Tackling Top Challenges in Wholesale Distribution

In today's online global economy, business owners are tasked with meeting evolving customer expectations in the face of rising costs and growing competition.

The explosion of online retail sales has amplified many of the challenges in wholesale distribution. Seizing opportunities to get ahead of the competition requires businesses to be prepared.

A customer-driven transformation

Manufacturers and retailers understand their business models hinge on meeting customer demand. The digital economy has given rise to the expectation of a frictionless experience. Customers want streamlined ordering and fast, convenient, on-demand delivery. Wholesalers and retailers alike are challenged more than ever to accurately handle orders while managing higher product volume.

Competitive businesses fulfill the promise of excellence in all of these aspects. Any friction or failure to simultaneously meet these requirements can bring the loss of a sale or customer loyalty. Here are several factors suppliers should be familiar with as they meet expectations on quality and volume.

Globalization and supply chain logistics

Wholesalers play an increasing role helping manufacturers and retailers hit their mark with every customer. But one of the biggest challenges in whole distribution under this model is increased cost, which can squeeze already-narrow profit margins.

Globalization has opened up the supply chain for many wholesalers and their manufacturing and retail partners, but it's also ushered in new challenges. The availability and cost of raw materials, as well as related fuel and transportation costs, can be jeopardized by natural disasters, war and political unrest, union and factory strikes, currency fluctuation, labor shortages and material delays. Wholesalers can't always pass down cost increases to the retailer. As middlemen, they must keep prices competitive.

Employees

The push for accuracy and increased speed can raise the cost of hiring, training and retaining the best labor. The increased demand can also generate employee safety concerns. Accidents and injuries not only bring the costs of increased insurance and litigation but also pose risks to wholesalers' reputations.

Changing industry landscape

Online giants, as well as big-box retailers that cultivate both an online and brick-and-mortar presence, wield considerable industry power. With this power comes the ability to pressure wholesalers into meeting tighter timelines, despite narrowing profit margins. Penalties for failing to deliver speed and accuracy can be high, both in terms of actual cost and damaged customer loyalty.

Maintaining buying power and relevance is another current challenge in wholesale distribution. Major market players in manufacturing and retail are moving toward industry consolidation and strategic collaboration. This may lead to more centralized purchasing by retailers, as well as national distribution systems that can bypass some wholesalers. Technology and innovation in logistics may also allow manufacturers to sell more goods directly to end users.

Push for efficiency and innovation

Automation and the right equipment can help wholesale distributors achieve the rigorous controls needed to effectively handle higher volumes with shorter notice. Wholesale distributors can also use technology to improve product and sourcing information, a requirement that's becoming more common and may come with penalties for businesses that don't comply. Technology can improve operations in wholesale inventory control, shipping and receiving, accounting, client management, bar coding and other key tasks.

Inventory turnover

Merchant wholesalers saw a massive jump in sales of durable goods in 2021, putting pressure on inventories across the US. While there was an initial sharp drop, inventory turnover has leveled back out, with marginally higher sales than the average going into 2024.

The reality is that the vast majority of a wholesaler's SKUs sell unpredictably. Enterprise resource planning, or ERP, systems and forecasting tools help to monitor supplier lead times, auto-replenish low-stock items and find ways to optimize steady conditions—making the unpredictable more predictable.

Perpetual challenges to wholesale distribution

The market continually fluctuates—new competitors rise, supply and demand shifts and marketing for goods always scales for growing client bases. Several standard wholesale challenges should always be considered when looking to control profit margins in wholesale distribution:

• Supply and demand
• Increasing competition
• Margin pressures
• Inventory management
• Customer expectations

These ongoing vectors can be managed by keeping up with current trends like measuring performance through data analytics, investing in customer relationship management systems, optimizing logistics and fulfillment processes, and offering customers value-added services like seasonal packaging or updated graphics.

The bottom line

Staying competitive means investing in the best people, systems and equipment for both the front and back end of the business. Having the right financing options lets you remain adaptable to market changes and invest in the solutions you need to address the challenges in wholesale distribution.