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An $88B Weight Gain: How Wholesalers Can Put Their Supply Chain Back in Shape

An $88B Weight Gain: How Wholesalers Can Put Their Supply Chain Back In Shape

Recently several partners have reached out to us putting Solvoyo in front of wholesalers and distributors and starting the conversation of what the next generation supply chain planning means for the wholesale and distribution business.  After a series of these meetings one point became abundantly clear – the wholesale and distribution industry faces a unique supply chain dilemma. Most of these businesses lack or have delayed visibility of the end demand while having to deal with ever increasing lead times and logistics complications.

As I started to learn and research more about this industry – 2 things stood out:

1) The sheer size of the industry in terms of volume and value. Collectively, according to the National Association of Wholesaler-Distributors this space trades $5.4 trillion annually, a number twice the size of the retail industry which captures far more attention and interest generally. I myself am guilty of having vastly underestimated the size and importance of this sector in terms of facilitating trade and commerce.

2) While most industries are seeing gains in supply chain performance with innovation and technology, wholesalers and distributors have had a steady decline in performance especially when measured in terms of inventory holding days. In these modern times of lean supply chains, according to US Census Data, today the industry is carrying an extra $88 billion in inventory than in 2010 to service the same demand level. It is like the industry is hoarding an entire year of the Cuban economic output as safety stock in their granaries.

There is no doubt that over the last five years wholesale and distribution supply chain leaders have been faced with the rising challenges of managing supply in an increasingly economically volatile and omni-channel driven world. A recent white paper from Solvoyo digs further in examining some of the unique industry challenges that might help explain this rising inventory levels.

I want to talk about two broad ideas supply chain leaders at wholesalers and distributors should consider turning this tide:

1) Better using your data streams: Most businesses today have an array of tools including CRM, FMS, WMS, & ERP to run operations. The challenge for wholesalers is using this library of data to make informed supply chain decisions today without waiting for monthly data dumps with product family aggregation by which time and at which analytics level most meaningful insights are lost. Wholesalers need to build a big data like analytics platform that automatically takes your already existing data streams and generates meaningful downstream recommendations like detailed inventory plans, sku-level forecast, and supplier orders. Bridging this gap between what your existing data can tell you and what you actually are using to make your supply chain decisions is critical.

2) Making status quo unacceptable: If you find that your planning team has (i) an unhealthy addiction to Excel, (ii) is dependent on one or two critical Excel or database savants to mine and organize your supply chain data, and (iii) has not fundamentally changed the supply chain planning process in the last 10 – 15 years – it is high time to draw up the strength to challenge the status quo and seek a better way.

I suspect a big part of the $88 billion extra inventory that wholesalers and distributors are carrying today is because of the growing mis-match between the status-quo planning approach inside companies and the rapidly changing outside business environment.

In speaking with our wholesale and distribution clients, the narrative become similar of how planning has become an ad-hoc process with detailed documentation and defined planning cycles but no innovation. I recall the story of a prospect who shared their order planning Excel file that had a coded number for days inventory coverage that was inputted perhaps in 1999 (probably at that time as a plug) that no one at the company over the last 17 years reviewed or checked for business logic. Needless to say, the company’s ad-hoc Excel driven planning process while functioning on the surface missed business realities.

I suspect a big part of the $88 billion extra inventory that wholesalers and
distributors are carrying today is because of the growing mis-match between the status-quo planning approach inside companies and the rapidly changing outside business environment. It is high time for wholesalers and distributors to seek the next generation in supply chain planning.

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