Skip to main content
Blog Distribution

Problems in Distribution: 6 Key Challenges Faced By The Industry

Girinath A
May 16, 2024 |
6 Key Problems in Distribution | Blog Banner

Distributors play a critical role in the economy. The movement of products is a big task and the industry plays a crucial role in simplifying this process. From manufacturers to retailers to end customers, each involves a series of steps, and maintaining it is difficult. However, in recent years, the industry has experienced increasing key challenges affecting business operations and profitability.

This article examines the most critical and unique challenges currently confronting distributors and demonstrates how cutting-edge modern technologies, such as the DCKAP Integrator, can aid them in locating resolutions.

1. Supply Chain Disruptions

As markets are continuously expanding globally and customer demands are increasing day by day, it has become a challenge for distributors to keep up with the complex supply chain. Factor in unexpected geopolitical issues, or a global pandemic, and the challenges with predicting and managing intricate supply chains becomes that much more difficult.

The Wall Street Journal reported in 2023 that the Ukraine war has disrupted wheat and neon gas supply chains, affecting distributors worldwide.

Large manufacturers, suppliers, wholesalers, retailers, and consumers are all part of the supply chain stakeholders. If adequate coordination is maintained between them or if there is a difference in objectives, processes, and distribution systems, it is likely to arise among participants.

The products that distributors work with are very different, and each one has its own shipping and handling needs. To do diverse management well, you need systems that are accurate and adaptable.

Each country and region may implement different regulatory requirements regarding safety, labeling, and quality. Compliance is already complex, so it becomes a nightmare when products travel across international borders. You need to comply with several sets of laws for that.

By establishing alternative sourcing options, and building resilient supply networks distributors can overcome supply chain disruption. They can also use advanced tracking technologies to gain real-time insights to ensure the continuity of the business.

2. Inefficient Inventory Management

Ineffective inventory management presents the biggest challenge to distribution businesses, having an impact not only on costs but also on customer satisfaction. According to a Gartner report from 2022, by 2025, at least 70% of distribution businesses will have trouble maintaining ideal inventory levels due to rising demand volatility.

It is possible for businesses to experience issues such as the following when inventory levels are not optimized:

Excess Inventory: 

To keep up with customer demands, sometimes organizations keep an excessive amount of inventory. This could freeze your valuable capital, which you can invest in other areas of your business. Because of excessive stock-up, storage costs increase, and there is a high risk of obsolescence or spoilage.

Stockouts: 

Improper inventory management can cause stockouts, preventing customers from buying. Thus, companies may lose money, customers, and brand reputation.

Inadequate Forecasting: 

Demand forecasting errors have many effects. It can cause excessive or insufficient inventory levels, depending on the situation. Stockouts and lost sales opportunities can result from underestimating demand while overestimating demand can lead to excess inventory and higher holding costs.

High Carrying Costs: 

Excess inventory is expensive. It requires storage fees, insurance premiums, depreciation, and the use of funds that could be used for other organization activities.

Ineffective Space Utilization: 

If inventory management is not sufficient, it can result in poor allocation of warehouse space. This can cause congestion and make it challenging to locate products. This can affect the order fulfillment process, which leads to higher labor expenses and eventually lower customer satisfaction.

Errors in Financial Reporting: 

If a manual process makes any mistake in the inventory records, it can result in inconsistencies in the data. This will affect financial reporting, tax filings, and business performance analysis. 

Waste and Obsolescence: 

Ineffective inventory management can cause waste and obsolescence, especially for perishable or seasonal products. Product sales losses occur when products are not sold before expiration or the season ends.

Using third-party services that can automate inventory tracking systems, distributors can solve this problem. Such tools as the DCKAP Integrator can help them in the adoption of demand forecasting models and optimize stock levels. Reduce holding costs, which improves the efficiency of order fulfillment. 

Recommended read: How To Automate Inventory Management [+Best Practices]

3. Over-reliance on Manual Processes

Introducing new technology can be tricky, and unlike their B2C peers, a lot of distribution businesses prioritize other aspects of daily business over the immediate adoption of new technology. However, this can lead to an over-reliance on human effort, giving competitors a leg ahead. This over-dependence can lead to the following recurring issues:

Human Error: 

Mistakes can occur when manually entering and processing data. This can lead to mistakes in processing orders, keeping track of inventory, and making financial reports. These mistakes can lead to expensive ones, like sending out the wrong products or keeping bad records of your inventory.

Slow Processing: 

Manual processes are by default slow as compared to automated ones. Because of this, it results in delays in order fulfillment, invoicing, and ultimately customer service. Due to slow processing times, customers get irritated and leave the platform, which negatively impacts the brand and the overall customer experience. 

Lack of visibility: 

When there is a need to get access to important information like inventory level, order status, and financial performance, the manual process makes it slow. This results in a lack of visibility. Business operations become inefficient because of this and it becomes difficult for them to make informed decisions quickly.

Scalability Problems: 

It is difficult to expand the manual process. When a company expands, managing the increased number of orders, transactions, and data becomes challenging. The only solution to this problem is to hire more employees, which incurs costs for the company.

Dependence on Key Personnel: 

People with specific knowledge or skills are often needed to do important tasks in manual processes. This dependence can cause problems and delays if important employees aren’t available or leave the company.

When distributors adopt digital solutions like enterprise resource planning (ERP) and robotic process automation, it enhances productivity and accuracy. To ease their process of digital transformation, distributors can opt for products built for their industry instead of generic products. For example, Epicor ERPs, EvolutionX or DCKAP Commerce for ecommerce platforms and an middleware tool like DCKAP Integrator are all examples of product built specifically for distributors.

