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Headwinds and optimism: What the distribution industry can expect in 2023

Nov 07, 2022

The 2022 recap for distribution reads the same as nearly every other industry: There’s a huge labor shortage, inflation pressures are intense, and economic and political uncertainty are making leaders cautious.

While sales growth has been slow but steady, distributors went from not having enough inventory in 2021 to being overstocked in 2022, potentially creating working capital constraints. Rising interest rates and the political climate are other concerns distribution leaders are navigating to understand the real impact from these disruptions and what they could mean for their business.

But most of the headwinds you’ll face in 2023 are addressable. Digital capabilities, for one, will help you adapt to changing conditions. Process improvements and innovations can increase visibility and flexibility. And you can apply new people strategies to hit profitable throughputs. These may be tried-and-tested tactics, but they are now being enhanced to meet challenges head on.

Here are four strategic priorities that can help distribution and supply chain leaders prepare for the conditions ahead.

2023 distribution industry priorities

1. Use technology to fuel growth

Distributors need data to drive decisions, eliminate inherent biases and navigate new challenges, especially when profit margins are so slim. Since the COVID-19 pandemic, distributors have gained more advanced business intelligence skills and are capturing data more consistently. Now, they need to evolve those capabilities so they’re predictive, not just historical recaps.

Invest in warehouse management tools that enable you accurately track and predict purchasing patterns. With predictive analytics, leaders can model the impacts of different vendor costs, inventory levels or demand. Once distributors understand the real levers of performance (not hunches or “what happened before”), they can make better decisions and gain more control over outcomes. Data analytics can also reveal performance gaps and weaknesses that need to be addressed.

Not sure where to start? A data roadmap can help distributors prioritize what’s needed right now, while accumulating skills and capabilities for the future.

2. Build resilient supply chains

Two years running, distributors were caught in the middle of supply chain and shipping disruption. In response, some American distributors are tightening control over their supply chains.

Reshoring is becoming popular among small- and medium-sized companies, who felt helpless to overcome overseas lockdowns and shipping delays. Domestic partnerships are starting to look more attractive, and potentially more economically viable, than overseas suppliers.

Supply chain leaders are also deepening the bench of potential vendors, sometimes entering into agreements with two or three backup providers to proactively manage and to build resilience and ensure continuity of supply. 

Here again, technology plays a critical role. Distributors need strong data and analytics capabilities to manage, track and forecast inventory levels and manage their warehouses profitably. Transparency is key to keeping the supply chain aligned, and technology can help.

3. Create stronger employee value propositions

The labor shortage is a long-term problem, felt across the entire U.S. economy. Economists warn the problem will worsen, since there aren’t enough people to fill jobs that are open today, and baby boomers are widening the gap through retirement.    

There are two ways distributors can tackle the labor issue. The first sounds repetitive: technology. Artificial intelligence and automation cannot replace human labor, but they must supplement it. Leaders should use data to inform where and how we apply limited human resources.

The second response seems softer, but it’s essential. Distributors need to examine their leadership style and dedicate time and energy into an employee value proposition. People and their priorities have changed since the pandemic. If employees don’t feel supported and valued at work, they will seek better opportunities. 

Wipfli partnered with UnleashWD on the 2022 Future of Distribution report, which was informed by a 97-day road trip to 34 American distribution sites. Conversations with leaders, warehouse workers and truck drivers revealed a new leadership imperative. Over 90% of the people surveyed said the “human element” has to play a significant role in leadership going forward.

What does that mean? To attract and retain talent, leaders have to connect employees to a sense of purpose — the why you’re in business — and make them excited to come to work every day. And leaders must consider the whole person when they make decisions.

Every person is different. So it’ll take time, genuine curiosity and empathy to find the right path to engagement. Instead of telling employees how to do things (or what motivates them), give employees more choice.

Let employees explore growth opportunities that stray from their current job descriptions. Be intentional about experiences and rewards you offer so they’re more meaningful to the individuals who work for you. When people feel cared for and important at work, they can do their best work.

4. Stay curious

Most of the issues we’ve discussed have a common solution: curiosity.

Use data and analytics to explore “what if” scenarios. Talk (and more importantly, listen) to employees to find out what motivates them. Get curious about customers so you deeply understand their challenges and how you can add value. Distributors with deep relationships will have more opportunities and stronger years.

Economics and politics are wildcards. But with the right tools, distributors have more options about how to proceed in uncertain environments. Would you rather be inquisitive or rigidly cautious

Curiosity delivers more nimble responses. Give your leaders time and tools to investigate complex issues and explore different, more promising outcomes.

Wipfli can help

Looking to jump on some of 2023’s top trends for distributors? Wipfli can help. From digital transformation to supply chain risk management to talent optimization, we help distributors, manufacturers and retailers navigate an ever-changing business landscape. Learn more about how we can help.

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Author(s)

Christopher R. Blaylock, CPA
Partner
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