Market Update: Industrial Distributors Have Serious Service Issues


It’s a difficult economy for industrial distributors. Industrial demand is down – in Q4 of 2015, manufacturing orders were down 20% YoY. Amazon’s low prices and convenience make it difficult to compete. The drop in oil prices, cheap imports, and the strong U.S. dollar all affect manufacturing output, which leads to lower revenues for distributors.

Distributors can stay competitive and gain market share by providing unique and valuable service offerings. The problem is that distributors typically have poor transportation management, which makes any implementation of valuable services difficult.

There are 2 main problems with the way transportation is handled by industrial distributors:

Inbound Freight Transportation

The most basic problem with inbound transportation for distributors is that vendors typically control this function. Not all, but most vendors will use transportation as a profit-center by charging too much, and hide the true price of transport in the price of the product.

Industrial distributors have the option of owning their inbound freight. This way, they can optimize freight modes and save money for both parties involved, all while keeping the supply chain moving quickly and efficiently.

Distributors typically have many moving parts in their company, which makes inventory management difficult. Subpar warehouse operations lead to insufficient staffing for receiving shipments. When carriers have to consistently waste time at a particular shipper’s dock facility, they will not want to send their drivers there in the future, leading to inflated costs and more difficulty securing capacity.

Low Rate of TMS Adoption

Few industrial distributors utilize transportation management systems (TMS). Without a TMS in place, there’s no visibility into shipment status, price or overall transportation performance. With manual processes in place, many distributors simply book the fastest loads they can find in order to provide good service. However, using expensive carriers and relying on expedited shipments can consistently hurt the bottom line.

Limited visibility into transportation processes exacerbates the problems distributors face with inbound transportation. A TMS will provide visibility into inbound freight, revealing the hidden costs of transportation and upcharges used for profit. A TMS also provides shipment status updates, allowing distributors to schedule proper staffing for receiving functions.

Without visibility into transportation management, industrial distributors will not be able to implement profitable changes that improve service levels. A TMS provides detailed performance data to identify inefficiencies and start making service improvements.

Industrial distributors need to differentiate themselves through a variety of quality services. Shrinking, plummeting demand makes inventory and transportation management difficult, however, well-managed transportation practices can address many of the service problems industrial distributors are facing.

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