4. Meeting Customer Demand

According to a Deloitte report, distributors are under pressure to satisfy the fast and dependable delivery expectations of 84% of customers.

Variability in Demand: 

The customer is the king, and based on seasons, promotions, and preferences, customer demand changes. Distributors need to keep all these things in mind when predicting product demand and preventing shortages or surpluses of inventory. 

Rapid Market Evolution: 

The distributor needs to continue to be flexible and responsive to customer demands and market shifts. The distributors should effectively respond to this change as the market changes constantly due to new product trends, and competitors.

Omni-channel Expectations: 

Customers use multiple channels while placing an order, such as online applications, mobile, and physical stores. The customer wants a seamless shopping experience across any and all channels available. Distributors must fulfill orders quickly and accurately across all the channels to meet customer expectations.

Customization: 

Customers feel satisfied when they get customized products and services. The distributors must collect the customer data and analyze it thoroughly to understand their demand and provide recommendations that build loyalty and satisfaction by giving them customized service.

Using CRM tools, distributors can analyze the data for demand forecasting, which can help them fulfill customer needs rapidly and efficiently. 

Related read: Digital Transformation in Logistics and Distribution

5. Compliance and Security Risks

Verizon’s 2022 report highlights the supply chain’s cyberattack vulnerability, which risks sensitive customer data.

Security of Private Data: 

Distribution companies have access to various sensitive data, like customer information, financial records, order details, customer buying patterns, and proprietary business data. Distributors need to manage and protect such sensitive data. 

Data must be protected from unauthorized access, data breaches, and cyber threats. Distributors can implement strong security measures like firewalls, encryption of data, and regular data backups. 

Various organizations do audits to check data security measures. Distributors should regularly conduct such audits. Loss of this data can affect the reputation of the company and also cause a loss of customer trust.

Regulatory Compliance: 

Each country and state has its own regulations and standards. Distribution companies must comply with a set of regulations that are specific to their industry and geographic location. This can help them avoid legal issues and penalties in the future.

GDPR and CCPA are prominent regulatory frameworks governing customer data privacy. The FDA applies to food and pharmaceutical regulations, while SOX pertains to financial reporting requirements.

Supply chain compliance: 

Many different countries and regulatory bodies are involved in complex supply chains. It is challenging to comply with all regulations and standards throughout the supply chain process. It requires close collaboration with manufacturers, suppliers, and other stakeholders. 

Data Integrity: 

Companies need data integrity. Data must be accurate, complete, and consistent to gain insights, make informed decisions, generate financial reports, and be analyzed. Inconsistent data can compromise data security or cause compliance issues for your company. 

Vulnerability to Cyber Threats: 

Various cyber security threats can compromise the company’s data. These threats can hamper sensitive customer data, which can affect business operations. This damages the company’s reputation and finances.

Also read: The Role of AI in Distribution

6. Competition from New Entrants

Digital Disruption: 

New entrants use digital technologies like e-commerce platforms, data analytics, customer relationship management, and artificial intelligence powered insights to provide better customer experiences and streamline operations. 

These digital-native businesses can quickly gain market share by offering innovative solutions and services that address changing customer demands.

Agile Business Models: 

New entrants have lean and agile business models that allow them to respond faster to customer feedback, adapt to market changes, and innovate than traditional wholesale distributors. They can seize opportunities and gain a market edge with this agility.

Changing customer expectations: 

When new competitors come into the market, they offer faster delivery times, customized services, and a wide range of services. This changes customer expectations and makes it difficult for existing distributors to meet customer demands. 

Disintermediation: 

New companies may try to avoid using traditional distribution channels by selling directly to customers or teaming up with manufacturer and supplier partners. Breaking up established distribution networks, or “disintermediation,” puts traditional distributors’ market positions at risk.

Price Pressure: 

We have seen that when new companies launch their products, they come with aggressive pricing strategies and lower overhead costs. To meet them, existing distributors are forced to reduce their own product prices.

This leads to lower profit margins and puts distributors under pressure to find new ways to compete with their competitors. 

The Power of DCKAP Integrator: Integration For Distributors

DCKAP Integrator is a middleware software that can be used to mitigate many challenges distributors face, using the power of data.

By automating manual procedures, DCKAP Integrator enables employees to allocate their time toward more sophisticated duties. This gives excellent results in the form of optimized workflows, reduced human errors, and increased operational efficiency.

Such integration helps to make data-driven decisions for the company. Faster order fulfillment and more accurate information lead to happier customers. To understand how you can make the most of your data through integration, speak to our experts.

Conclusion

The distribution industry faces a wide range of challenges. It ranges from supply chain disruptions to meeting evolving customer demands. However, with the use of advanced and appropriate technology, distributors can easily overcome these challenges. 

The right technology plays an important role in the supply chain, from the warehouse to a retail location. It helps in ensuring the success of the entire company. Distributors can thrive in this current dynamic business environment by adopting innovative strategies and investing in the right modern solutions.

Girinath A

Girinath is a Senior Business Analyst with vast experience in Integrations of SaaS products across various platforms such as ERP, eCommerce, CRM, and other customer solutions. He also plays a role as a Solution Consultant showcasing the Product features to the prospects and providing solutions to the B2B customers based on their Business requirements. He acts as a liaison among the stakeholders and ensures the customers achieve the desired results. In his free time, he enjoys playing cricket, traveling to interesting places, taking part in adventure sports, and tour vlogging.

More posts by Girinath A