Distribution Trends & Predictions to Look Out For in 2023

Uncertainty will continue to plague the distribution industry in 2023. After coping with a two-year pandemic, which was followed by an unexpectedly strong surge in demand, distributors are now facing new challenges.  

The war in Ukraine has forced gas and oil prices to reach record highs and aggravated global supply chain woes, compounding extraordinary levels of inflation, and prompting hikes in interest rates. 

Meanwhile, the zero-COVID policy in China (the world’s largest exporting economy with eight of the world’s top 20 ports) has seriously impacted global supply chains, causing volatility and confusion. While these lockdowns may be starting to ease, they have been a contributing factor to the fact the world is now careering towards a recession.  

Distributors have a considerable challenge ahead of them. 

At Pricefx, we have spent the last decade helping companies in the distribution industry optimize their pricing strategies, set automated customer-specific pricing processes, and execute real-time price changes to lock in profit. 

In this article, we’ll revisit the trends in the distribution industry that we anticipated for 2022, judge how accurate we were in our predictions, and share the trends we didn’t see coming. Then we’ll explore our predicted distribution trends for 2023 and how distributors should be preparing for another volatile and uncertain year ahead.  

What Did We Say About Distribution Industry Trends Last Year? 

In our predictions for 2022, we told distributors that they should focus on changes in customer demand and to keep a close eye on out-of-control inflation and wildly fluctuating production costs. We warned of increased overheads like transportation and labor costs and of staff shortages in manufacturing and delivery. 

Our advice to distributors was to reconsider their pricing strategies as often as changes apply to their sector and to institute a regular price review as part of their pricing strategy. We also urged companies to track their pricing metrics closely, including cost increases; competitor prices; inventory and stock control; picking, packing, and boxing costs; and the cost of any extra services (like delivery, installation, maintenance, etc.). 

We believe that everything we predicted and recommended last year still rings true today. However, the world around the distribution business has shifted significantly during 2022 and has invited other immediate short-term challenges.  

What Distribution Trends Surprised Us In 2022?  

A year ago, Europe and the US were expecting to go back to business as normal. They were starting to open up, people were traveling more, and commerce seemed to be getting back on its feet.  

What we didn’t expect, was that China’s zero-COVID policy would still be going strong three years into the pandemic. Reaching a peak in November this year, massive lockdowns have prolonged supply chain disruptions we thought we’d have seen the back of by now, causing massive delays and backlogs at major ports. While these lockdowns are now easing, this in itself will result in fresh challenges for distributors in the year ahead. (But more on that later.) 

I was expecting (hoping) to see availability and retention of staff, particularly distribution and logistics staff, start to return to normal during 2022. However, companies are still struggling to recruit and retain delivery drivers and warehouse operatives. Generally considered low-paid roles, these skilled positions are now high in demand, and the extra $100 the competitor is offering makes a big difference. So, not only are companies dealing with the cost of higher wages and constant recruitment, but they’re also having to pay significant retention bonuses to get people to stay. 

Another thing that surprised me, is how few distributors invested in technology. Manufacturers are busy finding ways to be less reliant on distributors by going direct to the customer through their own e-commerce platforms, and are leveraging pricing technology to help them pass real-time cost increases on to distributors in order to protect their margins… but distributors seem very reluctant to do much about it. If anything, now is the critical time for companies in distribution to be getting their digital act together. 

Top 3 Distribution Industry Trends and Predictions For 2023 

It’s all a bit doom and gloom in the distribution industry at the moment, but here are my predictions for the coming year and trends that I believe smart distribution companies will be focusing on. 

      1. Balancing Supply Availability with Recession  

The general consensus is to invest during a recession. We are starting to see some easing to China’s zero-Covid policy which could relieve some of the supply chain and logistics woes we’ve been dealing with for the past couple of years. This is good news; stock will once again become available and ports can start getting back on track. But, by all accounts, we’re also heading into a global recession. Distributors have therefore got to balance more stock availability with less money in the market.   

A lot of a distributor’s value comes from having a wide range of products available. So, should they be making the most of better availability, but taking the risk of tying up cash they’ll struggle without should things turn sour? Or, do they cut back to ensure better cash flow, but risk not having what their customers need?   

During the Great Recession of 2007 – 2009, two of the distributors we work with took two very different approaches. One decided to invest in stock, and that gave them a market advantage when the recession eased and things started to turn back to a growth market. The other decided to cut costs in order to weather the storm, but this hurt them in the long run… (until they decided to invest in pricing software). 

     2. Embracing E-commerce…. Eventually 

The topic of the distribution industry taking more of a B2B e-commerce approach is nothing new, but it has been slow to take off. Which is surprising at it promises to be hugely beneficial for the industry:  

• You can achieve better brand awareness, effortlessly reach new customers, and open up new markets. 
• It enables customer self-service which reduces operating costs (increasing margins) while letting employees focus on serving high-value customers. 
• Powerful analytics provide important customer and product insights that help you improve your products and services. 
• You’re able to automate a personalized B2B experience, including highly relevant cross-sells and upsells, helping you become the one-stop shop for all your customers’ needs. 

COVID lit a fire under almost every business in every industry around the world—it was time to embrace digital transformation in order to be able to conduct business entirely online. Without this, many simply wouldn’t survive (and many didn’t). 

But, even as one of the worst events to impact on the distribution industry in decades was playing out, many distribution companies carried on working as they always had, just with more social distancing and their doors closed. Not transforming at a time of instability and change put them at a significant disadvantage then and there is now a very real risk of them being left behind. Particularly when so many manufacturers took this time to build their own e-commerce channels, cutting out the distributor. 

