October 20, 2016 | Written by: Paul St. Germain
Categorized: Supply Networks
This is the fifth blog in a series of blogs revolving around Facing the Forces of Change®: Navigating the Seas of Disruption, published by the National Association of Wholesaler-Distributors (NAW) — the only major research study analyzing the future of wholesale distribution within multiple lines of trade. Find a shortlist of the other blogs in the series at the bottom of this post.
The Need for Progress Amidst Disruption
In today’s disruptive world, providing great service and understanding customers are critical to avoiding disruption. But if a business wants to avoid becoming irrelevant or marginalized, it can’t stand still, nor can it assume that its competition is doing so. A strong business will constantly assess its competitors’ capabilities and value propositions, asking what those companies are doing better or differently than they are. In keeping with a customer-focused business strategy and value proposition, businesses should always be evaluating their customers’ unmet, and often unstated, needs.
For example, a distributor sees the opportunity to provide logistics and warehouse management to a shipping industry customer whose business has grown and which has no extra warehouse capacity. It then evaluates whether to expand into warehouse management itself or to acquire a company that already has similar operations and has the skilled personnel to do so. Often, acquiring other companies is more cost effective and faster than developing a new business offering from the ground up.
Mergers and Acquisitions within Wholesale Distribution
Mergers and acquisitions (M&A) within the wholesale distribution industry have increased significantly from 2013 to 2015. Industry consolidation is one of the five most significant influences on distributors’ business today and is expected to remain in the top 10 over the next five years, according to the research for this year’s Facing the Forces of Change® report.
Typically, companies have pursued M&A as part of a geographic expansion strategy, creating a wider service territory by acquiring a similar company in another state or region. Likewise, one business will often purchase another that provides a complementary product or service line so that it can become more of a one-stop shop to its existing customers. Increase in size provides additional buying influence and increases negotiation power. More innovative companies might acquire a firm whose personnel possess differentiating or industry-leading capabilities that are difficult, costly, and time-consuming to develop in house. All of these strategies help businesses penetrate new markets or deepen services to current customers, providing them with the opportunity to expand or supplement their existing business model.
An example is a large home improvement store acquiring a distributor of facilities maintenance and repair services and products to expand offerings to professional contractors and builders.
Mergers and Acquisitions as a Means to Disruption
The truly disruptive business will go even further, using M&A to become the company everyone else is trying to catch up to or emulate. Such companies pursue an M&A strategy not only to widen their offerings, but also to gain entirely new competencies that help them disrupt their entire industry.
For example, in March 2012, Amazon purchased Kiva Systems to improve its order-filling efficiency. Kiva’s storage-unit robots move merchandise to workers in a warehouse instead of having them travel to a warehouse location to pick the goods. After the acquisition, Kiva stopped advertising and other marketing activities, and it was renamed Amazon Robotics in 2015. Had Amazon not locked up Kiva’s manufacturing and deployment capacity for its own use, it would have needed to compete for it with other companies as it expanded its distribution network.
In the upcoming edition of Facing the Forces of Change®: Navigating the Seas of Disruption, published by the National Association of Wholesaler-Distributors (NAW), you will find much more detail on all of these topics, including strategies and examples from leading distributors, along with suggested actions to understand and minimize the effect of disruption on a business, or present the opportunity to become a disrupter.
Stay tuned for upcoming blogs on other topics examined and discussed in the book.
Facing the Forces of Change®: Navigating the Seas of Disruption is available for purchase from NAW at: http://www.naw.org/ftf16, and will be available in November, 2016.
Previous blogs in the series:
Wholesale Distribution at a Watershed Moment
Unpacking the 6 Disruptive Forces in Wholesale Distribution
Branding and image: Distributors as service providers
Leveraging Relationships in a Customer-Centric World