The concept embraces the idea that only regionally established business centers can effectively maximize a product's market share.

(Editor's Note: The following excerpt is from "Market Center Distribution - What It Means; What It Takes," by James Truesdell, president of NHRAW and president of Brauer Supply Co. The report is offered by the Northamerican Heating, Refrigeration and Airconditioning Wholesalers Association (NHRAW), Columbus, Ohio.)

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?

The concept we call Market Center Distribution 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? They include 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 total process as a unified system with each participant taking responsibility for the functions he or she does best.

They must be willing to divest themselves of some of their functions if a channel partner can perform it more efficiently. 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-driven

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 databases 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.

Driving the need for a new focus in distribution is a number of trends that we identified.

These are:

  • Customer relationships are increasingly critical.

  • Gaining access to customer information yields marketplace power.

  • Value-added services are expanded to meet customer needs.

  • Channels of distribution are evolving and changing form.

  • Distributors are forming alliances with suppliers to reduce costs and increase power.

  • Business is becoming North Americanized and trade borders between the U.S., Mexico, and Canada are dissolving.

  • Products are being introduced from Europe and Asia that influence North America in terms of application and design.

  • Multi-branding is commonplace.

  • Consolidation continues.

  • Deregulation is opening markets.

  • There are serious workplace shortages.

  • There is more professional ownership of distribution and fewer family-owned businesses.

  • E-commerce is enabling 24-hour, seven-day-a-week business.

  • The consumer is now more educated based on availability of information via the Internet.

  • There is great interest rate volatility.

  • Great intergenerational wealth transfers are occurring or about to occur.

    Given these trends, wholesalers must develop strategic visions to capitalize on the changes that will be brought about by these trends. Each of these trends presents problems as well as opportunities. Strategic visioning identifies the problems and determines how they will be overcome and also identifies opportunities and determines how the wholesaler will take advantage of them.

    For example, if customer relationships are becoming increasingly critical, then specific customer-by-customer plans will need to be made to protect our most valuable accounts and similar plans developed to target those accounts we wish to capture. If value-added services are expanding to meet customer needs, then we must identify what services we can presently provide and plan to develop new needed services to meet the customer's needs.

    As our markets mature and we find a surplus of product and suppliers fighting for a shrinking or stable demand, we may find it harder to increase our value offerings to customers. Shrinking margins limit our ability to invest, a fragmented customer base gives us too many market segments to aim our plan at, and there is a shortage of management and sales talent.

    Power shifts in a maturing market from the manufacturer towards the consumer. The wholesaler-distributor who wishes to enhance his power in the channel of delivery will, however, find ways to add value for the ultimate customer, and in so doing will increase his value to the manufacturer.

    Since the wholesaler cannot economically provide every service and value, the only option is to focus on differentiated service levels to attract customers. The wholesaler might decide, for example, to focus on providing superior product availability, creative credit arrangements, customized dealer programs, training for customers, or promotions. The main thing is to do certain things that have value to the customer better and more economically than the competition.

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