Driven by a pandemic-induced need to improve, the number of companies now providing stable and highly capable e-commerce platforms has grown significantly. Companies that have not invested in e-commerce, therefore, will really struggle with their next phase of growth, particularly through a downturn. Not having that extra (relatively low-cost-to-serve) channel through which to sell to their customers can hurt them now and in the long term.  

During the pandemic, the new CEO of RS Components invested heavily in the company’s website, stock, pricing, range, and availability. This kind of scaling required major infrastructure support. To achieve it through a call center would have been very costly, but through e-commerce, the company succeeded in achieving growth during an economically difficult time in a very cost-effective manner.  

In order to make the move to selling online a success though, distributors need to be able to offer accurate, client-specific prices to customers, yes—even when they’re ordering online. Customers want to go onto your website and learn the actual price they will need to pay, not just be invited to scan a price list that doesn’t take their type of order, size of order, rebates, or customer loyalty into account. So, distributor pricing will need to become more granular, detailed, and specific. 

I expect to see more and more distribution companies investing in good e-commerce platforms and pricing software during 2023—catching up with the rest of the world, before it catches up with them. 

      3. Time For Digital Transformation: A Need To Do More With Less  

We’re heading into a recession. And in an industry already struggling to find enough staff, there’s going to be a big push towards being able to do more with the same resources.   

Distributors have long been eyeing automated vehicles and processes for their warehouses, but it’s time for them to start thinking about how they can automate some of their time-consuming and error-prone business processes, like price setting. Generally speaking, our customers in the distribution industry tell us that their six-week to three-month list-price-setting process (that involved gathering data from multiple sources, cleaning and joining it, and sending to multiple people…) has reduced to less than a day since investing in our pricing software and leveraging its automation. With being able to update prices within 1 day, you can keep up with manufacturers’ costs and pass increases on to customers so that you’re not losing margin due to lag time, but that is a lot of time saved that can now be spent doing something else. 

That’s why we believe that automating as many business processes as can be automated will be a big trend in 2023; it helps companies achieve better efficiency, speed and accuracy, to be more proactive in their success, and agile in the face of change.   

How Should Distributors Prepare for 2023?  

Be Clear About Your Business Objectives  

Thinking about where you want to be, not where you are now, is just as important in business. In order to weather the storm that’s coming (and not steer headlong into it), you need to know your business objectives and how you’re going to get there.  

Most companies will say “more growth”, but how are you actually going to deliver on that? What does that look like in your business? You have to have a plan for getting where you want to go. You need to be asking questions like: What level of growth am I going to see through e-commerce? If driving growth through acquisitions, how are we going to integrate those acquisitions into the business in an effective and streamlined manner?  

Also consider your business objectives in your pricing plan. Will increasing revenue be your aim? Or will it be how much profit you can make that drives you in 2023? Whatever your business goals, you should be executing a pricing strategy that reflects it. Once you have your overarching business objective and plan mapped out, break it down as much as possible. If your company’s goal is to grow revenue by $2 million, you should know how that $2 million will be made across your different product families, different market sectors, etc.  

Invest In Your Future with Digital Transformation 

As mentioned earlier in this article, I am shocked by how few distributors are taking the need to digitally transform their business processes seriously.  

The benefits of investing in the right technology are many: 

• Automation of time-consuming and error-prone tasks (resulting in better accuracy, lower operational costs, and more time to focus on more important things) 
• Improved visibility (of processes, resources, costs, pricing, and customer behavior) 
• Smarter business decisions (thanks to artificial intelligence and machine learning pitching in after consuming hordes of internal and external data) 
• Better customer experience (as ordering and payments are more convenient, experiences are personalized, and accurate customer-specific quotes are much faster) 
• Improved overall organizational productivity, flexibility, and agility (making you ready for and capable of anything that comes your way) 
• More profitability (through automated price setting locking in margins, customer-specific prices, management of complex rebates and agreements, AI-powered price optimization, and data-driven pricing strategies for the short and long term. 

Let’s return to our RS Components success story. Thanks to data gathered from their online operations, the company identified a significant spike in demand for PPE in China in December 2019. By analyzing trends in countries that were affected by COVID-19 early on, they were able to predict and proactively address the needs of markets that would soon be seeing an escalation themselves. Not only did this allow RS Components to build awareness for its products, but it was able to prepare its supply chains to meet local demand. 

While it may seem counterintuitive to invest more during a recession, it is actually when you’ll likely need it most, as it can help you get more done with fewer resources, allocate them appropriately, keep customers happy in difficult times, and make smart data-driven decisions that will help you get through the downturn and take advantage of the recovery. 

2023: The Year Distributors Take Back Their Power  

Distributors face another challenging year ahead. Recession, inflation, and geopolitical tensions, as well as persisting labor shortages and supply chain issues will be at the forefront of their minds as we, once again, head towards uncertainty.  

It’s time to get granular with costs and prices, focus on what the customer wants, and to embrace the technology that allows you to do more with fewer resources. You’ll need to balance increased availability with changing demand and have a crystal-clear idea of where you want to go as a business and how you’re going to get there. Get ahead of the crowd (and the economic recovery) but investing in the technology that will bring greater visibility, efficiency, and productivity to your operations and will help you win customers, minimize risk, maximize profit, and set you up for success. 

If you’d like to learn more about the best features that the Pricefx software solution offers distribution industry players, click on the image below to learn more in this handy article: