Disruption in supply chains is nothing new for US wholesalers. But what we’re experiencing is more than that. Marketplaces like Amazon, Alibaba, and e-commerce traders are dismantling the boundaries between direct-to-customer and business-to-business commerce. But rising competition isn’t the only factor disrupting US wholesalers and their customers. Supply chain issues, global dynamics, talent shortage, and digital innovation are testing its resilience.
We are busy redefining our vision, mission, and values to win at this inflection point.
Refreshing the operational GPS of a close-knit company of hundreds of remote workers, like Source86, is the journey of a thousand questions. As we speak, the gap between successful and struggling wholesale distributors is getting bigger. How will we navigate this strategically? How will we attract great people during a talent drought in the sector? How can we do more to improve traceability and safeguard our customers against the alarming rates of product recall in 2023? As we chew on these problems, we are grateful for this season of transformation and the chance to be the change we wish to see in the food chain.
The 6 weakest links in the US wholesale distribution chain
The US wholesale distribution sector reports yearly earnings of $6 trillion and a steady 4% growth rate. It’s an ecosystem of +300,000 firms, employing 6 million individuals and contributing 5.8% of the country’s GDP. However, underneath these statistics, the US wholesale distribution chain faces several challenges impacting its efficiency and profitability. Here are some of the issues that have been identified:
1. Disruption and inflection point
Wholesale distribution is a complex, high-volume business. Even slight miscalculations can greatly impact the profitability of their business and threaten their existence. After years of regular evolutionary change, the industry faces historic disruption and a true inflection point. The industry faces significant disruption due to disintermediation (where customers can access products or services directly), alongside fluctuating demand and shrinking margins. In Delloitte’s analysis, mounting competition is now an existential threat to wholesalers.
2. Supply chain disruption
COVID-19 resulted in unpredictable swings in demand for products such as food, building supplies, and wholesale bulk ingredients. There are reports of normalization in 2023, with supply chains slowly mending. But on the whole, the US bulk ingredient wholesalers are still facing efficiency and profit challenges due to China tariffs, shipping costs, e-commerce disruption, and growing customer demands for personalization, compounding the disintermediation challenges already faced by US bulk ingredient wholesalers.
3. Global dynamics impacting supply chains of US wholesalers
Global shipping demand has outstripped capacity, resulting in a scarcity of containers and wild spikes in freight rates. US wholesalers face inventory storage costs, pricing, and bidding wars for new orders. Why else are supply chains still volatile in 2023? Geopolitical conflict, inflationary pressure, the recessionary environment, climate change, the European energy crisis, and cybercrime are rising in 2023.
4. Talent crunch.
As the boundaries between direct-to-customer commerce and business-to-business blur, many US wholesalers are now competing with their labor suppliers. Wholesale distributors must focus on attracting, retaining, and upskilling sales, truck drivers, warehouse workers, and back-office staff because their competition is intense. Innovation is a top wholesale distribution trend for 2023. That will need to extend to employee retainment and acquisition.
5. More competitive than ever
Adjacent industry players and marketplaces are leveraging technology to disintermediate distributors and capitalize on evolving opportunities like the B2B e-commerce market. It makes it difficult for bulk wholesalers to manage the impacts of shortages, delays, and inflation-fueled cost increases, ultimately damaging customer relationships and profit.
7 best practice strategies for wholesale distribution challenges
An inflection point is a critical moment in a trend where significant shifts occur. It always leads to new directions. Whether that’s south or north will depend on the strategies US wholesale suppliers choose now. Evidence shows that these strategies’ success rises when they align with a company’s vision, mission, and values. That’s why we are in the process of revising ours.
The following key strategies are recommended to keep growth headed northward:
1. Building scale through strategic mergers and acquisitions (M&A)
Acquiring other companies can help increase market share and expand product offerings, mitigating supply chain risks and improving efficiency and productivity. According to PWC, 2021 broke all records, with M&A up 24% from 2020, with over 60,000 recorded. However, to be effective, M&A strategies require visibility into all major finance processes. Financial transparency will align organically with the company’s vision, mission, and values for US bulk wholesalers of ingredients already practicing radical traceability.
2. Bringing the supply chain closer to home
Many companies learned that outsourcing to China to lower labor costs often surpassed projections. The problem is by the time you’ve transported those goods from the other side of the world; logistics has nibbled the profit away. Nearshoring has emerged as a popular strategy for companies looking to squeeze more value from their supply chains. Sourcing closer to home lowers labor and production costs while reducing transit times and improving oversight and quality control. If your strategic focus is lowering the overall supply chain costs, nearshoring can be an efficient strategy.
3. Developing an agile business model
Agility refers to a company’s organizational intelligence, logistical procedures, and information systems. If you’re the chief buyer for a line of pineapple smoothies and your pineapple supplier runs out, do you have the partnerships in your supply chain to help you adapt and meet demand? What does an agile US bulk wholesale supplier look like operationally? They’re at home working with advanced technologies. They help their teams upskill. And invest resources to comply with the highest food standards in the world as part of their risk management strategy.
4. Considering tuck-in acquisitions that will contribute to growth
US wholesalers in the U.S. serve specific niche markets or industries. Acquiring smaller companies within the same or complementary niches is another way to increase market share. For example, a wholesale distributor of raw ingredients might receive a smaller company specializing in freezer-drying. Now, they can offer customers a more extensive range of products, potentially increasing revenue. If this is on your radar in Q3, due diligence, integration planning, and cultural alignment are vital for the success of these acquisitions.
