How Wholesalers Can Manage Rising Distribution Costs

The costs associated with filling product orders—including warehousing, delivery and shipping—have been trending upward for several years.

Managing these increasing distribution costs is one of the biggest challenges facing wholesalers. By improving operational efficiency and flexibility, wholesaler-distributors can remain competitive and even thrive.

How this trend has evolved

Shifting industry standards have put pressure on a variety of industries. For example, the advent of fast fashion provided rapid inventory changeovers for clothing retailers. Amazon's delivery services have put pressure on many types of online retailers to promise faster delivery times. The level of automation and personnel training required to fulfill this promise all drive up overall costs.

Online platforms have also made it easier to engage directly with customers. Distributors that implemented customer-centric, multi-channel engagement are outpacing their competitors by offering a much stronger customer experience. Because Amazon provides a high level of digitization in customized reports and inventory transparency for professional buyers, more end users expect this higher level of service. But there are costs to install these technological and operational systems.

Manufacturing-driven impacts

With ongoing trade tensions between China and the US, tariffs often drive surges in wholesale costs. To reduce the impact, some US firms have been scrambling to find partners in other countries, such as Vietnam. Others have decided to stick with their Chinese suppliers due to the longevity and interconnectedness of the relationships.

The inflation rate is declining, but inflation is still impacting the manufacturing industry and supply chains. Manufacturing relies heavily on raw materials, which are in short supply due to the labor and transportation shortages. This has caused the price of many raw materials to increase, which, in turn, increases the cost of manufacturing. Higher inflation also leads to increased interest rates, which can add to the cost of production.

Build online platforms

As more consumers use online retailers to purchase goods of all types, manufacturers have successfully found ways to go direct to consumer. Distributors can counteract this by building their own e-commerce sites and direct-to-consumer systems. While it may increase costs in the short term, this setup enables companies to sell more products at higher price points. It also reduces medium- and long-term distribution costs and fosters a more streamlined user experience.

Distributors should consider upgrading to customer-interfacing software systems to make it easy for customers to conduct procurement activities online. Enabling your customers' employees to log in and complete various transactions can empower quicker responses. It can also optimize your own employees' interaction time and increase customer satisfaction.

Streamline operations

ERP wholesale distribution software is crucial for businesses that manage large inventories and deal with complex supply chains. It can help you streamline your operations and boost your bottom line. ERP wholesale distribution software has several features.

• Inventory management: Track inventory levels, monitor stock movements and optimize inventory across multiple locations. It allows you to have the right amount of inventory on hand at all times without the risk of overstocking.
• Order processing: Automate order confirmation, picking, packing and shipping to reduce your risk of errors and delays. The software can also help you manage complex order fulfillment scenarios.
• Customer relationship management: Track customer interactions, manage customer accounts and provide personalized service to customers. Plus, the software allows you to segment customers so you can conduct targeted marketing campaigns and improve customer retention.
• Financial management: Automate invoicing, payment processing and bank reconciliation. Real-time reporting allows you to monitor key financial metrics.
• Supply chain management: Optimize your supply chain operations to improve efficiency and reduce costs. The software allows you to forecast demand, optimize inventory levels and reduce lead times.
• Warehouse management: Optimize warehouse operations, reduce the risk of errors and improve order fulfillment accuracy. The software offers features such as barcode scanning, pick and pack optimization and real-time inventory tracking.
• Reporting and analytics: Identify trends, track performance and make informed decisions to improve operations and drive growth. You'll have access to a wide range of reports and dashboards so you can see sales, inventory, financials and more.

Upgrade financial systems

If you're a wholesaler, work toward streamlining credit and collections by creating and implementing fair, highly systematized procedures and automating where possible. You can also track payment trends for customers and make periodic adjustments to terms and purchasing limits. These steps reduce the risk of failed or late payments while increasing responsiveness to well-performing customers.

For distributors, consider offering payment options by partnering with your bank or financial technology firms. Being able to extend credit-worthy customers longer terms beyond the traditional 30 days can drive down sales costs and differentiate you from competition. You might also partner with a purchasing group to help small customers consolidate their buying power. While this may seem counterintuitive, it could increase purchasing size and frequency as well as customer loyalty, driving down a portion of the distributor cost.

Fill a new need

Incorporating a greater variety of services, such as inventory tracking or product installation services, can help your business demonstrate more value to customers. If you're a distributor, consider leveraging your expansive product line, deep product knowledge and technical expertise. For additional improvement ideas, poll customers to find out what matters most to them. Let this feedback guide the changes you make toward operational improvements and cost reduction.

When you implement any of these steps, be sure to identify and track relevant KPIs at all organizational levels. This will help determine if your company needs to revamp its maintenance program, restructure its product mix or outsource non-core capabilities in its ongoing efforts reduce costs and stay competitive.