Market Center Distribution holds the key to the new economy
There is an eager sense of anticipation as we move deeper into what many believe is a second industrial revolution.
The explosion in E-commerce technology promises to forever change the way we do business; the very way we live. But there is fear and uncertainty too. How do we realize the potential the new technology offers without sacrificing personalized service and the efficient product distribution which has distinctively characterized the markets of North America? Can the resources of the thousands of entrepreneurial distribution companies in the United States and Canada, and in fact the world, be brought to bear to fill in the gaps of developing Internet technology?
In recent weeks I joined with my fellow officers of the Northamerican Heating, Refrigeration and Airconditioning Wholesalers Association in Calgary, Alberta, to address these questions. The group, a leading voice for its industry, has long been a proponent of the traditional "two step" distribution process - manufacturer to wholesaler to retailer - as the most efficient way to move products to the ultimate consumer. With a realization that these consumers are seeking new avenues to fulfill their needs, and that the "middleman's" role may be overlapping with others in the supply chain, my compatriots and I searched for ways to marry the new technology concepts to the strengths which local and regional distributors have always brought to the marketplace.
The result of these discussions was a concept we call Market Center Distribution. It embraces the idea that only regionally established business centers staffed by those familiar with local markets and customers can effectively maximize a product's market share - and that the more complex a product is, and the more it relies on a professional corps of contractors or retailers to deliver to the local consumer, the more these professionals will need the service of local distributors.
What are those key services? Convenient warehousing of parts and supplies, warranty support and administration, rapid delivery, the extension of trade credit, access to product information and one-stop shopping for related accessories. While some of these can conceivably be provided on a national scale, there is still a cost associated with them. These functions must be performed in some manner and the established network of independent distributors located in each "market center" provides the most cost effective way to do so.
But what makes Market Center Distribution different from the old "two step" concept is a realization that there are redundancies in costs among the different participants in the product supply chain. It calls upon manufacturer, distributor and retailer/contractors to each define their core competencies - those functions they perform better than anyone else - and to seek the support of other channel partners in providing their own respective core competencies. Rather than thinking of the distribution process as a series of sequential steps, it looks at the whole thing as a unified system with each participant taking responsibility for the functions he or she does best.
This means that the different players in the supply chain will have to open communication to a far greater degree than has previously been the case. Strategic alliances will have to be developed based on mutual trust. To remove redundant costs, manufacturers, distributors and retailer/contractors must be willing to face up to their strengths and weaknesses in assessing what are their respective core competencies. They must be willing to divest themselves of some of their functions if a channel partner can perform it more efficiently. They must be willing to step up to the plate and take primary responsibility for their logical role in the chain. Negotiations between partners in these new alliances must center on defining and communicating the roles to be played by each. The party who negotiates with an eye to avoiding his responsibilities will soon find that he has lost his value to the alliance and will no longer be a player.
Technology will be at the forefront of the new Market Center Distribution as all participants will have to be "on board" with state-of-the-art electronic communication, ordering and order fulfillment, inventory control and whatever the future may bring. Industry associations and leaders must promote standardization so that partners can come together in integrated product delivery teams. On-line ordering, order status, and communicating customers' special requirements will flow instantly from the customer to the proper parties throughout the chain. Marketing utilizing integrated customer and product data bases will become a cooperative effort.
These unique characteristics of Market Center Distribution reflect some of the key trends in distribution identified in a recent study commissioned by the National Association of Wholesaler-Distributors examining changes in the industry and the economy.
Over recent decades manufacturing has spurred the economic development of many emerging countries. Low cost, yet high quality goods have made some of these countries players on the world stage. And yet, no one outshines North America in getting the product where it needs to be on time. People coming to this continent marvel at the diverse products available in our stores and local markets. Such things as fruit being available in the cold of winter would be unheard of in some countries.
Our distribution system developed to a large extent when the first industrial revolution dovetailed with the taming of the American frontier. Businesses and transportation systems evolved to meet needs in a cost efficient way.
Now we embrace both a technological revolution and a globalization of markets which promises to provide incredible opportunities. Market Center Distribution, utilizing the strengths of the past, the innovation of the future, and the best talents of all supply channel partners, promises a road map for industry.
(James Truesdell is vice president of NHRAW and president of Brauer Supply Company, a distributor of air conditioning, insulation, air filtration, and specialty fasteners with headquarters in St Louis. An attorney and frequently published writer, he is the author of "Total Quality Management: Reports From the Front Lines".)