5. Leveraging digital innovations
US marketplaces and e-commerce platforms expanding into B2B markets are improving distribution, sales, and product diversification. What’s more, they’re venturing into new territories like Europe, where traditional distributors are slow to adopt digital advances. US bulk wholesale suppliers can jump on the bandwagon only if they’re agile enough. Right now, wholesalers still trail behind logistics companies in digital adoption.
6. Mitigating supply chain risks
Ensuring business continuity means preparing for supplier failures. Developing contingency plans for disruptions and diversifying your supplier base will boost supply chain resilience. The ripple effects will enhance efficiency, reduce costs, and maintain competitiveness. Prudent wholesalers address internal and external risks by controlling what’s within their power and adopting controls to mitigate external factors.
7. Streamlining SG&A (sales, general, and administrative)
The global wholesale market will reach approximately $64 billion by 2025. Countries like the US, China, India, and Germany are smashing down old barriers with their retail establishments. For wholesalers, the recipe for bolstering profitability and countering the effects of margin erosion depends on streamlining their SG&A expenses. But they will need to do even more. To stay competitive, wholesalers must recalibrate their SG&A functions to include shorter planning cycles, more ambitious cost-cutting goals, and adopting hybrid working models.
Source86′ vision for the future (strengthen the weakest parts of the supply chain)
What can Texas firms teach us? They pivoted during supply chain disruptions by diversifying supply sources, onshoring, and increasing inventory, albeit at higher costs, to enhance supply-chain resilience.
We acknowledge the challenges plaguing the wholesale distribution chain in the US: lackluster compliance documentation, late shipments, and inefficiencies in the supply chain management, leading to incorrect ingredients. We are taking several strategic approaches to create a more sustainable and equitable future. Source86′ vision for the future is to embrace every aspect of the global ingredient ecosystem and enhance the daily processes and experiences involved in the sourcing journey. We recognize that every role within this ecosystem, no matter how small, is vital to the overall success.
1. Accountability: Taking ownership of our destiny
From management to the newest team member, everyone is part of the Source86′ journey. Taking ownership of our roles means we can make a difference with our vendors, customers, and other strategic partners.
How it looks in practice:
We own our failures and design the solutions to fix them. We will not fear failure; instead, we embrace it as a valuable source of feedback. Learning from our mistakes is how we will continuously improve on price, quality, and service.
2. Service: Every detail matters in the new wholesale marketplace
We reward teams for nudging the bar of their own standards daily. We call it sprinkling glitter because those extra touches turn the ordinary extraordinary. We take even the smallest of day-to-day processes seriously to improve the experience for wholesale buyers. Because that means better experiences for our farmers and customers and progress on our journey as reliable, verified suppliers.
How it looks in practice:
It’s about questioning how things are done. Caring about the results, we can influence and mine ongoing conversations with our customers for new ways to add value. We solve problems head-on and transparently with our vendors and clients. We document every detail behind the scenes, from logistics to finances to vendors; traceability and accountability is baked into everything we do.
3. A wholesaler that attracts talent through purpose
We harness the unique strengths of our globally dispersed teams, drawing on their regional insights, which provide us with invaluable “boots on the ground” perspectives that surpass the capabilities of AI. This diversity of approaches broadens our comprehension of global supply chain challenges and equips us to devise innovative solutions.
How it looks in practice:
We bridge cultural divides within our team and extend respect and empathy to our colleagues, customers, and external partners. We are committed to attracting talent who share our vision of forging enduring strategic partnerships beyond transactional relationships.
4. Progress: A culture of improvement over perfection
Success often waits for those who don’t just chase big game-changing moves but also value the smaller, incremental aspects of becoming an exceptional wholesale vendor. We bring step-by-step improvements to the wholesale buyer experience daily. We don’t aim for superlatives like the best or the biggest; our focus is on being better. Better than our past selves, better at problem-solving, better at delivering customized solutions, and better at supporting our fellow participants in the ingredient ecosystem.
How it looks in practice:
Our journey to becoming only the 20th BRCGS-certified Agent and Broker in the US was driven by our commitment to raising industry standards. Voluntarily investing ourselves to comply with the rigorous BRCGS certification process signals our dedication to continually improving our practices and ensuring our customers’ quality and safety.
5. Source86’ 12 guiding principles
- Never step away from a challenge or even a failure
- Put long-term relationships ahead of short-term profitability
- Champion the farmers and suppliers behind ingredients.
- Be the most enthusiastic supporter of the suppliers behind our ingredients.
- Create an environment where employees can grow and make an active difference
- Obsess our customer service and spend each day making what we can do to improve the experience
- Take every step responsibility and thoughtfully to create a wholesale marketplace that keeps giving back
- Reduce the friction that exists in the ingredient supply chain
- Listen to the people we serve and those who help us to see the whole picture
- Embrace transparency so challenges can be met head-on
- We manage our financial resources, balancing growth initiatives with prudent financial decisions that ensure long-term profitability and stability
- The company we want to be tomorrow is a work in progress. We plan to keep working on it today to be better than we were tomorrow
Conclusion
We recognize the critical challenges that wholesalers in the US face: the threat of disintermediation, supply chain complexities, geopolitical instability, talent competition, and the digital gap. Yet, we believe that challenges are opportunities in disguise. By embracing these challenges head-on, we are taking decisive steps to shape the future of wholesale distribution. Our vision, mission, and values, much like the Source86 themselves, are a constantly evolving journey. If you’d like to learn more about them, feel free to reach out to us. In the meantime, explore our product catalog here!
