How Distributors Can Improve Relationships with Value-Added Services

by

ERP Analyst,

These days distributors have to deal with pressures from multiple angles. Rising gas prices, an uncertain economy and fierce competition are forcing an industry that operates on thin margins to carefully consider their next steps. Now distributors have to deal with increased demand for services from customers that have pared back their staff and want more help from their partners downstream.

The laundry list of services that customers ask of distributors ranges from providing consultations to enhancing the product knowledge of distributor employees. While your customers would like to see every item on their wish list checked off, the reality is that distributors have to pick and choose which one they can provide.

I recently caught up with Marc Wulfraat, President of the supply chain consultancy MWPVL International, to discuss what value-added services he sees on the rise in the distribution industry. In this article, I’ll share some of his insights and look at five value-added services that distributors can provide to improve their customer relationships and satisfy the services demand.

1. Vendor Managed Inventory

Since Walmart and Proctor & Gamble first introduced the concept of vendor managed inventory (VMI) in the 1980’s, it’s become a popular method of inventory control for industries, that prefer just-in-time deliveries. Under a vendor managed inventory system, the distributor agrees to monitor customer inventory and suggest proper purchase times. It’s a model best suited for high frequency, low volume transactions but one that is gaining popularity in lower product value industries (e.g. wireless phones and accessories).

Assuming responsibility for keeping a customer’s inventory levels at optimal levels is a complex undertaking. However, recent advances in web-based software and mobile technology are making it easier. For instance, distributors can use their smart phone to remotely check inventory levels at a customer’s location and initiate a purchase order for that customer while in the field. This allows for a more mobile and agile way of managing a customer’s inventory.

2. Delayed Product Assembly

Because of the cost break of ordering component parts in bulk, some distributors purchase inventory and then assemble it later. In delayed assembly, distributors can buy higher volumes of a few items and delay assembly until the the fully assembled product is needed. Doing this allows manufacturers to move inventory faster and distributors to fulfill orders more efficiently.

While the process can be as simple as packaging an item with language-specific packaging, it often gets more complex. Regardless of the complexity of assembly, accuracy is crucial. That’s where a bill of materials (BOM) comes in handy. Distributors that provide an assembly service should ensure that their distribution management software supports a bill of materials to track component parts, items numbers and proper packaging specifications.

3. Provide Green-related Services

Beyond performing kitting and assembly functions, there’s also demand for distributors to extend green services. These services range from shipping products in environmentally safe packaging (e.g. recycled cardboard) to actually performing recycling functions themselves. This is a smart business given that the 2011 ImagePower Green brands Survey, a recent international survey on green consumer attitudes, found consumers are willing to pay more for green products and packaging.

Wulfraat noted that most of the demand he sees for value-added green services is around green packaging. Distributors can purchase an unpacked item and package it with ecofriendly materials just before shipping. This a great area to focus on since the ImagePower survey notes that consumers in the United States use product packaging as their primary source for green buying decisions. In addition to using recycled materials, distributors also have an opportunity to act as the recycling channel through distributor take-back programs.

4. Improve Support of e-Commerce

Another trend that distributors won’t be able to avoid is the transition toward e-commerce. As more and more retail operations develop an online presence, distributors are being asked to fulfill customer orders with a short turnaround time. While this is a departure from the normal bulk shipments distributors provide, Wulfraat explained, distributors are providing this service to avoid losing market share.

In order to pull off the rapid (1-3 day) order turnarounds that consumers typically expect, distributors need to have their software system integrated with their customer’s software to ensure smooth flow of information. In an integrated system, for instance, the online order can be immediately sent to the distributor via an electronic data interchange (EDI) form for the order to be quickly picked, packed and shipped. While e-commerce orders of this nature can be pulled off through manual methods, there is a large efficiency gap relative to automated systems.

5. Offer Repair and Support Services

A final service that distributors can provide to their customers is the ability to manage repairs, returns and support services. This requires developing a deeper knowledge of the products that are distributed, but it can provide a lot of value if distributors can prevent items from being sent back through the supply chain.

Many manufacturers outsource their repairs and returns features to third-party companies that specialize in aftermarket services. If distributors are able to provide these services, they can win business away from these third-party companies. As an added bonus, managing these issues in the distribution channel mitigates the issue for both the manufacturer and retailer more quickly.

In my view, distributors that provide these services put themselves in a position to create a longer-lasting relationship with their customers. But that just my take. What do you think? What other value-added services do you see in demand at the moment? Please feel free to share your thoughts in our comments section below.

Thumbnail image created by Nick Saltmarsh.

 
  • Alberto Rubio

    Hi, I am not in the software industry but I think that other value-added services could be finance related such as C&C, credit to end users, offering other options perhaps not available or common in a particular market as leasing or rental models. In many countries/industries turn-key projects or integrated services really allow distributors to increase their value to their offers.

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