytic muscles within the functions, educating and empowering the sales force for true collaborative, valuebased selling; the marketing function to relevant customer segmentations and highly targeted offerings; and the operations function to probability-based and multi-echelon optimization. Over the next 3 to 5 years, leading distributors, large and small, will begin to harness the power of Big Data. They will pilot analytics that leverage new sources and types of data, including unstructured and semi-structured data, and access new tools to accelerate those analytics. The other relatively untapped analytics dimension is analytics as a service. Leading distributors will understand their unique role in the supply chain and the potential value in the data that flow through and around their organizations. They will create unique services that capture this value and monetize it with customers and suppliers. 4 Introduction

5 The report concludes with an exploration of some technological innovations that have the power to radically change the game for distributors. Some, such as driverless vehicles, drones, and robotics, create very real, near-term opportunities for efficiency and new service offerings. Others, such as 3D printing, could completely upend the economics of entire value chains. In a world where change is the new constant, distributors must stay informed of these and other technologies and actively explore the potential for their application in their business, industry, or value chain. These are, indeed, exciting times for wholesaler-distributors. They will continue to confront forces of change, but they will have myriad opportunities to embrace and leverage those forces to their advantage. Trends will affect each of your businesses in different ways and to varying degrees, but leading distributors will consider them and develop analytical strategies that anticipate their effects. This report, including the macroeconomic commentary by Alan Beaulieu, can help you take steps to plan, prepare, and execute those strategies to capitalize on the forces of change. We encourage you to read and reread this report. Discuss it with your top executives, managers, and staff; and start collecting data, analyzing the data, and using the data to stay on the leading edge. Introduction 5

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