Industry Market Trends

How E-commerce Can Reinvent Your Industrial Supply Model

Apr 09, 2013

E-commerce has not only transformed consumer retail, but also the industrial distribution landscape. Today, companies often expect their suppliers to provide customized online options to support and enhance their traditional service offerings.

Most consumers today expect to be able to surf online for products, compare prices, read reviews, zoom in on photos, order online, chat with a representative, and even seek advice from other shoppers on peer-to-peer message boards.

These expectations of a more customized purchasing experience have spilled over into the industrial supply chain: while customers may not wish for suppliers to switch to an online-only model, they do expect an e-commerce option that complements existing channels - a kind of "omnichannel" approach.

"By 2015, online business is expected to be worth $1.4 trillion worldwide," said Vince Esposito, principal at Tompkins International and co-author of a white paper on the topic. "This has led distributors to consider more online options and how to expand their channels to create an 'endless aisle' for customers."

According to Fortune 500 industrial supplier W.W. Grainger, e-commerce is its fastest growing channel, representing 25 percent of its sales online today. The company projects that this figure will rise to 40 to 50 percent by 2015 as the business model becomes better established and older workers retire and are replaced by younger employees accustomed to e-commerce operations.

When properly implemented, an e-commerce approach is also likely to be a cost-saving boon to distributors and suppliers. An omnichannel strategy allows enterprises to have more ways to supply customers with the products and services they want in the most cost-effective manner possible. Self-service and self-ordering capabilities, which consumers have come to expect, can also save money and manpower for businesses.

In the pursuit of what's being called "multichannel operations excellence," or MOE, many suppliers are responding to the new opportunities by building online storefronts, according to Tompkins International. The process doesn't end with building a website with a shopping cart, however. MOE also requires social media efforts, mobile support ("m-commerce"), self-service, and improving customer expectations through added services, such as next-day delivery.

Amazon Supply, an industrial distribution site launched by the e-commerce giant early last year, is likely to set a high standard for other industrial supply chain companies. Amazon Supply mimics its consumer e-commerce distribution: a wide range of products, low prices, robust technologies for self-service, integration with social media, mobile apps, dedicated customer service, corporate lines of credit, and free shipping on orders of $50 or more.

At the back end, the company has deep experience and resources in warehousing and supply, as well as technologies like barcode scanning, inventory apps, and RFID tracking.

To achieve an omnichannel approach, however, suppliers need to be prepared to make some changes, particularly on the IT front. For starters, a robust e-commerce channel needs to be fully integrated within existing fulfillment channels, not isolated from them. While self-service e-commerce may be a great way to buy and sell relatively simple products, customers may still expect more from the supplier's traditional channels, complete with tech support and consulting, for products of greater complexity and higher cost. Customers are likely to be disappointed if the interactions they've had in one buying channel are unknown to the other channels.

"In this age of connectivity, mobility and social networking, distributors will need to focus on adapting to how their customers make decisions and purchases," Tompkins explains. "Multichannel access may involve branch events by reaching out to customers in new ways; or integrating online and physical operations to leverage the access with customers (online order with branch pick-up or returns, and branch selection with delivery); or partnering with competitors to broaden the selection and availability; or integrating online and/or branch events with social media such as Twitter and Facebook."

Building a strategy for omnichannel industrial distribution will first involve an examination of a company's existing customers and segments, a broad understanding of its products and services, and a reevaluation of the company's value proposition. The next step will involve major process and organizational transformations, including a change in key performance indicators and a reorganization of customer service channels.

This is where new technology will come in. Traditional methods of planning, sourcing, allocating, deploying, moving, storing, fulfilling, delivering, and selling will not work effectively for MOE. Many of today's more robust enterprise resource planning (ERP) and inventory management solutions have modules to manage many of these operations in a more networked, integrated way that can be easily linked to customer support technologies and synchronized across all customer-facing and business-facing operations.

Done well - particularly with the addition of operations analytics - the transformation can reduce labor expenses, increase accuracy, help manage risk, reduce transportation costs, and improve inventory velocity. More importantly, it can retain customers and boost loyalty, in essence "future-proofing" distributors' businesses.